According to SBI Research, cash in circulation (CIC) dropped by Rs 7,600 crore in the Diwali week starting October 24 in Delhi. It is important note that, CIC dropped marginally by Rs 950 crore during Diwali week in 2009.
“The innovations in technology has changed the Indian payment system. Over the years, the Indian cash lead economy now has changed to smart-phone lead payment economy. A lower currency in circulation also is akin to a CRR cut for the banking system, as it results in less leakage of deposits and it will impact monetary transmission positively,” the report said, referring to cash reserve ration.
The pandemic has led to the accelerated adoption of digital payments in the country, which is evident from the fact that Unified Payments Interface (UPI)–India’s flagship retail digital payments platform–is recording new highs in usage every month. Separately, credit card spending has consistently topped the Rs 1 trillion mark.
“With the increased acceptance of digital payments in the country, the over-reliance on cash is slowly fading away,” the report said.
Since the inception of UPI in 2016, monthly transactions have been increasing and touched Rs 84 trillion in FY22.
“We believe that the increase in digital transactions may result in a decline in money multiplier, even though the overall measure of broad money has been expanded. In particular, there has been a substitution from currency and much of it has gravitated towards the digital mode of payments,” the report said.
Data shows, the share of CIC in total payment system CIC has been declining from 88 per cent in FY16 to 20 per cent in FY22 and estimated to go down further to 11.15 per cent in FY27. Consequently, the digital transactions share is continuously increasing from 11.26 per cent in FY16 to 80.4 per cent in FY22 and expected to touch 88% per cent in FY27.