Cash is no longer the king. We have heard of this since the beginning of digital payments. But for the first time, there is data to prove that cash is losing the king status it has enjoyed for decades in India.
According to an SBI Research report, currency circulation in the country declined during the recently concluded Diwali. This has happened for the first time in 20 years. “In a remarkable development, for the first time in 20 years, currency in circulation declined during the Diwali week. Innovations in technology have changed the Indian payment system. Over the years, the Indian cash lead economy now has changed to a smart-phone led payment economy,” the report said.
The Currency in Circulation (CIC) has been declining from 88% in FY16 to 20% in FY22. The CIC is estimated to go down further to 11.15% in FY27. In contrast, the digital transactions share is continuously increasing from 11.26% in FY16 to 80.4% in FY22. According to the report, it is expected to touch 88% in FY27.
“With the increase in digital transactions, this is the first time after 2002 that currency in circulation during the Diwali week shows a decline during the Diwali week, assuming that the marginal decline in 2009 was purely because of economic slowdown,” said the report authored by Dr Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.
Digital transaction boom
Growing digital transactions have led to a decline in demand for cash. “As the digital transactions through UPI and e-wallet have been increasing, the demand for cash is declining. If we look at the data on CIC, though it is increasing with the rise in economy but the trend is declining,” the report said.
“Since the inception of UPI, every month transactions have been increasing and touched Rs 84 lakh crore in FY22. During Apr-June, FY23, the amount of UPI transactions has touched Rs 30 lakh crore,” it added.
The report said that the success of digital transactions is primarily due to the relentless push by the Government to formalize and digitalize the economy. “Further, the interoperable payments systems like UPI, Wallets & PPIs have made it simple and cheaper to transfer money digitally, even for those who don’t have bank accounts”.
According to the report, small retail payments done through UPI/e-wallets holds around 11-12% of the payment industry.