India's Persistent Love Affair with Cash

Despite the digital payment revolution sweeping across the nation, cash remains a dominant force in India's economy. The Reserve Bank of India's latest report reveals a 2.4% increase in currency circulation, reaching Rs 38.1 lakh crore as of May 2.

Understanding the Surge in Cash Usage

This growth, occurring outside the typical election season boost, is attributed to robust demand in rural areas, fueled by favorable crop prices and abundant harvests. Interestingly, this figure is still 0.5% below the levels seen during the 2016 demonetization period.

The Economic Implications of Rising Cash Circulation

Economists describe the increase in physical currency as a 'leakage' from the financial system, highlighting an inverse relationship between currency in circulation and banking system liquidity. "The pickup in currency in circulation started from the end of FY '25," noted Gaura Sengupta, IDFC First Bank's chief economist.

Cash vs. Digital: The Ongoing Battle

Even as digital transactions gain traction, cash accounts for 60% of consumer spending as of March 2024, according to CMS Info Systems. The past decade has seen the cash economy and digital infrastructure expand in tandem, with currency circulation more than doubling and ATMs and bank branches growing by 32% and 36%, respectively.

"While India has been successful in managing the balance between cash and digital, cash consumption continues to dominate," the CMS report concludes.