Cash, historically dominant at 60% of expenditures in March 2024, is yielding ground to digital payments post-Covid. A study by an RBI economist reveals a noteworthy shift, with digital transactions soaring from 14-19% in March 2021 to 40-48% by March 2024. Pradip Bhuyan's "Cash Usage Indicator for India" tracks this evolution, showing cash's decline from 81-86% in early 2021 to 52-60% in early 2024. UPI's rise post-demonetization and during lockdown signifies a clear trend towards digital transactions, promising a more efficient future in financial dealings.
In the ever-evolving landscape of consumer spending, cash has long been a dominant player, accounting for a substantial 60 percent of expenditures as of March 2024. However, a remarkable transformation is underway, spearheaded by the surge in digital payments post-Covid, as highlighted in a recent study by a Reserve Bank of India economist, as reported by The Economic Times.
The study unveils a significant shift towards digital transactions, with the share of digital payments more than doubling from 14-19 percent in March 2021 to an impressive 40-48 percent by March 2024. Pradip Bhuyan, from the Reserve Bank’s currency management department, emphasized the declining trend of cash usage over the study period while introducing the Cash Usage Indicator (CUI), a comprehensive measure encompassing both physical and digital payment modes.
Bhuyan's research, titled "Cash Usage Indicator for India," meticulously tracks consumer spending patterns from 2011-12 to 2023-24. According to him, the CUI, reflecting cash's proportion in private final consumption expenditure, witnessed a substantial decrease from 81-86 percent in January-March 2021 to 52-60 percent by January-March 2024. Highlighting the utility of CUI for effective currency management, Bhuyan clarified that his perspectives in the paper were personal and not representative of the central bank's official stance.
The study also sheds light on the United Payments Interface (UPI), which gained momentum following the 2016 demonetization and experienced significant growth during the Covid-19-induced lockdown in 2020. Notably, the average UPI transaction size plummeted from Rs 3,872 in 2016-17 to Rs 1,525 in 2023-24, underscoring its increasing adoption for smaller purchases.
Despite cash retaining its appeal for low-value transactions, the report indicates a shift towards digital modes. The Currency with the Public (CWP) to Gross Domestic Product (GDP) ratio, which peaked at 13.9 percent in 2020-21 post-demonetization, decreased to 11.5 percent in 2023-24. Concurrently, UPI's dominance in person-to-merchant (P2M) transactions surged from 33 percent to 69 percent in value terms and from 51 percent to 87 percent in volume terms between 2020-21 and 2023-24.
Bhuyan's analysis concludes that the evolving landscape, characterized by a decrease in UPI transaction sizes, a growing share of P2M transactions, and a decline in the CWP-to-GDP ratio, signals a clear trend of substituting cash with UPI for smaller transactions. This transformation underscores not only a shift in payment preferences but also hints at a more streamlined and efficient future in the realm of financial transactions.
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