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

The relentless rise of currency with the public continues unabated, despite the sharp rise in digital transactions in the financial system.

The currency with the public rose by Rs 38,196 crore to an all-time high of Rs 30.18 lakh crore during the fortnight ending March 11, according to the latest data from the Reserve Bank of India (RBI). For the fiscal year so far, the coin with the public has risen 9.7 per cent, or Rs 2.66 lakh crore, from Rs 27.51 lakh crore in March 2021.

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

CiC refers to notes and coins issued by the central bank within a country that are physically used to transact between consumers and businesses.

As cash remains the preferred mode of payment, the currency with the public has risen 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 demonetization on November 8. 2016.

Cash with the public has soared 285% from a low of Rs 7.82 lakh crore recorded on 23 December 2016. In late December 2016, cash with the public fell sharply after the Center withdrew banknotes from 500 rupees and 1,000 rupees from the system.

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


Preferred payment method

Despite the government pushing for a “less cash society” and with digital transactions seeing steady growth, cash remains the preferred mode of payment. While the use of cash became widespread in FY21 due to Covid-induced lockdowns, it remains the dominant mode of payment among many merchants.

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

The increase in CiC in absolute numbers is not a reflection of reality. Since demonetization in 2016, the currency in circulation has risen steadily every year, with the CiC/GDP ratio rising to 14.5% in 2020-21 from 8.7% in 2016-17, according to data presented by the Ministry of Finance in Parliament. The CiC to GDP ratio is now higher than it was in the pre-demonetization period.

The jump in cash with the public was mainly driven by a cash rush by the public in 2020-21 when the government announced a strict lockdown to tackle the spread of the Covid pandemic. As nations around the world announced lockdowns in February and the government here prepared to announce lockdowns as well, people began hoarding cash to meet their groceries and other essential needs that were mostly being taken care of by grocery stores. from the neighborhood.

During festival seasons and elections, the demand for cash remains high. A large number of merchants still rely on cash payments for transactions from start to finish. Additionally, 90% of e-commerce transactions use cash as the mode of payment in tier four cities, compared to 50% in tier one cities.

According to the Ministry of Electronics and IT, the volume of digital payments in the country increased by 33% year-on-year during fiscal year 2021-22. Up to 7,422 crore of digital payment transactions were recorded during this period versus 5,554 crore of transactions in FY21.

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