Digital Payments Surge, Cash Transactions Decline Over 3 Years: RBI

According to Bhuyan, the Cash Usage Indicator, which measures the share of cash in private final consumption expenditure, declined from 81-86 per cent in Jan-Mar 2021 to 52-60 per cent by Jan-Mar 2024

Cash still represents 60 per cent of consumer spending as of March 2024, but its dominance is rapidly diminishing due to the shift towards digital payments following the COVID-19 pandemic, according to a study by an economist at the Reserve Bank of India (RBI), as reported by The Economic Times. The share of digital payments has more than doubled, rising from 14-19 per cent in March 2021 to 40-48 per cent in March 2024. 

Pradip Bhuyan, from the RBI's Department of Currency Management, stated, "A cash usage indicator (CUI) taking into account both physical and digital modes of payments indicates that cash usage remains significant but has been declining during the period under study." 

His "Cash Usage Indicator for India" research analysed consumer spending trends from 2011-12 to 2023-24.

According to Bhuyan, the Cash Usage Indicator (CUI), which measures the share of cash in private final consumption expenditure, declined from 81-86 per cent in January-March 2021 to 52-60 per cent by January-March 2024. He noted, "CUI is a quarterly indicator and can facilitate currency management." Bhuyan also emphasised that the views expressed in his paper are his own and do not necessarily represent the central bank's position.

The report highlighted that the United Payments Interface (UPI), introduced during the 2016 demonetisation of Rs 500 and Rs 1,000 notes, gained significant traction only after the lockdowns prompted by the COVID-19 pandemic in 2020. While the average transaction size for UPI was Rs 3,872 in 2016-17, it fell to Rs 1,525 in 2023-24, reflecting its increasing use for smaller-value purchases.

The study further highlighted that cash remains the preferred method for low-value transactions. However, the currency with the public (CWP) to Gross Domestic Product (GDP) ratio, which peaked at 13.9 per cent in 2020-21 following demonetisation, has declined to 11.5 per cent in 2023-24. In contrast, the United Payments Interface (UPI) share in person-to-merchant (P2M) transactions has grown remarkably, increasing from 33 per cent in value terms in 2020-21 to 69 per cent in 2023-24. In terms of transaction volume, UPI’s share surged from 51 per cent to 87 per cent during the same period.

Bhuyan concluded that the decrease in UPI’s average transaction size, the rising share of P2M transactions, and the moderation in the CWP-to-GDP ratio in 2023-24 indicate a significant shift from cash to UPI for smaller-value transactions.