RBI agrees 'cash is king', while professing 'digital is divine'

A report by Reserve Bank of India (RBI) revealed that cash in circulation continued to grow in India during recent years, even as digital transactions grew leaps and bounds. The central bank paper showed a steep rise in digital transactions, aided by the spread of internet connectivity and related infrastructure.

"Cash still rules but is increasingly seen as a way to store value as an economic asset rather than to make payments. Speed, convenience and competition are shaping the future of payments. Our endeavour is to make digital (payments) a divine experience to the users - Cash is King, but Digital is Divine," RBI said.

Overall digital payments in India reported a CAGR of 61 per cent and 19 per cent in terms of volume and value, respectively, over the past 5 years. The value of digital payments to GDP increased from 660 per cent in 2014-15 to 862 per cent in 2018-19, said RBI.

Among digital payments, wallets and prepaid cards witnessed rapid growth, with CAGR of 96 per cent and 78 per cent in terms of volume and value, respectively, demonstrating "an increased adoption". Retail electronic payments, comprising credit transfers like RTGS, NEFT, IMPS and UPI, and direct debits ECS, NACH, showed a rapid growth at a CAGR of 65 per cent and 42 per cent in terms of volume and value, respectively, between 2014-15 and 2018-19.

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"Debit and credit card based payments registered a CAGR of 44 per cent and 40 per cent in terms of volume and value, respectively. The adoption of card payments has been supported by innovations in the form of contactless payments and tokenisation technologies, contributing to the growth. In addition, the use of cards for payments is increasing vis-a-vis their use for withdrawing cash," the central bank said.

Meanwhile, cash in circulation continued to grow over the past five years, but felt the impact of growing popularity of digital payments. The RBI used the example of notes in circulation, the difference between cash in circulation and coin in circulation, to exemplify this.

"The notes in circulation (NIC) increased at an average rate of 14 per cent between October 2014 and October 2016. Assuming the same growth rate, notes in circulation would have been Rs 26,04,953 crore in October 2019. NIC, however, was Rs 22,31,090 crore, indicating that digitisation and reduction in cash usage helped reduce NIC by over Rs 3.5 lakh crore," RBI said.

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Cash withdrawals from ATMs in India have also increased during the past 5 years, as the country is second only to China in this regard.

"With a CAGR of 9 per cent in terms of volume and 10 per cent in terms of value, the growth has been slow when compared to digital payment transactions, indicating a shift towards digitisation. Further, the infrastructure for cash withdrawal, i.e., ATMs has grown at a low pace (CAGR of 4% during the past 5 years)," RBI said.

While India still showed a strong bias for cash payments, demonetisation and an active growth in GDP brought down the cash in circulation as a percentage of GDP to 8.70 per cent in 2016-17. Despite increasing to 10.70 per cent in 2017-18 and to 11.2 per cent in 2018-19, it is still below less the pre-demonetisation level of 12.1 per cent in 2015-16, "indicating a perceptible shift away from cash".

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