Currency in circulation (CiC) continued to rise at a sharp pace, increasing 11.5 per cent year-on-year to a record high of Rs 42.86 trillion as on May 15, according to the latest data released by the Reserve Bank of India.
In absolute terms, CiC expanded by Rs 1.15 trillion during the first one and a half months of FY27, indicating sustained demand for cash despite continued growth in digital payments. CiC was Rs 41.47 trillion as on March 31, 2026, compared to Rs 32.24 trillion a year ago — a growth of 11.9 per cent.
Economists attributed the rise in cash holdings to a combination of factors, including election-related spending, stronger rural activity, inflation and higher precautionary demand for cash amid volatility in financial assets.
“The increase in currency in circulation over the past few months appears to be driven by multiple factors. Cash continues to remain the preferred mode for a large section of transactions, while election-related spending also typically leads to a build-up in currency demand ahead of polling periods,” said Madan Sabnavis, chief economist at Bank of Baroda.
“In addition, amid volatility across financial assets, households seem to be holding more cash as a precautionary store of value, which has further supported the rise in CiC,” he added.
Analysts also pointed to improving rural incomes and stronger rural demand trends as factors supporting higher cash usage.
“There is no clear explanation yet for the sharp rise in currency in circulation, but apart from factors such as election-related cash usage, an improvement in rural incomes at the margin could also be contributing to higher cash holdings,” said Madhavi Arora, chief economist at Emkay Global Financial Services.
According to economists, the increase in government cash transfer schemes may also be adding to cash leakage from the banking system.
“Currency in circulation has been rising steadily since last year, when it increased by around Rs 4.4 trillion, and the current financial year is tracking at an even faster pace,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank.
“Part of this reflects inflation, since currency demand is a nominal variable, while stronger rural activity since the fourth quarter of FY25 has also supported cash usage given the sector’s cash-intensive nature. In addition, the growing use of direct cash transfer schemes by governments for women, education and employment could also be contributing to higher leakage of cash from the banking system,” she added.