India, Where Cash Happily Coexists With E-Money

But here’s the thing: Indians still love their cash. 

The moment you step out of the major metros, you realise that cash transactions are very much in vogue. Tamil Nadu, Maharashtra, Karnataka, and Gujarat top the list of states that registered the highest ATM deployment between December 2025 and March 2026, reveals RBI data.

These states have traditionally registered a higher growth rate than others. Not only are these home to large firms - Indian as well as multinational - they have the largest number of Micro, Small, and Medium Enterprises (MSMEs), which continue to prefer cash for their day-to-day operations. Apart from these states, Uttar Pradesh has also registered sizeable cash withdrawals.

According to Reserve Bank of India (RBI) data, cash in circulation stands at ₹42.97 lakh crore, the highest since 2017. In May 2017, just after the demonetisation exercise, it was ₹13.35 lakh crore. Before the announcement of demonetisation, the figure was ₹16.63 lakh crore in 2016 May.

Unsurprisingly, with the RBI discontinuing the issuance of ₹2,000 currency notes, the denomination of ₹500 notes now makes up for over 86% of the value of currency in circulation. 

Another interesting point to note: more than 80% of the merchant UPI transactions are less than ₹500.

UPI has worked extremely well for small-value transactions, but larger cash-driven parts of the economy have not necessarily shifted to digital modes.

— Nirupama Soundararajan, Co-Founder and CEO of Policy Consensus Centre, told The Secretariat.
In the middle of the digital revolution that India is undergoing, the dependence on physical currency is still very strong. UPI was once anticipated to phase out the use of cash, but it turns out that both systems have been running side by side. 

States with large MSME ecosystems, agricultural trade, and strong local business activity are likely to continue witnessing increased demand for cash alongside digital transactions, said Soundararajan. 

UPI In A Changing Landscape

As far as daily transactions go, UPI has changed the payment landscape for Indians. 

Whether it's roadside merchants or small-town pharmacies, mobile transactions are more prevalent than they were a couple of years ago.

In May 2026, UPI processed over 2,320 crore transactions per month, representing almost 86% of India's retail digital transactions. The participation of rural areas is gradually going up.

Digital payment penetration in rural areas rose from 12% of total UPI transactions in FY2019-20 to 37% in FY2023-24, according to the National Research Journal of Banking and Finance Management.

But the circulation of physical cash continues to rise, indicating that currency still plays a significant part in the country’s economic activity. Much of trade, labour, and local commerce continues to be informal, so cash is convenient and acceptable. 

The preference for cash is also strong in agriculture-based trade in rural India, as ease of transactions, local trade, and informal credit systems are still facilitated by cash, said Soundararajan.

Internet-Fuelled Growth

QR codes are no longer a hot trend in cities alone but are also found at roadside tea stalls and rural grocery shops. 

Over the last few years, digital payments are subtly changing the way smaller towns and villages manage day-to-day payments. This urban fintech revolution is now gaining momentum in smaller markets, transport hubs, neighbourhood stores, and weekly ‘mandis’, where mobile payments have become commonplace. 

The facilities needed to support this growth have also evolved in a short period of time. 

Today, there are almost 448 million internet users in rural India, accounting for more than half the total internet population. The internet coverage in rural areas increased from 59% to 78% from 2021 to 2024. 

Parallelly, over five million merchants in rural areas are now accepting payments using QR codes, making digital transactions part of the everyday lives of low-value transactions that were previously all cash.

Despite the trend of digital payments, however, the use of physical cash has not declined as much as policymakers had hoped.

Why Cash Is Still Growing

UPI was once anticipated to phase out the use of cash. Rather, both systems have been going side by side. 

The total currency in circulation in India has crossed ₹42.97 lakh crore for FY2025-26 (May 29) – it was ₹16.63 lakh crore when demonetisation was imposed in 2016. Banknotes in circulation, therefore, grew by almost 12%, reflecting the continued demand for physical cash. 

Cash-access infrastructure also indicates the continued demand for physical currency. States like Tamil Nadu, Maharashtra, Uttar Pradesh, Karnataka, and Gujarat have seen the highest ATM deployment from December 2025 to March 2026. 

Digital payments seem to be taking over small-ticket, high-frequency transactions like paying for groceries, transport fares, and payments at the tea shop. On the other hand, cash is being used for higher-value transactions, savings, and unofficial transactions like payments to daily wage labourers. 

Soundararajan said digital payment systems for larger-value transactions already existed through instruments such as NEFT, RTGS, and cards long before UPI became mainstream, which is why UPI’s biggest impact has been on everyday low-ticket spending.

Embracing Hybrid Payments 

Research also points to a mismatch between cash holdings and withdrawals from ATMs, with the average amount of cash a person withdraws going up from ₹1,806 per capita in FY2023-24 to ₹9,127 in FY2025-26, according to SBI Research. 

This trend could be driven by a more risk-averse attitude towards cash, the report said. 

Many homes and small businesses still use cash, not as a replacement for the newer payment alternatives, but as a complement. SBI Research terms this coexistence as “hybrid payments equilibrium,” in which digital payment platforms and physical currency coexist and fulfil different economic functions simultaneously.

Cash is also still used in many homes as a backup, for instance, when the network goes down, or there is a banking issue, or a transaction fails.

What has come into place is a multi-layered payments system. While convenience spending is increasingly being made via digital platforms, cash is playing a key role in savings, liquidity and informal transactions. 

India is not transitioning to a cashless economy and seems to have opted for a model where both cash and e-money happily thrive together.