India's digital merchant payments market demonstrated robust growth, expanding 19.6% year-on-year to ₹11.7 lakh crore in July, according to reports from The Times of India. This significant growth reflects the continued adoption of digital payment methods across the country's merchant ecosystem. However, as per the latest RBI data, currency in circulation grew 12.5% year-on-year as of July 31, 2026, slightly faster than the 12.4% growth recorded at the end of June, creating what the central bank calls the 'cash paradox'. The government has now opened the door to a Merchant Discount Rate (MDR) on a limited category of high-value UPI transactions, while assuring that Person-to-Person (P2P) payments will remain free.
The most striking development was UPI's unprecedented market penetration, with its share of person-to-merchant transactions reaching a record 77.3% in July, as reported by The Times of India. In 2025-26 alone, UPI processed more than 24,000 crore transactions worth close to ₹314 lakh crore, according to RBI Deputy Governor Shirish Chandra Murmu. As per Murmu, even street vendors can now accept digital payments with the same confidence as large retailers, with QR codes becoming a fixture at shops and street stalls across the country. The government reports that UPI processed 2,366 crore transactions worth nearly ₹29.9 lakh crore in July 2026 alone, demonstrating the system's continued growth trajectory.
Despite UPI's surge, cash circulation continues to grow at double-digit rates even as cash's share of individual transactions declines. The RBI's infrastructure reflects this continued demand, with currency supplied through more than 2,50,000 ATMs and cash dispensers and millions of business correspondents who carry much of the last-mile distribution load in rural areas. Cash withdrawals remain substantial, with RBI payment-system statistics showing that ATM withdrawals are overwhelmingly made using debit cards. The central bank now prepares five-year forward projections of currency demand, dividing requirements into transactional demand (affected by GDP growth, interest rates, and digital-payment adoption) and replacement demand (for worn-out notes).
India's digital transformation shows significant regional variations, with Murmu noting that despite what he called a 'revolutionary' adoption of digital payments over the past decade, cash circulation has not declined in rural and semi-urban areas, among lower-income groups, older people and small businesses. The RBI currently has about ₹17,600 crore banknotes in circulation, with the system producing roughly 2,800 to 3,000 crore notes annually across six denominations while disposing of around 2,100 crore pieces annually as unfit currency. This creates a dual payments economy where digital payments dominate urban areas while cash remains deeply embedded elsewhere, making forecasting currency demand increasingly difficult for the central bank. PhonePe and Google Pay still account for roughly 79% of UPI transaction volumes, although their combined share has recently fallen below 80% as smaller platforms such as Navi and super.money gain more ground.
