Cash is still king. Why India's digital payments are losing steam

Cash remains dominant in property, agriculture, informal industry, and rural retail

Coins and banknotes represent cash, while the total outstanding cash is referred to as currency in circulation (CIC). Over the decades, payments shifted from cheques to digital modes, with India’s Unified Payments Interface (UPI) emerging as the most prominent. Crypto-stablecoins are emerging as the latest mode in international payments.

Digital retail payments have blossomed in India in the last few years and were expected to replace cash transactions. In the last two years, however, digital retail payments growth has been noticeably moderating, whereas cash seems to be making a comeback.

Are digital retail transactions losing momentum? If yes, why? Why is cash still the king, and growing? How is India dealing with crypto-stablecoins?

Digital transactions peaking

Digital retail transactions, in numbers, rose from 43.55 billion in 2020-2021 (money value Rs 358.59 trillion) to 221.68 billion in 2024-2025 (Rs 848.12 trillion). UPI transactions, digital retail payments warhorse, rose from 22.33 billion in 2020-2021 to 185.87 billion in 2024-2025 in volume, and from Rs 41.04 trillion in 2020-2021 to Rs 260.57 trillion in 2024-2025 in value.

The growth of UPI payments has, however, been moderating — from 105.80% in 2021-2022 to 82.16% in 2022-2023, 56.64% in 2023-2024, and to 41.74% in 2024-2025, which is reflected in value growth as well- 30.32% in 2024-2025.

Digital payments have made a big dent in the usage of cheque and other paper-based instruments — from 670.4 million in 2020-2021 to 609.5 million in 2024-2025. It has also drastically reduced the use of debit cards — from 4.01 billion in 2020-2021 to only 1.61 billion in 2024-2025.

UPI, the star performer, seems to have peaked.

In March, UPI was used for 18.3 billion transactions. In May-June, it stayed at 18.7 billion and 18.4 billion. In July-August, it rose modestly to 19.5 billion and 20.0 billion, but remained static at 19.6 billion and 20.7 billion in September and October.

UPI transactions, for the last few months, are averaging around 20 billion per month. Considering the trend, UPI transaction growth is likely to moderate to 20% in 2025-2026.

Cash usage entrenched

Despite digital advances, four key segments of India’s economy remain deeply reliant on cash.

First, in land and building, which witnesses widespread under-reporting of value/consideration in secondary sale/purchase registration transactions; at places exceeding 50%.

Second, most farmers still prefer to receive sale proceeds of their agricultural produce in cash, partly adjusted against cash advances taken from market intermediaries during the course of the year.

Third, a good part of investment and transactions in the informal/unorganised industry takes place in cash in most parts of India.

Finally, small vendors, particularly in rural areas, deal in cash instead of mobile and QR code-based UPI payments, which have otherwise become quite widespread in cities and towns.

The Reserve Bank of India (RBI) publishes no estimates of cash transactions in India. Its growth can only be estimated by the growth of CIC, which works as a good proxy. The CIC growth, after declining from 9.81% in 2021-2022 to 7.81% in 2022-2023 and to 3.93% in 2023-2024, reversed trend in 2024-2025 and increased to 6.07%. The annual CIC growth in October 2025 is 8.58%.

A large part of cash transactions remains unaccounted in books and for tax purposes, which explains the increasing demand for cash, and the resultant high growth of CIC. 

RBI’s disdain for stablecoins

The use of crypto-stablecoins is growing fast, substituting official currencies, particularly after the United States legalised and started granting licenses to private sector players to issue stablecoins, backed by US dollars. China and many other countries are also experimenting with stablecoins.

The RBI abhors cryptocurrencies and stablecoins, and, thus, there is unlikely to be a rupee-backed stablecoin anytime soon.

This, however, is not stopping Indians from using stablecoin networks to make international transfers. India’s diaspora uses stablecoins for remittances, while residents rely on them for expenses such as travel and education.

Stablecoin networks are replacing hawala networks. The increase in the use of stablecoin networks could soon result in subdued growth of official remittances and transfers through the liberalised remittance scheme (LRS).

Right policies for the transition

The tunnel vision of our policymakers should not end up in India missing the benefits of better technological transitions. For digital payments to substitute cash, users mustn’t suffer harsher financial and tax consequences.

Drastically reducing stamp duty and capital gains tax on property transactions could eliminate cash-driven black money. Any loss of revenue can be made up by putting a tax on the wealth of the rich.

The other three types of transactions will shift to digital payments when there are no adverse GST consequences. This can only be ensured by providing liberal GST credit to small vendors, equal to the imputed value of GST in their turnover.

India should also be proactive in allowing rupee-backed stablecoins to encourage efficient and less costly international remittances and transactions.

These tough but necessary policy reforms will ensure the end of India’s cash economy.

Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream Dented’, ‘Commentary on Budget 2025-2026’, and ‘We Also Make Policy’.

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.