In spite of the discontinuation of the Rs. 2,000 note, cash remains the dominant form of exchange in the Indian economy

Despite the phase-out of Rs 2,000 notes, the amount of cash in circulation has more than quadrupled during the fiscal year 2016–17, coupled with the use of digital payment methods. Data from the CMS cash index and the HSBC PMI demonstrate the continued importance of cash in the economy.

currency in circulation has doubled.
By the end of March 2024, the amount of money in circulation has grown from Rs 13.35 lakh crore in March 2017 to Rs 35.15 lakh crore. This increase is noteworthy, particularly in light of the Reserve Bank’s intention to remove Rs 2,000 banknotes from circulation beginning in May 2023, with 97-83% of the notes being reinserted into the banking system.

Boom in Digital Payments During Pandemic
Although UPI was first introduced in 2016, it wasn’t until after COVID-19 in 2020 that it became widely used, with a roughly nine-fold rise in use. From Rs 2.06 lakh crore in March 2020 to a record high of Rs 18.07 lakh crore in February 2024, monthly UPI transactions increased.

Factors Affecting the Demand for Currency
According to the Reserve Bank’s study, there is a tendency for currency demand to increase around festivals, important elections, or years when the agriculture sector is growing rapidly. These events usually result in a rise in the demand for cash, especially from rural regions.

Economic Activity and Cash Spending Correlation

The HSBC Purchase Manager’s Index and the CMS Cash Index show a robust relationship between cash spending and economic activity. The CMS cash index has increased from 100 in April 2017 to 125.6 in March 2024 since its launch in 2017, following the HSBC PMI’s growth trend.

Global View: Economic Size and CIC
Smaller countries like Brazil, South Africa, Russia, and the UK have lower cash in circulation (CiC) quantities than major economies like the US, China, Japan, and India when comparing CiC across different economies. The connection between CiC and economic size is shown by this correlation.

Cash Index for CMS
Including post-purchase cash receipts from established retail channels and ATM cash replenishment, the CMS Cash Index provides information on consumption patterns in Indian cities and villages. The CMS Info Systems Consumption Report 2024 shows rising consumer durable, FMCG, travel, and entertainment expenditure, with the rise in ATM withdrawals for spending in FY24 topping the states of Delhi, Tamil Nadu, Uttar Pradesh, West Bengal, and Karnataka.