Finance minister Nirmala Sitharaman on Monday said the notes in circulation (NIC) in the economy rose 8% as of December 2 from a year before to Rs 31.93 trillion.

Between March 2016 (the note ban exercise was undertaken in November 2016) and March 2022, the notes in circulation rose from Rs 16.42 trillion to Rs 31.06 trillion. This means it grew from the pre-demonetisation level of 10.7% of GDP in FY16 to 13.1% in FY22.

In a reply to the Lok Sabha, the finance minister said: “The demand for currency depends upon several macro-economic factors including economic growth and level of interest rates.”

The mission of the government, Sitharaman said, is to “move towards a less-cash economy to reduce generation and circulation of black money and to promote digital economy”.

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Even though digital transactions have witnessed a massive surge in recent years, cash still remains the king. Consumption expenditure has been inching up since last fiscal, after a Covid-induced compression in FY21. This has somewhat discouraged the precautionary hoarding of cash, witnessed during the first Covid wave, for emergencies.

However, as a percentage of GDP, the cash in circulation (including coins) this fiscal is still lower than the pandemic year of FY21, FE had earlier reported. Of course, it’s still higher than the pre-demonetisation level.

Importantly, the dominance of cash is partly driven by limitations of digital payments on the supply side, including inadequate dispute resolution mechanism, transaction failures and limited accessibility in rural areas.

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As for the rationalisation of the Merchant Discount Rate (MDR) for debit card transactions, the Reserve Bank of India (RBI) has advised banks to ensure that merchants on-boarded by them do not pass on MDR charges to customers when they accept payments through debit cards, the minister said. The revenue department has already advised banks to immediately refund any such charges upon collection on or after January 1, 2020.