If UPI dominates, why is cash still growing?

In today’s episode on 13th March 2026, we break down India’s cash paradox, i.e., why cash in circulation is rising even as digital payments boom. Book a FREE call with Ditto https://ditto.sh/vx51ji

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  Hello folks, you're tuned into Finshots Daily. In today's episode, we break down India's cash paradox. That is why cash and circulation is rising even as digital payments boom. Before we begin, here's a quick word from Team Ditto. Life has a way of surprising us and not always in a good way. Sometimes it's a sudden illness or an unexpected hospital visit that can shake up everything. In India, families still pay about 39% of medical expenses directly from their own pockets and just one hospital's stick can wipe out years of savings. The easiest way to protect yourself is by getting a good health insurance plan. It's way cheaper than footing one huge bill. And if you're unaware where to start, book a free call with Ditto.

• 0:43Speaker 00

  No spam, just honest, jargon-free guidance. Trusted by over 8 lakh people for their health and term insurance needs. The link is in the description. Now, back to the story. Whenever I pass by an ATM, two thoughts come to my mind. First, that I should keep some physical cash for emergencies. And second, who still goes to an ATM anymore? And the second question isn't entirely unwarranted. Back in 2016, when demonetization made the 1500 rupee notes invalid, people rushed to banks and ATMs to deposit their old notes. The overnight shock meant that many businesses wouldn't accept either note as legal tender for payment. And because of that, UPI payments took off quickly. With almost every business and store, large and small,

• 1:27Speaker 00

  setting up Paytm machines and QR codes for the digital payments revolution. India has become one of the world's largest digital payments markets, driven by the rapid growth of the UPI, that is Unified Payments Interface. Billions of transactions take place every month across apps like PhonePay, Google Pay and Paytm, making UPI the dominant retail digital payment system in the country. In fact, UPI accounts for the majority of digital payment volumes in India. In a world where online payments became the go-to way to pay, physical cash essentially took a backseat for a while. It also doesn't hurt that most payment platforms today do everything for you, from flight tickets and credit card payments to gas bills and mobile recharges. But even as digital payments exploded, the amount of

• 2:10Speaker 00

  Physical cash circulating in the economy has continued to grow. For context, currency in circulation has risen sharply from about seventeen point seven seven lakh crore rupees on demonetization day in November twenty sixteen to over forty lakh crore rupees by Feb twenty twenty six, according to RBI data. And an SBI research report shows just how striking this trend has become. India's currency in circulation has grown by about eleven percent year on year. Nearly ninety seven point six percent of this currency is held by the public rather than within the banking system. In other words, this isn't money sitting idle in the bank vaults, it's physical currency actively moving through the economy. Now, that might make one think that because people are using more cash, digital payments would slow down, but that's hardly true.

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  The report estimates that the monthly UPI transaction value is now around twenty eight lakh crore rupees. That means in just one month, UPI processes transactions worth roughly seventy percent of the total physical currency in the entire economy. So, if digital payments are replacing cash, why is the total stock of currency still increasing? The answer becomes clearer when we look at something economists call the cash to GDP ratio. It measures the amount of currency circulating in the economy relative to the size of the economy itself. Between FY twenty one and FY twenty six, this ratio has actually declined from about fourteen percent to eleven percent. So, while the total amount of cash has increased over the years, cash as a share of India's GDP has actually fallen.

• 3:37Speaker 00

  Digital payments like UPI are gradually capturing a larger share of everyday transactions, even as the total demand for physical money in the economy continues to expand. But, that still leaves another question, what exactly then is pushing the absolute demand for cash higher? The SBI report points to a few reasons. Let's start with the first one, GST notices. In July twenty twenty five, the Karnataka Commercial Taxes Department issued eighteen thousand GST notices to vendors and small traders for one reason. Their UPI transactions between twenty twenty two and twenty five had crossed the forty lakh rupees registration threshold. This is because if you run a business and its transaction value exceeds forty lakh rupees, many lakh rupees for service in some states, you must register for GST.

• 4:20Speaker 00

  What ended up happening was that regular fruit vendors and stall operators received tax notices worth tens of lakhs of rupees. So, after these GST notices were issued, ATM withdrawals in the affected districts rose by about 37 crore rupees per month. So, just think that some merchants may have shifted back to cash transactions. The second reason cash demand hasn't fallen as much as we might expect has to do with how people behave when interest rates fall. When banks offer high interest rates, keeping money in a savings account makes sense because your money earns something while it sits there. But when interest rates fall, the difference between holding money in the bank and holding it as cash becomes much smaller. And when that happens, people simply don't mind keeping some extra cash on hand.

• 5:02Speaker 00

  This may have increased what economists call precautionary cash balances or money that households keep aside just in case. It could be for emergencies, unexpected expenses, or simply the comfort of having some physical cash available. So, even as digital payments take over everyday transactions, people may still prefer holding a bit more cash than before. The third reason is a surge in gold prices. When gold prices rise sharply, households often unlock some of that wealth either by selling old jewellery or borrowing against it. In India, this channel is significant because households hold enormous quantities of gold as a store of wealth. When prices surge, that wealth becomes easier to monetize. In fact, loans backed by gold have surged sharply in the past year.

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  Outstanding gold-backed loans rose from about 1.16 lakh crore rupees in May 2024 to 2.51 lakh crore rupees in May 2025, more than doubling in a year. So, households can sell jewellery or pledge it as a collateral to access cash. That's money that eventually finds its way back into consumption and circulation. The final piece of the puzzle lies in the type of transaction UPI has replaced. Most digital payments today are for small everyday purchases like groceries, tea, auto rides or quick retail payments. In fact, SBI's analysis shows that in terms of value, nearly 86% of person-to-merchant UPI transactions are below 500 rupees. That means UPI is essentially competing with small denomination notes that once dominated these everyday payments.

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  10 rupees, 20, 50, 100 and 200 rupee notes. But the 500 rupee note still dominates the cash economy. So even when the RBI would do the 2000 rupee note in 2023, most of that value simply returned to circulation in the form of 500 rupee notes, rather than disappearing altogether. After becoming the highest denomination in circulation, the 500 rupee note increased by 8.9% in value to account for about 86% of the total and by 3.0% in volume to over 40%. And that may explain India's cash paradox. Digital payments are rapidly taking over everyday transactions, but cash continues to play other roles as a store of value, a precautionary buffer and a convenient way to transact in parts of the economy that remain outside the digital ecosystem.

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  So, the future of payments in India may not be about eliminating cash altogether. It may simply be about learning to live with two systems growing side by side. Which brings us back to the question we have every time we walk past an ATM. If everyone is paying digitally, who still withdraws cash? The answer, it turns out, is still quite a lot of us. I'll see you in the next one. Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.