RBI Report Highlights Decline in Cash Use as Digital Payments Surge Over Three Years

RBI Report Highlights Decline in Cash Use as Digital Payments Surge Over Three Years

A recent study by a Reserve Bank of India (RBI) economist has highlighted a significant shift in consumer payment preferences, with digital transactions more than doubling over the past three years. As of March 2024, cash still accounts for 60% of consumer expenditure, but its dominance is steadily waning due to the rapid rise of digital payments, especially after the COVID-19 pandemic.

The study, titled Cash Usage Indicator for India, conducted by Pradip Bhuyan from the RBI’s Department of Currency Management, analyzed payment trends between 2011-12 and 2023-24. It revealed that the share of digital payments jumped from 14-19% in March 2021 to 40-48% by March 2024. This surge is largely attributed to the expansion of platforms like the United Payments Interface (UPI), which gained momentum after the lockdowns imposed in 2020.

Despite the growing preference for digital payments, cash usage remains substantial, though it is declining. Bhuyan’s Cash Usage Indicator (CUI), which measures the proportion of cash in private consumption, showed a drop from 81-86% in early 2021 to 52-60% by early 2024. While the CUI still indicates significant reliance on cash, it reflects the broader transition toward digital modes of payment.

UPI, which was initially launched during the 2016 demonetization period, saw its average transaction size fall from Rs 3,872 in 2016-17 to Rs 1,525 in 2023-24. This suggests that UPI is increasingly being used for small-value purchases, marking a shift from its earlier usage for higher-value transactions. The report also noted that cash remains the preferred choice for smaller transactions, but UPI’s growing popularity is evident, especially in person-to-merchant (P2M) transactions.

In terms of P2M transactions, UPI’s value share surged from 33% in 2020-21 to 69% in 2023-24, while its volume share increased from 51% to 87%. Bhuyan pointed out that the steady decline in the currency-with-public (CWP)-to-Gross Domestic Product (GDP) ratio, from its peak of 13.9% in 2020-21 to 11.5% in 2023-24, further underscores the substitution of cash with digital alternatives.

Bhuyan concluded that these trends – including the shrinking UPI transaction size, increased P2M usage, and reduced CWP-to-GDP ratio – indicate that cash is gradually being replaced by UPI, particularly for smaller-value transactions. However, he clarified that the opinions expressed in the paper are his own and do not necessarily represent the views of the RBI.