The currency in circulation (CIC) declined by Rs 7,600 crore in the Diwali week, making it the first such happening in two decades, a report said on Thursday.
This was made possible courtesy of a greater reliance on digital payments by people, the report by economists at SBI said, adding that the Indian economy is undergoing a structural transformation at present.
They clarified that the Diwali week in 2009 had also witnessed a marginal Rs 950 crore decline in currency in circulation, but that was purely due to the economic slowdown amid the global financial crisis.
"The innovations in technology have changed the Indian payment system. Over the years, the Indian cash lead economy now has changed to a smart-phone lead payment economy," they said.
The economists also said that a lower currency in circulation also is akin to a cut in the cash reserve ratio for the banking system as it results in lower leakage of deposits and will have a positive impact on monetary transmission as well.
The report credited the government for the "relentless push" of digital alternatives in its attempt to formalise and digitalise the economy.
Interoperable payments systems like UPI (unified payments interface), wallets and PPIs (prepaid payment instruments) have made it simple and cheaper to transfer money digitally, even for those who don't have bank accounts, it said.
Smartphone-based payments transactions, including UPI, IMPS and e-wallet, have a share of around 16 per cent, 12 per cent and 1 per cent, respectively, in retail digital transactions, it said.
The share of CIC in payment systems has been declining from 88 per cent in FY16 to 20 per cent in FY22 and is estimated to go down further to 11.15 per cent in FY27, the economists estimated.
The digital transaction share is continuously increasing from 11.26 per cent in FY16 to 80.4 per cent in FY22, and is expected to touch 88 per cent in FY27, it said.