Cash Payments Continue To Remain Strong

Mumbai: Even as the share of digital transactions in private final consumption expenditure (PFCE) has grown from 30 per cent in FY23 to 50 per centin Q1FY26, cash continues to remain strong, holding the remaining 50per cent share. While digital payments are likely to dominate in thecoming years, the cash mode of payment will continue to be embedded in India’s consumption cycle, say experts.Explains R Gandhi, former deputy governor of Reserve Bank of India(RBI), “People use UPI or other digital modes for small and high value transactions but for some high value transactions people prefer cashas many want to keep them private. These may be legal transactions butthey still want to keep these transactions private. The other demand for cash is coming from black money transactions.” Gandhi cites the example of the agri sector where cash continues to remain the preferred mode for payment. “If you look at agriculture, the payments are still in cash even for valid sale of agri-produce. They take cash rather because though their agriculture income by and large is not taxable, there is a catch. The law says that you have to report in your Income Tax return as to what is your agricultural income which many farmers do not even want to declare because they think that today if they disclose, three to five years down the line, the government may tax them. So, the future implications are also holding them back from taking digital means for their products which is unwarranted,” added Gandhi. “From a 70 per cent share of cash usage in PFCE in FY23 to 50 per cent in Q1FY26, India has been witnessing a payments system revolution, where cash and digital transactions will co-exist to drive financial inclusion and foster a truly inclusive economy,” said Kalpesh Mantri, assistant director at CareEdge Research. According to CareEdge Research, despite the rise of the digital first economy, cash remains a vital component of the payment system especially in rural and informal sectors as it serves as a crucial fallback during crises such as natural disasters, economic shocks or system failures when digital payments are not feasible. Furthermore, cultural practices and established trust in physical currency ensure its enduring relevance. On UPI, the report states that zero merchant discount rate (the fee merchants pay to banks or fintech companies for processing a payment transaction) on the UPI challenges the long-term sustainability of India’s real-time payment ecosystem. The next phase of growth for UPI, which currently has around 500 million users, will depend on smart monetisation through value-added services such as micro-credit, merchant analytics, insurance, and fintech partnerships. Retail payments are now 99.8 per cent digital, with paper-based instruments (cheques) nearly obsolete, owing to policy push, infrastructure support, and deep fintech penetration. Digital payments, led by UPI, AePS, IMPS, and others, dominate retail transactions, accounting for 92.6 per cent of payment value and 99.8 per cent of transaction volume as of Q1FY26. It highlights that rising internet penetration (from 60.7 percent in March 2021 to 70.9 per cent in June 2025) and smartphone usage have accelerated this shift, enabling financial inclusion by bringing previously unbanked populations into the formal digital economy.