Diwali week cash circulation declines for the first time in 20 years: SBI Ecowrap

Diwali week cash circulation declines for the first time in 20 years: SBI Ecowrap
  • Over the years, India has changed from a cash-led economy to a smartphone-led payment economy, says SBI Ecowrap.

  • Lower currency in circulation results in less leakage of deposits and it will impact monetary transmission positively, it adds.

  • In FY16, the share of currency in circulation (CIC) in payment systems was at 88%. This has come down to 20% in FY22.

For the first time since 2002 – that’s 20 years – currency in circulation has declined during the Diwali week, says a report by SBI Ecowrap. This is, however, barring a marginal decline seen in the same period in 2009 because of economic slowdown.

“Indian economy is undergoing a structural transformation. The innovations in technology have changed the Indian payment system. Over the years, the Indian cash-led economy now has changed to (a) smartphone-led payment economy,” the report said, calling it a remarkable development.

This coincides with a record high in terms of value of UPI transactions in October 2022 – 7.3 billion transactions to the tune of ₹12.11 trillion – growing by 73% year-on-year in volume terms.

Digital transactions turn faster, cheaper and easier

Over the years, digital payments have become cheaper and easier and even brought those without bank accounts into the system. Moreover, the interoperable payment systems like UPI, wallets and prepaid payment instruments or PPIs have made the process simpler.


As per the report, small retail payments done through UPI/e-wallets account for around 11-12% of the payment industry. Moreover, the share of cash in payment systems has reduced drastically in the last six years.

In FY16, the share of currency in circulation (CIC) or cash transactions in payment systems was at 88% - this was prior to the launch of UPI in 2016. This share has come down to 20% in FY22. Moreso, it’s estimated to go down to 11.5% by FY27.

Subsequently, the share of digital transactions that have been defined as IMPS, UPI and PPI by the report – have increased substantially. These transactions were at 11.26% in FY16 - and went up to 80.4% in FY22. It is expected to touch 88% in FY27. Clearly, digital transactions are taking the place that cash once held.

“The success of the digital journey is primarily due to the relentless push by the Government to formalise and digitalise the economy. Over the years, the system has expanded rapidly with new

innovations like QR code, NFC etc and has also seen the swift entry of big tech firms in this industry,” the report said.

Less cash to print

India has always been an economy with high cash in circulation. It comes next only to Japan and Hong Kong in terms of currency in circulation (CIC) as a percentage of GDP, which was at 14.2% in FY22, as per RBI data. As this percentage reduces and the economy is formalised, it can aid the banking system.

“In simple terms, it implies that the RBI has to print less of currency given that UPI transactions impact currency in circulation with a lag. This is a win-win for both RBI and government, as it results in saving of seigniorage costs and also a less cash economy,” the report said.

Currently, liquidity estimation of the country is impacted by a high amount of cash in the system, which is not easy to account for. Without a currency leakage, this estimation can now see a fundamental reorientation, the report says.

“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.

CRR or cash reserve ratio is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.

Apart from encouraging digital payments via UPI, the RBI is also currently working on piloting a Central Bank Digital Currency (CBDC) or the digital rupee. The RBI governor Shaktikanta Das said that it can transform the way the business is done.

“It was indeed a landmark moment in the history of money, in the history of currency in our country. Going forward, it will be a landmark achievement so far as the functioning of the entire economy is concerned,” Das said on November 2.