“Cash is king, but digital is divine”, said a Reserve Bank of India study, underscoring that although cash is deeply embedded in the payment systems in India, planned efforts post-demonetisation have shown a marked shift from cash to digital payments.

Both cash and non-cash payment instruments fulfil unique needs, and as long as these needs do not change, both types of payment instruments are required to meet the full spectrum of user’s needs, the study said.

Reduction in cash usage

Pointing out that cash in circulation (CIC) as a percentage of GDP dipped to 8.70 per cent in 2016-17 due to demonetisation and an active growth in GDP, the study said this increased to 10.70 per cent in 2017-18 and to 11.2 per cent in 2018-19. This, however, was less than the pre-demonetisation level of 12.10 per cent in 2015-16.

It emphasised that the rate of increase of CIC as a percentage of GDP is lower, indicating a perceptible shift away from cash.

As per the study, the notes in circulation (CIC minus coins in circulation) increased at an average rate of 14 per cent between October 2014 and October 2016. Assuming the same growth rate, notes in circulation (NIC) would have been ₹26,04,953 crore in October 2019. NIC, however, was ₹22,31,090 crore, indicating that digitaisation and reduction in cash usage helped reduce NIC by over ₹3.5 lakh crore, it added.

According to the study, the value of cash withdrawals at ATMs to GDP has remained constant in India at around 17 per cent except during the demonetisation period, when it fell to 15 per cent. The value of digital payments to GDP increased from 660 per cent in 2014-15 to 862 per cent in 2018-19, making the shift to digital payments in India clearly perceptible.

Adoption of card payments

As at December 2019, there were around 49 lakh PoS terminals and 2.32 lakh ATMs across the country. The ATMs and PoS terminals across the country have grown at a CAGR of 4 per cent and 35 per cent, respectively over the past 5 years.

“While the number of ATMs (a “cash” infrastructure) has grown at a low pace, the growth of non-cash infrastructure, mainly depicted by PoS has been significant. This has given a further fillip to digitisation,” the study said.

Debit and credit card based payments registered a Compounded Annual Growth Rate (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 study said.

The study observed that over the past 5 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.

Overall, the digital payments in the country have witnessed a Compounded Annual Growth Rate (CAGR) of 61 per cent and 19 per cent in terms of volume and value, respectively over the past five years, demonstrating a steep shift towards digital payments, the study said, adding that there is no accurate measure of cash payments in the country.

Rapid growth

Within the digital payments, retail electronic payments comprising credit transfers (Real Time Gross Settlement, National Electronics Funds Transfer), fast payments (Immediate Payments System and Unified Payments Interface) and direct debits (Electronic Clearing Service, National Automated Clearing House) have shown a rapid growth at a CAGR of 65 per cent and 42 per cent in terms of volume and value, respectively.

Stored value cash issued in the form of wallets and prepaid cards demonstrated an increased adoption with a CAGR of 96 per cent and 78 per cent in terms of volume and value, respectively.

The study observed that: “India’s growing use of retail digital payments, along with the radical reconstruction of its cash economy, indicates a shift in its relationship with cash. This is evidenced by the steep growth observed in the retail digital payments. Increasing acceptance and convenience of digital payments vis-à-vis cash is also reflected in decrease in average value per digital payment transaction.”

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