MC EXCLUSIVE Currency in circulation set to rise during festive season, bolstered by GST cuts and Bihar election

Currency in Circulation

The currency in circulation (CIC) is expected to rise significantly in the coming months on back of festive season transactions, Bihar state election in November and the recent reduction in Goods and Services Tax (GST), treasury heads of private and state-owned banks have said.

According to the Reserve Bank of India (RBI) data, the CIC has already risen by 2.1 percent so far in the current financial year.

Despite India’s push towards a digital economy, cash remains a dominant mode of transaction during periods such as the festive season, particularly in rural and semi-urban regions, where the digital penetration remains uneven.

“The onset of the festive season traditionally results in a pick-up in currency in circulation, led by higher consumer spending, cash withdrawals for retail purchases and increased activity in informal segments of the economy,” V Ramachandra Reddy, Deputy General Manager and Head of Treasury at The Karur Vysya Bank.

Reddy said the seasonal increase in CIC typically ranges between 1.5-2 percent of the outstanding currency stock during the festive quarter, but this year’s combination of policy support and improved consumer sentiment may push it slightly above the historical trend.

“Given these factors, we could see an additional Rs 60,000-75,000 crore increase in circulation over the next couple of months,” Karur Vysya Bank’s treasury head said.

Alok Singh, Group Head of Treasury at CSB Bank concurred, "Currency in circulation in India is consistently rising despite a phenomenal increase in digital transactions, with roughly Rs 2.5-3 lakh crore added every year."

Traditionally, the demand for currency in hand increases during the festive period between September and November when celebrations commence around Ganesh Chaturthi and extend to Navratri, Dussehra and Diwali. Additionally, election-related spending too pushes up cash withdrawals, especially in states heading to polls.

As per RBI data, CIC increased by 15-22 percent on-year during the festive season between FY19-21. However, with the rising usage of UPI, the growth in CIC had somewhat reduced to 2-9 percent between FY22-24.

However, the trend may have flipped last fiscal, continuing into FY25, as RBI indicated that the rise in CIC was about 5-7 percent on-year during the festive months, slightly higher than last year’s 3-4 percent in the comparable period.

"I don't see much impact of the GST cut on CIC. However, the festive season and the Bihar state election will certainly boost the numbers. Accounting for the weakness in the economy, I would expect last year's trends to hold this year as well,” CSB Bank’s treasury head said.

“Structural factors such as growing digital payments continue to temper cash demand over the medium term,” Karur Vysya Bank’s treasury head said, “however, the short-term seasonal and policy-driven boost suggests a sharper uptick in CIC this festive season compared to recent years.”

The central bank is expected to closely monitor the onset of rise in CIC, to manage liquidity in the banking system. The central bank typically adjusts its liquidity tools to ensure stable market conditions and manage inflationary pressures, particularly when large volumes of cash are injected into the economy.