India faces a striking paradox as digital payments surge alongside rising cash circulation. While UPI processed 21.7 billion transactions worth 28.33 trillion rupees in January, physical currency in circulation hit 40 trillion rupees, up eleven percent year-on-year. This coexistence reveals deeper economic concerns beyond mere convenience. Tax avoidance fears drive small traders toward cash, as UPI's digital trail exposes informal sector workers to tax scrutiny. Research from State Bank of India confirmed this causality when ATM withdrawals spiked following income tax notices based on UPI transaction volumes. Additionally, unconditional cash transfers estimated at two percent of GDP across fifteen states are influencing household liquidity behavior.
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