An active area of research is the cash holding behaviour of firms. Our primary intent is to understand whether firms’ behaviour is changing due to the advent of digital public infrastructure (DPI). To what extent do firms rely on digital transactions for payments and receipts? Has it helped improve their ease of doing business? The question is important, since it has a direct implication on the accessibility and reliability of DPI in the country, which in turn can facilitate expansion of domestic businesses and help propel India’s economic growth.
The NCAER-NSE Business Expectations Survey (BES) is a quarterly survey of firms across six large urban Indian cities: Delhi-NCR in the north, Bengaluru and Chennai in the south, Kolkata in the east, and Mumbai and Pune in the west. It has been conducted since 1991 to assess business sentiments across the four regions of India. In its 127th round (October-December 2023), the BES surveyed 485 firms from the aforementioned six cities. Firms were asked:
i) What percentage of their transactions (payments and receipts) were done through digital means
ii) If they kept petty cash in order to manage working capital
iii) If extensive use of Unified Payments Interface (UPI, such as Google Pay, Paytm, Phonepe) reduced their reliance on petty cash
It was found that a majority of firms relied on digital means for settling all kinds of payments and many types of receipts, for more than 60 per cent of their transactions. The share of firms reporting more than 60 per cent of digital transactions was marginally lower than 50 per cent for two types of receipts: “receipts from selling on e-Commerce platforms” and “getting loans”.
To the extent the firms used digital transactions, performing such digital transactions was considered useful for 74 per cent of firms, since it helped improve their ease of doing business. This perception, though, was found to be more prominent among large firms (considering that 50 per cent of firms with annual turnover greater than Rs 100 crore stated this), as against smaller firms (about 38 per cent of firms with annual turnover less than Rs 100 crore stated this).
The survey found that digital means were not relied upon for all transactions, and that several firms relied on digital transactions for selective purposes only. It suggests that cash transactions continue to be important. Rather, 69 per cent of firms (in particular nearly 79 per cent of smaller firms, as against 56 per cent of larger firms) kept “petty cash” to manage their working capital. There was a wide regional variation, with the incidence of keeping petty cash being highest in the east (99 per cent), followed by west (72.8 per cent), north (66.9 per cent) and south (40.3 per cent).
Well, then did UPI reduce the firms’ reliance on petty cash for day-to-day transactions? The perception is divided. UPI reduced the reliance on cash transactions for 44.5 per cent of firms, with the incidence being the highest in the north (72.6 per cent), and for the majority of smaller firms across the regions (52.5 per cent).
Overall, although digital means have helped facilitate business transactions, the advent of UPI is yet to make a pronounced change in the manner in which many Indian firms handle their day-to-day transactions, considering that many of them have still continued to rely on petty cash (especially those from the east and west).
Bhandari is a Professor, Dayal and Sahu are Fellows and KS Urs is an Associate Fellow at NCAER. We thank Piyali Majumdar, Visiting Assistant Professor, IIM Rohtak for her inputs in the designing of the questionnaire. Views are personal and do not reflect that of the organisation
