The currency in circulation (CIC) declined by ₹7,600 crore in the Deepavali week, making it the first such happening in two decades, a report said on Thursday.
This was made possible, courtesy a greater reliance on digital payments by people, the report by economists at SBI said, adding that the Indian economy was undergoing a structural transformation at present.
They clarified that the Deepavali week in 2009 had also witnessed a marginal ₹950 crore decline in currency in circulation, but that was purely due to the economic slowdown amid the global financial crisis.
“The innovations in technology have changed the Indian payment system. Over the years, the Indian cash lead economy now has changed to a smart-phone lead payment economy,” they said.
The economists also said that a lower currency in circulation also was akin to a cut in the cash reserve ratio for the banking system as it resulted in lower leakage of deposits and would have a positive impact on monetary transmission as well.
The report credited the government for the “relentless push” of digital alternatives in its attempt to formalise and digitalise the economy.
Interoperable payments systems like UPI (unified payments interface), wallets and PPIs (prepaid payment instruments) have made it simple and cheaper to transfer money digitally, even for those who do not have bank accounts, it said.
Smartphone-based payments transactions, including UPI, IMPS and e-wallet, have a share of about 16%, 12% and 1%, respectively, in retail digital transactions, it said.
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, the economists estimated.
The digital transaction share is continuously increasing from 11.26% in FY16 to 80.4% in FY22, and is expected to touch 88% in FY27, it said.