State Bank of India in its Ecowrap report stated that the currency in circulation (CIC) declined by ₹7,600 crore during Diwali week for the first time in 20 years.
Key highlights of report
- Cash transactions declined by Rs 76 billion in 2022 as against a growth of Rs 440 billion in 2021 and Rs 438 billion in 2020, weekly data gathered by SBI Research showed.
- This is the first time after 2002 that currency in circulation declined during the Diwali week, as a marginal decline of Rs 9.5 billion in 2009 was largely due to the economic slowdown.
- The reported decline was due to the growth in digital transactions in the country.
- The Indian economy is undergoing a structural transformation.
- The report credited the government for the success of the digital journey due to the relentless push by the Government to formalize and digitalize the economy.
- The interoperable payments systems like UPI, Wallets & PPIs have made it simple and cheaper to transfer money digitally, even for those who don’t have bank accounts.
- 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 .
- As per the latest retail digital transactions data, NEFT holds a share of 55% in value terms and most of the transactions are done through either at branch or through internet banking.
- However, if we look only transactions done through smart phones like UPI, IMPS & e-wallet, they have share of around 16%, 12% and 1% respectively.
- It means, the small retail payments done through UPI/e-wallets holds around 11-12% in the payment industry.
- The share of CIC in payment systems has been declining from 88% in FY16 to 20% in FY22 and is estimated to go down further to 11.15% in FY27.
- Consequently, the digital transactions share is continuously increasing from 11.26% in FY16 to 80.4% in FY22 and is expected to touch 88% in FY27.
- The decline is a win-win for both RBI and government, as it results in saving of seignorage costs and also a less cash economy.
- This will also mean all the analysis of currency leak-age impacting bank deposits, liquidity estimation now could see a fundamental reorientation in the future.
