India’s Cash Economy in Q4FY25: Why Currency in Circulation Grew 2.4%

The Reserve Bank of India (RBI) just dropped some news: currency in circulation in India grew by 2.4% year-on-year till May 2, 2025, hitting ₹38.1 lakh crore. That’s a big pile of cash, even with digital payments like UPI ruling the roost. This growth, higher than last year’s 1.7% for the same period, shows cash is still king in many parts of India, especially in rural areas. I

Source: The Economic Times, May 13, 2025

What Does “Currency in Circulation” Mean?

Currency in circulation (CIC) is the total value of physical cash—notes and coins—floating around in India. This includes the money in your wallet, shopkeepers’ cash registers, and even cash stashed under mattresses. It’s a big part of India’s money supply, managed by the RBI, and as of May 2, 2025, it’s worth ₹38.1 lakh crore, or about 11.5% of India’s GDP. That’s huge, considering how much we hear about “Digital India.”

The 2.4% growth (compared to 1.7% last year) means more cash is being used this year. But why? With UPI, Paytm, and cards everywhere, you’d think cash would be fading. Let’s unpack the reasons behind this cash comeback.

Why Is Currency in Circulation Growing?

The RBI data points to a few key reasons why cash is still in demand, even in 2025. Here’s the lowdown:

1. Strong Rural Demand
   Rural India loves cash. Villages rely on it for daily transactions—buying groceries, paying laborers, or trading at local markets. The Avendus Spark report says rural demand, fueled by good farm prices for crops like rice and wheat, is driving cash use. Unlike cities, where UPI is king, rural areas don’t always have internet or card machines. So, cash stays the go-to.
2. Agricultural Output
   India’s farms are doing well, thanks to decent monsoons and government support. When farmers sell crops, they get paid in cash, which then flows into rural markets. This boosts currency in circulation, as farmers and traders prefer hard cash over digital payments.
3. No Big Election This Time
   Usually, elections pump up cash use—think rallies, campaign spending, or vote-buying (sadly). But Q4FY25 didn’t have a major election, yet cash grew anyway. This shows the growth is organic, driven by everyday needs, not political events.
4. Cash as a Safety Net
   Even with digital payments, many Indians keep cash for emergencies. The Economic Times notes that cash accounts for 60% of consumer spending as of March 2024, per a CMS Info Systems report. People trust cash when power cuts hit, internet fails, or shops don’t take UPI.
5. ATMs and Bank Branches
   India’s cash infrastructure is massive. From 2014 to 2024, ATMs grew by 32%, and bank branches by 36%, per CMS Info Systems. More ATMs and branches mean easier access to cash, keeping it in circulation.

Source: CMS Info Systems Report, March 2024

How Does This Compare to Past Trends?

To understand this 2.4% growth, let’s look at history:

• Post-Demonetization (2016): After the ₹500 and ₹1,000 note ban, currency in circulation crashed to ₹13.35 trillion in FY17. It’s since climbed to ₹34 trillion by FY24, showing cash bounced back hard.
• COVID-19 (2020-21): Cash surged during the pandemic as people hoarded money for safety. FY22 saw a 9.9% jump in CIC to ₹31.05 lakh crore, driven by fear of lockdowns.
• FY23 Slowdown: Growth slowed to 7.8% in FY23 (₹33.78 lakh crore), the lowest since FY18, as digital payments grew.
• Q4FY25 (Now): The 2.4% year-to-date growth till May 2, 2025, is modest but higher than last year’s 1.7%, showing cash is holding steady despite digital push.

This growth is slower than the crazy spikes during COVID or post-demonetization but proves cash isn’t going anywhere soon.

Cash vs. Digital: The Big Picture

Bhai, India’s a unique place where cash and digital payments are like best friends who compete. Here’s how they stack up:

• Cash Dominates Spending: CMS Info Systems says 60% of consumer spending in March 2024 was cash-based. That’s huge, even with UPI transactions hitting billions monthly.
• Digital Boom: UPI has exploded, with small shops to street vendors accepting it. The Hindu BusinessLine notes UPI’s “scorching pace” but says cash is “still holding its ground.”
• Rural vs. Urban Divide: Cities lean on UPI, cards, and apps, but rural areas stick to cash due to spotty internet and fewer bank accounts.
• Infrastructure Support: India’s built roads for both cash (ATMs, bank branches) and digital (UPI, 5G networks), so neither is killing the other.

The 2.4% CIC growth shows cash is still a major player, especially where digital hasn’t fully reached.

What’s Driving Rural Cash Demand?

Rural India’s the heart of this cash story. Here’s why cash rules there:

1. Farm Income: Good crop prices mean farmers have more cash, which they spend in local markets. This ripples through villages, boosting CIC.
2. Limited Digital Access: Many rural areas lack steady internet or smartphones. Cash is simpler and works everywhere.
3. Trust in Cash: Rural folks trust cash more than apps. It’s tangible, and no one’s worried about a cyber scam stealing their savings.
4. Small Transactions: Daily buys like chai, veggies, or bus tickets are often cash-only in villages, as digital payments aren’t practical for tiny amounts.

The RBI data links this rural cash love to strong agricultural output, which is keeping the economy humming.

How Does Cash Affect the Economy?

Currency in circulation isn’t just about notes in your pocket—it impacts the whole economy. Here’s how:

1. Liquidity in the System
   The Economic Times explains there’s an inverse link between CIC and rupee liquidity. More cash in circulation means less money in banks, which tightens liquidity. This can push interest rates up, making loans costlier.
2. Consumption Power
   Cash fuels spending, especially in rural areas. The 2.4% growth shows people are buying, which keeps shops, markets, and factories running.
3. Inflation Connection
   More cash can lead to higher spending, which might push prices up. India’s retail inflation was 4.25% in May 2025, close to RBI’s 4% target, so this CIC growth isn’t sparking crazy inflation yet.
4. GDP Link
   At 11.5% of GDP, CIC is a big chunk of India’s economy. It’s down from 12% pre-demonetization (2016), but still shows cash is a backbone for trade and consumption.

The Role of ₹500 Notes

The RBI’s annual reports show ₹500 notes are the real MVPs of currency in circulation:

• Biggest Share: In FY23, ₹500 notes made up 37.9% of total notes by volume and 77% by value. They’re the most used for daily transactions.
• ₹2000 Notes Fading: The ₹2000 note’s share dropped to 10.8% by value in FY23 from 13.8% in FY22, after RBI stopped printing them in 2018-19 and withdrew them in 2023.
• Why ₹500 Rules: It’s practical—big enough for major buys but small enough for everyday use, unlike ₹2000, which people hoarded.

The 2.4% CIC growth likely leans on ₹500 notes, as they’re the workhorse of India’s cash economy.

Digital Payments: Are They Winning?

Digital payments are growing like crazy, but they haven’t killed cash. Here’s the scene:

• UPI’s Rise: UPI handles billions of transactions monthly, from street vendors to malls. It’s cheap, fast, and everywhere in cities.
• Cash Still King: Despite UPI, 60% of spending is cash, per CMS Info Systems. Cash is preferred for small, quick transactions or where digital isn’t an option.
• e-Rupee Experiment: RBI launched the e-Rupee (digital currency) in 2022, but it’s tiny—₹16.39 crore in circulation by March 2023. It’s not denting cash yet.

The 2.4% CIC growth shows cash and digital are coexisting, not fighting to the death.

Challenges for Cash in Circulation

Even with this growth, cash faces hurdles:

1. Digital Push: Government’s “Digital India” and UPI’s popularity could slow CIC growth in the future, especially in cities.
2. Counterfeit Notes: Fake notes are a headache. In FY23, counterfeit ₹500 notes rose 14.4%, though ₹2000 fakes dropped 27.9%. RBI’s working to keep cash clean.
3. Cost of Printing: Printing notes isn’t cheap. RBI spent ₹4,682.80 crore on security printing in FY23, down from ₹4,984.80 crore in FY22. More CIC means more printing costs.
4. Rural-Urban Gap: While rural areas drive cash, urban shift to digital could create a two-speed economy.

What’s Next for Currency in Circulation?

The 2.4% growth till May 2, 2025, is a snapshot, but what’s the future? Here’s what could happen:

1. Rural Demand Stays Strong
   If agriculture keeps doing well, rural cash use will drive CIC. Monsoons, crop prices, and government schemes like PM-KISAN will play a big role.
2. Digital Growth Continues
   UPI and e-Rupee will grow, especially in cities. But cash won’t vanish, as rural and small-town India still needs it.
3. RBI’s Balancing Act
   RBI will keep printing notes (especially ₹500) to meet demand while pushing digital payments. They’ll also watch liquidity to avoid inflation spikes.
4. Festive Season Boost
   Q4FY25 includes Diwali and wedding season, which always pump up cash use. CIC might grow faster by year-end.

How Does This Affect You?

You might be thinking, “Bhai, yeh currency in circulation mera kya lena-dena?” Here’s why it matters:

• Spending Power: More cash means shops and markets stay busy, so you can buy and sell easily.
• Jobs: Cash-driven rural economies support jobs in farming, trade, and small businesses.
• Prices: If CIC grows too fast, prices might rise. But at 2.4%, it’s under control for now.
• Digital Choice: You can use UPI in cities but still rely on cash in villages or for small buys.

This growth shows India’s economy is flexible—cash and digital are both thriving, giving you options.

Wrapping It Up: Cash Is Still King

The RBI’s data showing a 2.4% growth in currency in circulation till May 2, 2025, proves cash isn’t going anywhere, even with UPI’s boom. Rural demand, strong farming, and India’s massive cash infrastructure are keeping notes like ₹500 in high demand. At ₹38.1 lakh crore, CIC is a big part of India’s economy, supporting jobs, trade, and growth.

But it’s not all smooth sailing—digital payments, fake notes, and printing costs are challenges. Still, with rural India’s love for cash and festive seasons ahead, CIC will keep growing. Bhai, this shows India’s economy is like a thali—cash, UPI, and e-Rupee all have a place. What do you think—will cash stay king, or will digital take over? Let’s see!

Sources:

• The Economic Times, May 13, 2025
• CMS Info Systems Report, March 2024
• The Hindu BusinessLine, May 31, 2023
• Reserve Bank of India Annual Report, 2023
• Statista, August 30, 2024
• NDTV Profit, May 30, 2023