Digital Diwali: PM’s Prediction Comes True as Cash Circulation Dips in Festive Month for 2nd Year, UPI Up

Addressing the Indian diaspora in Berlin in March last year, Prime Minister Narendra Modi had told a cheering crowd of India’s strides in the digital payments ecosystem. India accounted for 40% of the total real-time digital payments that took place throughout the world in 2021, he said. If a recent State Bank of India (SBI) report is to be believed, PM Modi has more reasons to be proud of.

LOW CASH FLOW DURING BUMPER DIWALI

In what can be termed a remarkable development, for the record second year running in 20 years, currency in circulation (CIC) declined during Diwali week, a period when cash transactions generally remain high. Such a drop was last seen in the 2009 Diwali week. However, the decline of Rs 9.5 billion back then was largely on account of the economic slowdown in India and around the world.

The dip in cash transactions during Diwali month this time amid robust economic activity has been widely credited to more and more Indians choosing digital transactions over cash payments. In the festive month of October this year, UPI transactions increased by a whopping 853 million, with a total value of Rs 1,366 billion.

DIGITAL PAYMENTS SKYROCKET

With the increased acceptance of digital payments in India, over-reliance on cash has become a thing of the past. India’s digital payment journey is built on India Stack, a comprehensive digital identity, payment, and data management system that runs between banks, fin-techs, and your e-wallet, changing the way we sell and buy things.

There are different modes of digital payments — NEFT or National Electronic Fund Transfer, UPI, and IMPS or instant interbank electronic fund transfer service through mobile phones. But for the common man, UPI has been a game-changer. By volume, UPI transactions account for 75% of the total transactions in the payment industry.

In more cheer for the economy, in the festive month of October this year, when Diwali sales usually push up transactions, UPI saw a sharp increase of 853 million transactions. Put simply, on 853 million additional instances, people chose to pay via UPI than cash in the Diwali month.

In 2022, around 74 billion transactions amounting to more than Rs 126 trillion were done through UPI throughout the year.

RBI TO PRINT FEWER NOTES, SOON?

The data on higher UPI transactions directly strengthens Prime Minister Narendra Modi’s vision of Digital India, which many from the Opposition, including former finance minister P Chidambaram, mocked in the past. But in 2023, the sheer number of UPI transactions, coupled with a historic dip in cash transactions, has vindicated the Modi government’s ambitious push.

The SBI research report said that if the trend continues, the Reserve Bank of India (RBI) may print fewer currency notes. “This is a win-win for both RBI and government, as it results in saving of seignorage costs and also a less cash economy. This will also mean all the analysis of currency leakage impacting bank deposits, liquidity estimation now could see a fundamental reorientation in the future,” SBI’s research Ecowrap concluded.

Prime Minister Narendra Modi seemed to have foreseen this phenomenon in February this year when he said: “Many experts are estimating that very soon India’s digital wallet transactions are going to overtake cash transactions.”