India’s currency circulation growth dips to 10%: RBI report

With digital payments gaining momentum in recent times, the total amount of currency in circulation in the Indian economy has fallen considerably ever since the Covid-19 restrictions eased and unlocking began across the states. It could be too early to state if people have overcome their fears of hoarding cash. However, it will be very encouraging if the current trend sustains.

As per the latest Reserve Bank of India (RBI) data, the year-on-year growth in currency circulation has dipped to 10% on August 13 compared to 22.4% in the previous year. This fall is a steep one given the fact the economy is still not out of the perils of the Covid-19 pandemic and the fears of a potential third wave loom large.

Analysts, however, say this development might point at two issues. They are of the opinion that the currency in circulation in India has already reached a large level of Rs 29.6 trillion and any increase from that level will be nominal.

Digital payments outdo cash needs in India

This dip in currency circulation could also mean that there is minimal leakage in the banking system meaning that most of the money in circulation is successfully making its way to formal channels as deposits. In addition to that, people nowadays are more inclined towards digital payments thus decreasing their use of cash and further eliminating the need to withdraw it from banks.

With more and more retail customers opting for digital transactions for their regular expenses, the dependence on cash has gone down even more. Experts opine that the pandemic gave a much bigger boost to digital payments as compared to the demonetisation drive of 2016. They also say that pandemic helped India in achieving its goals in the digital payments sector in a year which otherwise would have taken between five years to even a decade.

According to a report by PricewaterhouseCoopers (PwC), digital transactions in India were growing in single digits prior to 2010. The growth rate jumped to 28% in the period between 2010-16 due to the rollout of faster payment modes. The demonetization, took away a massive chunk of India’s currency out of circulation which led to a 56% growth in digital transactions in India in FY17. This shift towards digital payments has been accelerated further by the Covid-19 pandemic.