Cash is still king. Six years after the demonisation, the currency in circulation has jumped to a new high of Rs 30.89 lakh crore as of October 21, 2022, showing that cash remains the preferred choice of payment for Indians. It has gone up by 72 per cent from Rs 17 lakh crore on November 4, 2016 compared to the pre-demonetisation period. On November 8th, 2016, the demonetization of Rs 500 and Rs 1,000 notes that ceased to be legal tender was announced by Prime Minister Narendra Modi, with the aim of reducing the circulation of black money in the economy.
When comparing absolute numbers with GDP is important, as it is the key indicator of cash in the system in tune with economic growth. At present, the currency in circulation is at 13 per cent of GDP, compared to 14 per cent last year, according to a back-of-the-envelope calculation. In 2020, the figure was 13 per cent, as the Reserve Bank of India RBI infused liquidity into the system after the outbreak of the Covid-19 epidemic. The cash in circulation as a percentage of GDP was at 12 per cent in 2016.
Digital payments have also gone up, despite the fact that the cash in circulation has gone up. The RBI-Digital Payments Index, which tracks digital payments, rose 29.08 per cent to a new all-time high of 349.3 points in March 2022, from 270.59 points a year ago.
In the total payments system, digital transactions are the transactions in IMPS Immediate Payment Service UPI Unified Payments Interface and PPI Prepaid Payment Instruments and cash transactions as CIC cash in circulation. The trends show that the share of CIC in payment systems has declined from 88 per cent in FY 16 to 20 per cent in FY 27 and is estimated to go down further to 11.15 per cent by FY 27. In a research report called The Power of Digital Transactions While cash is still king, the share of digital transactions is increasing, and is expected to reach 88 per cent by FY 27, said Soumya Kanti Ghosh, Group Chief Economic Advisor of State Bank of India.