Cash is still king. Six years after demonetisation, the currency in circulation has reached a new high of Rs 30.89 lakh crore by October 21, 2022, indicating that cash still remains the preferred payment option for Indians. Compared to the pre-demonetisation period, this is a whopping increase of 72 per cent from Rs 17 lakh crore on November 4, 2016. Demonetisation (Rs 500 and Rs 1,000 notes no longer legal tender) was announced by the Prime Minister. Narendra Modi on 8 November 2016 with the aim of reducing the circulation of black money in the economy, among other objectives.
However, when comparing absolute numbers, it is important to compare them with GDP, as it is the key indicator of measuring cash in the system in line with economic growth. A back-of-the-envelope calculation suggests that currency in circulation currently accounts for 13 percent of GDP, compared to 14 percent last year. The figure was 13 per cent in 2020 as the Reserve Bank of India (RBI) infused liquidity into the system following the outbreak of the Covid-19 pandemic. Incidentally, cash in circulation as a percentage of GDP stood at 12 percent in 2016.
While cash has come into vogue, digital payments are also on the rise. The RBI-Digital Payments Index, which tracks digital payments, rose 29.08 per cent to an all-time high of 349.3 points in March 2022 from 270.59 points a year ago, according to data from the banking regulator.
“In the total payment system, we have defined digital transactions as transactions in IMPS (Immediate Payment Service), UPI (Unified Payments Interface), and PPIs (Prepaid Payment Instruments); [and] Cash Transactions as CIC [cash in circulation], The trends are revealing, as the share of CICs in payment systems has come down from 88 per cent in FY16 to 20 per cent in FY22, and is expected to go down further to 11.15 per cent by FY27. As a result, the share of digital transactions continues to grow – from 11.26 per cent in FY2016 to 80.4 per cent in FY22, and is expected to reach 88 per cent by FY27. , in a research report titled “The Power of Digital Transactions”. While cash is still king, digital is catching up.