Digitalising payments for an inclusive Digital India

Ms Simmi Choudhury

India’s digital payments ecosystem has witnessed rapid growth over the last eight years, growing in annual volume from only 316 crore in the financial year (FY) 2014-15 to 8,840 crore in FY2021-22. This growth has been powered by a confluence of technological developments and progressive government policies and regulations.

In particular, the Unified Payments Interface (UPI) system has helped India change from a country largely dependent on cash for day-to-day transactions to a significantly less cash economy. UPI has allowed users to transfer money on a real-time basis and across multiple bank accounts without revealing the details of one’s bank account to other parties. UPI transactions have grown rapidly since the launch of UPI in April 2016, achieving a major global milestone of annual transaction value exceeding USD 1 trillion in the financial year 2021-22 (with 45.6 billion transactions) and the domestic milestone of monthly transaction value exceeding ₹10 trillion in May 2022 (with 5.95 billion transactions). This spectacular growth in UPI transactions, at a CAGR of 381% over the last five years, has been the prime mover in the rapid adoption of digital payments in India.

Policy push

Government policy and regulatory initiatives are the linchpins for the success of any digital payments ecosystem. The Government and the Reserve Bank of India have together played a catalytic role in India taking big strides towards a less cash society. India’s digital revolution kickstarted with its twin initiatives: Pradhan Mantri Jan Dhan Yojana as the financial inclusion initiative launched in 2014 and the Digital India programme as the digital empowerment launched in 2015. Pradhan Mantri Jan Dhan Yojana gave a globally unprecedented impetus to financial inclusion by adding 457 million new accountholders to the banking system. Coupled with the JAM trinity of Jan Dhan, Aadhaar and Mobile wherein citizens were encouraged to link their unique biometric Aadhaar identity and their mobile numbers with their bank accounts, empowering citizens across the country to digitally access their accounts and participate in the digital economy. At the same time, a massive Direct Benefits Transfer programme has been pursued, which today covers 313 Central sector and Centrally sponsored schemes and has resulted in transfer of Rs. 6.3 trillion digitally into bank accounts during FY2021-22.

Government has continued to actively promote digital payments over the years through a series of interventions ranging from tax exemptions, caps on digital payment pricing and incentives for retail transactions. Last year alone, the Government allotted Rs. 1,500 crore for incentivising and promoting digital payments. The National Electronic Toll Collection system has taken contactless, hasslefree electronic toll collection through FASTag ubiquitous, backed by the Government mandate that all passenger-carrying four-wheelers must use FASTag.

RBI has also continuously calibrated its regulatory framework to adapt to the growing needs and maturity of the payments ecosystem, pursuing a prudent, evidence-based and forward-looking approach. As systems have stabilised, permissible payment limits have been enhanced, charging structures rationalised, interoperability furthered and payment system participant accountability strengthened for both consumer protection and service levels. Last year, RBI has also operationalised the Payments Infrastructure Development Fund to subsidise deployment of physical and digital point of sale infrastructure in smaller population centres, the North East and beneficiaries of Prime Minister’s Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) Scheme.


Emergence of the tech-savvy Indian consumer

Hasslefree, low-cost digital payment solutions and growing familiarity and confidence in their use has made the average Indian consumer tech-savvy and digitally aware. The number of transactions done on UPI per UPI user has grown from 3.5 transactions with monthly transaction value of Rs. 13,243 in March 2017 to 28 transactions with monthly transaction value of Rs. 49,744 in March 2022. As per research by the National Payments Corporation of India and People Research on India’s Consumer Economy (2020), one-third of Indian households are using digital payments in one way or another. It is heartening to note that almost a quarter of the households in the bottom 40% income group are using it as well. This reflects a well-developed consumer environment.


Future pathways

With population scale digitalisation of payment systems and growing digital transaction histories, ground has been laid for leveraging these histories for easy cash flow-based access to credit for small businesses. RBI has recently announced the move to link UPI with RuPay credit card. With 5G set to roll-out access to Internet and deployment of Internet of Things will receive a major boost and this too will enable new reach and new means of digital payments and their acceptance. Online Dispute Resolution systems will infuse new confidence in consumers and improve the response time and accountability for customer grievances. All of these are well-placed to sustain India’s high digital payments growth trajectory, knitting Indians into a more efficient economy with a higher velocity of money for sustained growth.


The author, Ms. Simmi Chaudhary is Economic Adviser and Group Coordinator at Ministry of Electronics and Information Technology. The views expressed are personal.


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