Cash no king, but don't stash it: India wants a digital economy, but cash still holds the power of choice

When RBI deputy governor S C Murmu recently said that it was difficult to predict the growing demand for currency notes, was he referring to a logistical problem, or bemoaning widespread use of cash? Big tech and fintech have long promoted digital commerce, payment wallets, cryptocurrencies, and other digital traffics and inventions as the acme of convenience, security and financial inclusion. But this isn't necessarily true for everyone. They have exploited tech to drive faster and more frictionless commerce, to capture a considerable share of the market, have made cyber fraud pervasive, and rendered the economy less inclusive.

After demonetisation in 2016, GoI has championed numerous initiatives to digitalise monetary transactions like UPI and central bank digital currency (CBDC). GoI claims these have reduced expenditure, accelerated economic growth and driven greater inclusion. The results, however, don't necessarily support these claims.

Take UPI, promoted as a secure, interoperable digital payment system to reduce cash dependence and usage. The heavy-lifting required to attract 555 mn deposit holders and enthuse 65 mn businesses was largely achieved by a trio of foreign-funded service providers: PhonePe, Google Pay and Paytm.


GoI's main contribution to UPI's success centred on two actions:

• Reducing merchant discount rate (MDR) to zero for UPI, and RuPay debit cards in 2020, entrenching the above-mentioned trio as banks lost interest and smaller payment service providers (PSPs) found it hard to compete.
• Providing a subsidy of ₹8,276 cr between 2021 and 2025, to support RuPay debit cards and low-value UPI P2M (person-to-merchant) transactions.

But this was not nearly enough. Providing PSPs with a subsistence handout is unlikely to produce the right 'animal spirits' required for sustained growth in users and spending. So, GoI passed Taxation and Other Laws (Amendment) Bill 2026 to pave the way for MDR charges on P2M transactions.

Retail sales grew from $650 bn in 2016 to $1.1 tn in 2026. But these were largely driven by growing consumerism and disposable incomes, especially in tier-1 and -2 cities. Even RBI and NPCI acknowledge that while UPI's annual growth rate stands at 15%, cash transactions, driven by large-value, semi-urban and rural transactions, may also have grown by 11%.

Also, PIB and RBI data suggest that while UPI transaction value grew by a CAGR of 155% in the last 10 yrs, with a current annual value of ₹314 tn, cash in circulation in the same period grew by 12%, with an annual value estimated at ₹41 tn. When one takes into account the velocity of money - speed at which a single unit of currency (or bank token) is exchanged - there can be no doubt that cash may be equally prevalent.

e-Rupee, on the other hand, was originally meant to counter the dollarisation impact of cryptocurrency, and to reduce inefficiencies of cash production and management. Not only were these objectives not met but the initiative also failed to stir interest on both retail and institutional fronts. Eventually, to boost usage, RBI even forced central and commercial bank employees to accept CBDC in lieu of cash for benefit reimbursements.

And just when it appeared that CBDC's adventures were over, GoI has chosen to use e-rupee in certain Union territories to disburse PMGKAY subsidy payments to restrict usage to empanelled grain vendors and fair price shops. This, despite the fact that such a move will disproportionately place the onus of proliferating the e-rupee on the poor, while forcing them to own smartphones and manage an unfamiliar digital process.

This issue is especially acute for women. Data indicates that, in addition to the persistent barriers women face in adopting financial services, women's mobile phone ownership stands at 75%, with smartphone penetration at a mere 35%.

This is why the real reason for GoI's unfailing support of digitalisation may have little to do with improving efficiency or welfare, and everything to do with control. This becomes evident when one constantly encounters the government need for programmatic payments - automated by rules, triggers or AI - monitoring and compliance.

When taken to the limit, these could result in the alphabet soup of government subsidies - amounting, in 2026, to ₹1,80,879 cr - being disbursed in programmed CBDC and fixed deposits, effectively annulling the withdrawal and inter-convertibility of cash. They could also enable draconian measures that make tax collection systemic and oppressive.

Ultimately, while digital payments offer benefits to a significant section of consumers, cash represents a choice that allows a large portion of the population to feel independent and secure. Maintaining this distinction is democratic, and remains one of the means of ensuring that power of the government is balanced by the will of the people.

Tankha is MD, eTrans Solutions, andRath is former general manager, RBI