Growth and popularity of digital payments in India
The digital payments system in India has grown significantly in recent years.
Since the introduction of UPI in 2016, transactions in this mode have grown in value and volume.
It has been well documented that demonetisation in November 2016 and the COVID-19 lockdown in 2020 were major push factors for the widespread adoption of digital payments.
From June 2021 to April 2023, UPI payments grew at an average monthly rate of 6%.
The corresponding figures for NEFT, IMPS, and debit card payments was 3%, 3%, and 1.5%, respectively.
This indicates that the popularity of UPI increased at a faster rate than all other modes of payment.
The increasing share of UPI payments has come mainly at the cost of NEFT transactions.
This might be because both UPI and IMPS are real-time payment settlement systems unlike NEFT.
Impact of digital transactions on financial inclusion
It is to be expected that the increasing popularity of UPI-based payments would play an important role in improving financial inclusion.
The first step towards financial inclusion is to have a bank account. At first glance, it seems like India has made significant progress on this front.
According to the World Bank Global Findex Survey, while 53% of the population had bank accounts in 2014, 80% of the population had bank accounts in 2017 and 2021.
However, a closer look at the data reveals that of those with bank accounts, 38% have inactive accounts.
India has the highest share of inactive accounts in the world compared to all the other countries in the database.
This might be an outcome of the push for Jan Dhan accounts.
Zero-balance accounts were opened to meet official targets, but have been lying dormant since then.
More women than men have inactive accounts (32% versus 23%).
While there is no urban-rural divide or income group divide in the possession of bank accounts, differences are evident when we consider the share of inactive accounts.
While 31% of the population in rural areas have an inactive account, the share in urban areas is 23%.
Similarly, if we consider the poorest 40% of Indians, 35% of them have inactive bank accounts, whereas the corresponding figure for the richest 60% of the population is 22%.
Only 35% of the population reported carrying out any digital transaction (making or receiving a payment) in 2021.
India’s figures are unimpressive when compared to the average of 57% for all developing countries and the world average of 64%.
Although digital transactions have grown in value and volume, their growth has not been equal.
There is a sharp gender gap in digital transactions.
While 41% of the male population carried out any digital transaction in 2021, the corresponding figure among women was only 28%.
India’s figures are also lower overall compared to the figures in the developing countries.
Although Bangladesh reported a greater gender gap, its statistics (58% of men and 34% of women) are higher than India’s.
If we look at the rural-urban gap in digital payments, India again stands out when compared to countries such as Bangladesh and Kenya.
Only 30% of Indians in rural areas made or received any digital payment in 2021 as opposed to 40% in urban areas.
This again indicates that a substantial share of the population has been bypassed.
There was no rural-urban divide in Bangladesh (both rural and urban figures were 45%).
Therefore, while India has made big strides, it still has a long way to go in becoming ‘Digital India’.
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