Ajit Ranade: What’s behind India’s cash upshoot and what does it tell us about the economy?

India is currently running two payment systems in parallel. On one side is its gleaming showcase, UPI, with 21.7 billion transactions in January 2026 worth ₹28.33 trillion in value. On the other side is the system of physical cash.

Currency in circulation (CiC) hit ₹40 trillion, rising 11% year-on-year.At first glance, it looks like a contradiction: How can India be ‘digitizing’ and ‘recashing’ at the same time? It isn’t, though, because while the digital payments revolution is real, India’s cash-loving political economy is also part of the stark reality. The apparent paradox of the usage of both rising is a warning that we are settling into a hybrid equilibrium: digital for convenience, cash for avoidance or for those excluded from UPI’s digital infrastructure. UPI is for the honest and cash usage is for the anxious and those who want to hide.

And when the cash stock expands faster than nominal GDP, it usually means something deeper is happening than “people like cash.”First, a bit of caution. Remember that UPI is a flow, while CiC is a stock. Hence even in a fast digitizing economy, the cash stock can rise as the economy grows.

But why is it rising so fast now? There are many explanations, some of them uncomfortable.There are many factors pushing CiC up. For instance, as interest rates go down, the opportunity cost of holding cash goes down, so more cash lies outside banks. Also, if inflation is expected to rise, the transaction demand for cash goes up.

There are four other troubling factors that may be contributing to higher cash usage.The first is a fear of UPI as a trap for small traders. Its digital trail exposes them to be caught in the taxman’s net. Research from State Bank of India confirmed this causality: ATM