Even as digital payments across the country continue to surge, Indians are far from giving up on cash. A recent report by the Reserve Bank of India showed that as of May 2, currency in circulation is higher at 2.4%, up from 1.7% during the same period last year.
As of the period under review, cash currency worth Rs 38.1 lakh crore is circulating in the economy, amounting to almost 11.5% of India’s GDP. That’s still half a percentage point lower than what it was during the 2016 demonetisation period.
This rise, even without an election season during which cash usage usually boosts, points to strong demand in rural areas, majorly due to good crop prices and a healthy harvest.
Currency in circulation and rupee liquidity in the banking system are inversely proportional as the more cash circulating in hands, the less liquidity is available in banks. Hence economists often refer to this rise in physical currency as a “leakage” from the financial system.
“The pickup in currency in circulation started from the end of FY '25,” Gaura Sengupta, chief economist at IDFC First Bank told ET, adding that this is likely led by a recovery in rural demand supported by strong rabi and kharif output.
“In FY26, we expect full-year currency leakage to be marginally higher at Rs 2.2 lakh crore.”
For the last financial year, the figure stood at Rs 2.09 lakh crore.
Meanwhile, cash still plays a major role in everyday transactions. According to a report by CMS Info Systems, as of March 2024, cash accounted for 60% of total consumer spending, despite the steady rise in digital transactions.
Between 2014 and 2024, the cash economy has quietly expanded alongside digital infrastructure. Currency in circulation more than doubled in this period, while the number of ATMs rose by 32% and bank branches increased by 36%, RBI data shows.
“While India has been successful in managing the tenuous balance between cash and digital by simultaneously building infrastructure for both, cash consumption continues to dominate India’s consumption story,” the CMS report said.
As of the period under review, cash currency worth Rs 38.1 lakh crore is circulating in the economy, amounting to almost 11.5% of India’s GDP. That’s still half a percentage point lower than what it was during the 2016 demonetisation period.
This rise, even without an election season during which cash usage usually boosts, points to strong demand in rural areas, majorly due to good crop prices and a healthy harvest.
Currency in circulation and rupee liquidity in the banking system are inversely proportional as the more cash circulating in hands, the less liquidity is available in banks. Hence economists often refer to this rise in physical currency as a “leakage” from the financial system.
“The pickup in currency in circulation started from the end of FY '25,” Gaura Sengupta, chief economist at IDFC First Bank told ET, adding that this is likely led by a recovery in rural demand supported by strong rabi and kharif output.
“In FY26, we expect full-year currency leakage to be marginally higher at Rs 2.2 lakh crore.”
For the last financial year, the figure stood at Rs 2.09 lakh crore.
Meanwhile, cash still plays a major role in everyday transactions. According to a report by CMS Info Systems, as of March 2024, cash accounted for 60% of total consumer spending, despite the steady rise in digital transactions.
Between 2014 and 2024, the cash economy has quietly expanded alongside digital infrastructure. Currency in circulation more than doubled in this period, while the number of ATMs rose by 32% and bank branches increased by 36%, RBI data shows.
“While India has been successful in managing the tenuous balance between cash and digital by simultaneously building infrastructure for both, cash consumption continues to dominate India’s consumption story,” the CMS report said.
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