Six years ago India demonetization campaign tried to erase hordes of unaccounted cash wealth by forcing the Indians to exchange old banknotes for new ones. Instead, it crippled the economy, caused hardship for millions of Indians, and failed in its primary purpose.

The Indians continue to hold huge stocks of undeclared and untaxed wealth. One measure of this is the volume of cash payments made in real estate transactions. In a survey conducted by social media community platform LocalCircles, 44% of respondents who bought a property in the last seven years said they paid partly in cash.

The survey, which surveyed around 32,000 people across 342 districts in India, also found that 35% of respondents did not want to disclose how they paid for their property.

“Unfortunately, real estate transactions are an area where there has literally been zero reform, so corruption is rampant as well,” LocalCircles said in the investigative document. “The initial land or property transaction continues to be substantially cash, as owners want to avoid paying the full taxes involved in the transaction.”

India’s currency in circulation is at an all-time high

The volume of digital payments has accelerated in India during the covid-19 pandemic, but a large portion of the public still prefer to transact in cash.

During the fortnight ending October 21, currency in circulation in public hands stood at a record 30.88 lakh crore rupees (pdf) ($377.9 billion), according to data from the Reserve Bank of India (RBI). This number is 72% higher than the Rs 17.97 lakh crore recorded on November 4, 2016, days before the demonetization announcement.

The jump is mainly driven by people’s need for cash in 2020 when the government imposed a strict lockdown to curb the spread of covid-19. People had started hoarding cash to pay for essentials such as groceries, especially in small towns and rural districts where customers were still reluctant to make online payments in the early weeks of the pandemic. .

The survey found that one reason for the demand for cash is “personal:” the immediacy and feel of the cash. Another reason, however, is the continued difficulties among many segments of the population in accepting and enabling digital payments.

This does not necessarily mean that digital payments take a back seat.

“While digital payments have grown steadily in recent years, both in value and volume across all countries, the data also suggests that over the same period, the ratio of currency in circulation to GDP also increased in line with overall economic growth,” said a RBI paper on digital payments in 2019 (pdf) says.

“An increase in the digital payments-to-GDP ratio over a period of time does not appear to automatically imply a decline in the country’s currency-to-GDP ratio,” the RBI added.