Cash with public at new high this fiscal even as digital payments rise by a third

The unabated rise in currency with the public is continuing without any let-up, despite the sharp rise in digital transactions in the financial system.

Currency with the public rose by Rs 38,196 crore to an all-time high of Rs 30.18 lakh crore during the fortnight ended March 11, according to the latest Reserve Bank of India (RBI) data. During the financial year so far, currency with the public has gone up by 9.7 per cent, or Rs 2.66 lakh crore, from Rs 27.51 lakh crore in March 2021.

According to the RBI’s definition, currency with public is arrived at after deducting cash with banks from total currency in circulation (CiC).

CiC refers to currency notes and coins issued by the central bank within a country that is physically used to conduct transactions between consumers and businesses.

With cash remaining the preferred mode of payment, currency with the public has risen by 68 per cent, or Rs 12.21 lakh crore, from a level of Rs 17.97 lakh crore on November 4, 2016, just before the government announced demonetisation on November 8, 2016.

Cash with the public has shot up 285 per cent from a low of Rs 7.82 lakh crore, recorded on December 23, 2016. By December end of 2016, currency with the public fell sharply after the Centre withdrew Rs 500 and Rs 1,000 currency notes from the system.

Although the government and the RBI have pushed for a “less cash society” and digitisation of payments, as well as imposed restrictions on the use of cash in various transactions, cash in the system has been steadily rising.


Preferred mode of payment

Even as the government is pushing for a “less-cash society” and with digital transactions clocking steady growth, cash remains the preferred mode of payment. While cash usage was widespread in FY21 due to the Covid-induced lockdowns, it still remains the dominant mode of payment among numerous merchants.s

The sudden withdrawal of notes in November 2016 had roiled the economy, with demand falling, businesses facing a crisis and gross domestic product (GDP) growth declining nearly 1.5 per cent. Many small units were hit hard and downed shutters after the note ban. It also created a liquidity shortage.

The rise in CiC in absolute numbers is not the reflection of reality. Since demonetisation in 2016, currency in circulation has risen steadily every year, with the CiC to GDP ratio having surged to 14.5 per cent in 2020-21 from 8.7 per cent in 2016-17, as per data presented by the Finance Ministry in Parliament. CiC to GDP ratio is now ever higher than that in the pre-demonetisation period.

The jump in cash with the public was primarily driven by a rush for cash by the public in 2020-21 as the government announced a stringent lockdown to tackle the spread of the Covid pandemic. As nations around the world announced lockdowns in February and the government here also prepared to announce lockdowns, people began accumulating cash to meet their grocery and other essential needs that were being mainly catered by neighbourhood grocery stores.

During festival seasons and elections, cash demand remains high. A large number of merchants still depend on cash payments for end-to-end transactions. Moreover, 90 per cent of e-commerce transactions use cash as a mode of payment in tier four cities compared to 50 per cent in tier one cities.

According to the Ministry of Electronics and IT, the volume of digital payments in the country rose by 33per cent year-on-year during the financial year 2021-22. As many as 7,422 crore digital payment transactions were recorded during this period as against 5,554 crore transactions in FY21.

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