Cash, Cash & Cash: More than double circulation of cash since FY17

The substantial rise in cash circulation which is more than double since FY 2016-17, coinciding with the year of demonetization and the introduction of UPI (Unified Payments Interface), underscores the enduring relevance of physical currency alongside digital payment methods. This observation is supported by tracking metrics like the HSBC PMI (Purchasing Managers’ Index) and CMS (Currency Management System) cash index, which have shown synchronized movements over time.

while digital payments have grown significantly, physical currency remains an essential component of the payment ecosystem due to its widespread acceptance, accessibility, anonymity, and reliability, especially in certain contexts and segments of the population.

Despite being introduced in 2016, digital payments through UPI experienced significant growth primarily following the emergence of the COVID-19 pandemic in 2020. UPI transactions surged nearly nine times from March 2020 to February 2024. The exponential growth in UPI transaction values, from Rs 2.06 lakh crore to a record Rs 18.07 lakh crore during this period, underscores the increasing reliance on digital payments for everyday transactions. This surge reflects the growing acceptance and trust in UPI as a secure, efficient, and user-friendly payment system, further fueled by widespread smartphone penetration, government initiatives to promote digital payments, and the expansion of digital infrastructure across India.

According to The Reserve Bank’s assessments on physical currency circulation indicate that currency demand exhibits seasonal variations, with higher demand observed during specific periods. Several factors like Festivals, Elections, Agricultural Sector Growth contribute this pattern. Overall, these factors contribute to fluctuations in currency demand, with peaks observed during festival seasons, election periods, and years of robust agricultural growth. The Reserve Bank closely monitors these trends to ensure adequate currency supply and to manage liquidity in the financial system effectively.

According to a report by ET, the total cash in the Indian economy surged from Rs 13.35 lakh crore in March 2017 to Rs 35.15 lakh crore by March 2024. This growth occurred despite the Reserve Bank of India’s decision to discontinue the use of Rs 2000 notes in May 2023.

The parallel trends between the CMS (Cash Management System) cash index and the HSBC Purchasing Managers’ Index (PMI) highlight the significance of cash in the economy. Despite the increasing adoption of digital payment methods, cash continues to play a vital role in facilitating transactions and driving economic activity.

The CMS cash index, launched in 2017, The index has shown consistent growth, rising from 100 in April 2017 to 125.6 in March 2024, The HSBC Purchasing Managers’ Index is a leading indicator of economic health, measuring the performance of the manufacturing and services sectors based on survey data from purchasing managers. It also exhibited growth, climbing from 100 to 117 during the same period. This uptrend indicates expansion in economic activity and suggests a positive outlook for businesses.

A report in The Economic Times, Anush Raghavan, President, Cash Management Solutions, CMS Info Systems said “For an economy to flourish, it is imperative that the payments ecosystem allows all modes of transaction. Cash payments are an indispensable complement to mobile, electronic, and other forms of digital payments , This balance is especially vital for a consumption-driven economy like India, where the ability to spend influences overall economic health.”

The CMS Info Systems Consumption Report for 2024 underscores the positive momentum in India’s consumption story, driven by rising consumer confidence, economic recovery, and pent-up demand post-pandemic. The surge in spending across sectors and regions reflects a buoyant consumer market and bodes well for overall economic growth and development.