Cash still rules but digital payments rising sharply

Cash is still king in India, but there has been a perceptible shift in favour of digitisation in recent years, according to an internal study of the Reserve Bank of India (RBI).

Having a high currency in circulation (CIC) relative to gross domestic product (GDP) is a good indicator of cash being highly preferred for payments. Based on this assumption, “India continues to have a strong bias for cash payments," the study noted.

Demonetisation and an active growth in GDP brought down the cash in circulation as a percentage of GDP to 8.70 per cent in 2016-17. This increased to 10.70 per cent in 2017-18 and to 11.2 per cent in 2018-19 which, however, is less than the pre-demonetisation level of 12.1 per cent in 2015-16.

“The rate of increase is lower, indicating a perceptible shift away from cash,” the report said.

The notes in circulation (CIC minus coins in circulation) increased at an average rate of 14 per cent between October 2014 and October 2016.

Assuming the same growth rate, notes in circulation (NIC) would have been ~26 trillion in October 2019. NIC, however, was ~22.3 trillion, indicating that digitaisation and reduction in cash usage helped reduce NIC by over ~3.5 trillion, according to the report.

However, the cash withdrawals from ATMS increased over the past five years.

“India is next only to China in terms of the cash. However, the percentage of cash withdrawals to GDP has been constant in India at around 17 per cent,” the report said, adding, with a compound annual growth rate (CAGR) of 9 per cent in terms of volume and 10 per cent in terms of value, the growth in cash withdrawals has been slow when compared to digital payment transactions, which grew at a CAGR of 61 per cent and 19 per cent in terms of volume and value, respectively. This indicated a shift towards digitisation.

Thus, “in India, like in many parts of the world, cash is the well-established and widely used payment instrument. It is, however, reassuring that non-cash payments, especially those using electronic or digital modes, are rapidly increasing.”