India’s Unified Payments Interface (UPI) has completed 10 years of operations and has been a phenomenal success. It is now an integral part of our financial ecosystem and used by individuals irrespective of income class for making payments. The system has matured enough for the regulator to talk about making someone pay for its use.
A question often asked is this: If even a ₹10 transaction with a hawker can be done using UPI, does it mean regular paper currency is becoming redundant?
Data from the Reserve Bank of India (RBI) throws up interesting trends. The currency in circulation was around ₹42.46 trillion in August and is increasing at a good pace. In fact, 2025-26 recorded an increase of ₹4.38 trillion, the largest after demonetization in 2016. In 2017-18, it increased by almost ₹5 trillion after a decline in 2016-17. During 2020-21, there was an increase of ₹4.14 trillion, the second most, amid covid as people accumulated cash as a safety buffer.
On average, we witness an increment of ₹2-3 trillion every year. Before demonetization too, there were similar increments, implying that people at large still prefer the same level of cash. This also means that from the central bank’s perspective, it may not yet be time to slow down the printing of currency notes.
So, what is driving this uptrend in India’s demand for paper currency? There are two sets of reasons. The first relates to the advantage of anonymity and the second to a fear of digital transactions.
An anonymity preference is apparent in five use-cases.
The first are payments for property transactions. Sellers often insist on cash payments in part for the sale of homes and land. Even developers do it, as they may need to pay cash bribes to get clearances for their projects (land certificates, water and power connections, etc) and fend off local land sharks. Several layers of authorities being involved leads medium and small developers to use speed money to keep their projects on track and reduce cost overruns.
While state-wise Real Estate Regulation Authorities have helped make the system more transparent, there are still challenges. The cash component in realty deals can go up to 30-40% if it is a resale or 10-15% in the case of a primary sale. If it is a patch of land, the cash ratio could be even higher.
Second, cash is still used widely for buying gold ornaments. There is a limit of ₹2 lakh for purchases with cash payments. Beyond this level, one needs to provide a PAN number. So, buyers try to avoid leaving an audit trail by making cash purchases.
While corporate jewellery retailers follow the rule, a multitude of smaller establishments in the unorganized sector tend to accept large cash payments. Often, the amount is split into multiple bills to accommodate the customer. Otherwise, doing business would be harder.
Third, wads of cash are accumulated by various political parties for use during elections. Large sums are spent on various campaign expenses or given as gifts to voters. While this is illegal, such transactions are hard to track. Given that we have elections in some states or municipalities every year and the cost of wooing the electorate is rising, this demand for currency doesn’t flag.
Fourth, cash is often used to settle bills for expensive functions like marriages. This helps keep such transactions anonymous and avoid tax burdens. In some places, it can yield substantial savings on hotels, halls, banquets and bands. The amounts involved can range from a few lakhs to crores. Further, marriage gifts often involve cash. Ironically, the tracking of credit-card payments made by taxpayers incentivizes the use of cash.
Notably, several small-time vendors have stopped accepting UPI payments and are now insisting on cash to avoid an audit trail. UPI-record revelations of several hawkers having earned large sums by selling foodstuff during the last Kumbh Mela attracted the taxman’s interest. These stories have led some users to revert to cash. While the individual amounts would be small in relative terms, taken together, they would amount to a considerable sum.
On the other side, instances of digital fraud have irked people, especially the older generation of folks who are not savvy with technology. The momentum of UPI adoption was anyway weaker among the elderly and complex app designs are a deterrent as well. However, with online fraud on the rise and India’s redressal system still a work-in-progress, many individuals have withdrawn from the digital payments system.
Lastly, the precautionary motive has grown after covid, with people keeping cash at home for emergencies. During the pandemic, there were several instances of hospitals and nursing homes insisting on cash payments for admission amid uncertainty over reimbursements from insurers, given the surge in hospitalization. That experience stoked the habitual holding of cash among Indian households, with some keeping a handy stash upwards of ₹50,000.
Cash is also used by anonymous donors who do not wish to be identified by recipients or their peers. Migrating everyone to digital transactions and away from cash seems almost impossible. The age factor alone would make a compulsory shift unfair.
The fact that many commercial practices remain opaque and involve speed money will always make cash a useful tool for expediting processes. And if the state keeps a tighter watch on transactions made by individuals, it may push them to rely even more on paper money to eschew identification.
These are the author’s personal views.
The author is chief economist, Bank of Baroda, and author of ‘Corporate Quirks: The Darker Side of the Sun’