Cash Is King, But Digital Is Divine, Says RBI
For each data point hinting at a reduced reliance on cash, there’s another which says that Indians still trust cash the most.
Cash is king, digital is divine.
That’s how the Reserve Bank of India concluded its latest assessment of the country’s attempts to push digitisation in an economy dominated by cash. The quest to reduce this reliance has prompted decisions ranging from demonetisation to tinkering with fee structures.
All these attempts, the RBI acknowledges, have only nibbled away at India’s love for cash. But nibbled it has, the central bank says citing a few data points.
- Currency in circulation as a percentage of GDP was at 11.2 percent in 2018-19, lower than the 12.1 percent in 2015-16.
- Notes in circulation (CIC minus coins in circulation) increased at an average rate of 14 percent between October 2014 and October 2016. The same rate of growth would have taken notes in circulation to Rs 26.04 lakh crore. The actual level of notes in circulation was about Rs 3.5 lakh crore lower.
- While India’s CIC levels reduced in 2018 as compared to 2014, other countries, with the exception of Argentina, China, Indonesia, Russia, South Africa, Sweden and Turkey, had increasing cash levels.
But for each data point that may hint at a reduced reliance on cash, there is another which says that Indians still trust cash the most. The paper notes this as well.
- Cash withdrawals at ATMs as a percentage of GDP have remained constant at 17 percent.
- Cash withdrawals from ATMs increased over the past 5 years. India is next only to China in terms of the cash withdrawals from ATMs.
- Over the last five years, the demand for high value denominated currency has outpaced low value denominated currency which may indicate that cash is increasingly used as a store of value and less for making payments.
Digital Payments Gain Traction
Still, the RBI is hopeful that digital payments will continue to gather pace as infrastructure builds out and financial literacy improves. Data suggests that digital payment adoption is growing at a rapid pace, albeit on a smaller base.
“Overall, the digital payments in the country have witnessed a compounded annual growth rate of 61 percent and 19 percent in terms of volume and value, respectively over the past 5 years, demonstrating a steep shift towards digital payments,” the RBI said.
- The use of digital payments channels like NEFT, Unified Payments Interface, IMPS and other platforms has grown at a CAGR of 42 percent in terms of transaction value over the last 5 years.
- Debit and credit card payments registered a CAGR of 40 percent in terms of value during the same period.
- Digital cash, or cash stored in wallets, has seen a CAGR increase of 78 percent in terms of value, during the last 5 years.