Demonetisation Impact: Cash Surges in India
In November 2016, the Indian government announced demonetisation, which led to the withdrawal of Rs 500 and Rs 1,000 notes. This decision aimed to tackle black money and counterfeit currency, but it triggered significant economic disruptions. Initially, the currency with the public decreased sharply, but it has since rebounded dramatically, reaching Rs 37.29 lakh crore by October 2025.
After the demonetisation, many businesses faced liquidity crises, and GDP growth declined by nearly 1.5%. The sudden withdrawal of high-denomination notes caused chaos, with long queues at banks and ATMs. Over the years, a combination of renewed printing of new notes and a cultural tendency to hoard cash resulted in a substantial increase in currency with the public.
The COVID-19 pandemic further accelerated the demand for cash. During the stringent lockdown in 2020-21, people started accumulating cash to meet essential needs such as groceries and medical expenses. This led to a significant jump in cash held by the public.
According to the Reserve Bank of India (RBI), currency with the public is calculated by subtracting cash held by banks from the total currency in circulation (CIC). Despite the rising numbers, the CIC to GDP ratio has shown fluctuations. While it touched 14.5% in 2020-21, it has decreased to 11.11% in 2025, indicating a shift towards digital transactions.
India's currency-to-GDP ratio is still higher than major economies like Japan, the Eurozone, and the US. This is largely due to a significant informal economy and a cultural preference for cash transactions. Although digital payment systems like the Unified Payment Interface (UPI) are gaining traction, cash remains an integral part of daily transactions.
Despite the government's push for a "less cash society," the dependence on cash persists. UPI transactions surged to 54.9 billion in Q1 FY26, showing rapid adoption, especially in tier 2 and tier 3 cities. As digital payment methods become more widespread, the landscape of cash usage in India is expected to evolve further, raising intriguing questions about the future of currency in the country.
