Modi Goal of Cashless India May Be Thwarted as Digital Drops

(Bloomberg) -- Prime Minister Narendra Modi’s plan to reduce India’s reliance on cash may go awry.

Digital transactions are dropping before next week’s deadline to lift all lingering caps on cash withdrawals, central bank data show. Modi had shocked the nation Nov. 8 when he canceled 86 percent of currency in circulation and pushed for electronic payments to boost transparency and fight graft.

Printing presses are churning out new bank notes and come Monday, Indians will be able to withdraw as much money as they like from their bank accounts as the Reserve Bank of India lifts the 50,000 rupee ($748) a week limit. Economists including Sonal Varma at Nomura Holdings Inc. predict India will recover from Modi’s cash shock by June and demand will rebound after that.

"As remonetization is picking-up, transactions in digital economy are falling; suggesting that cash remains the king, at least so far," analysts at Edelweiss Securities Ltd. said in a March 9 report.

The $2 trillion economy is forecast to grow 7.1 percent in the year through March, the slowest pace since 2014 but among the fastest in the world. As much as 98 percent of all consumer payments were in cash, according to a PWC report in 2015.