India’s Achievement in Digital Payments Is Unique in the World
By Manohar Manoj
Nearly a decade ago, the decision to demonetise currency created considerable turmoil in India’s economy and politics. It attracted strong criticism from both its supporters and opponents. However, the circumstances that emerged after the decision, together with government initiatives, laid the foundation for a digital payment ecosystem in the country in which Indians have achieved a leading position globally.
Today, nearly half of all digital payment transactions recorded worldwide take place in India alone. Almost every section of India’s consumer society—from metropolitan cities to small towns and villages—is increasingly making purchases through various mobile-based UPI applications instead of using cash. Around 85 percent of all monetary transactions in India are now conducted digitally. In this respect, all developed countries and technologically advanced societies around the world are currently far behind India.
It must be acknowledged that many instances of transformation and development are being recorded in India’s public systems, encompassing achievements of various kinds. Some are ordinary, some average, some significant, and a few exceptional. However, India’s digital payment system—whether through different mobile applications or the internet—has proved to be unparalleled in the world. The International Monetary Fund, or IMF, has declared India the global leader in the area of the fastest-growing digital payments.
In the present digital era, every country is working to expand its digital economy. Large-scale investments are being made in the basic infrastructure required for areas such as artificial intelligence, robotics, and various newly developed digital platforms, with data centres forming a major part of this infrastructure. In this field, India’s digital payment infrastructure is far ahead of that of other countries in the world.
In India, payments are received every day through QR codes by approximately 6.5 crore merchants using the Unified Payments Interface, or UPI. The country records an average of 66 crore digital transactions every day. In June last year, India recorded 18.39 billion UPI transactions involving the exchange of ₹24 lakh crore.
India’s UPI payment system is now acquiring a global presence and has extended its reach to around 11 countries. These include France, the United Arab Emirates, Singapore and Sri Lanka. The financial inclusion programme launched earlier by the government, the Pradhan Mantri Jan-Dhan Yojana, has also played a major role in making digital payments nationwide and accessible to the masses. Nearly 60 crore new bank accounts opened in the country during the past decade under the Jan-Dhan scheme have also contributed significantly to this development.
The mobile revolution witnessed in India over the past two decades, the nationwide use of Aadhaar as an identity system, and the expansion of Jan-Dhan bank accounts together created the three-way foundation for this major transformation.
India’s financial infrastructure, particularly its banking system, has also played a significant role in nurturing digital payments. Around 700 banks in the country work as partners within this digital payment system, using financial technologies and collaborating with third-party applications.
The network through which digital payments are made in India is known as the Immediate Payment Service, or IMPS, infrastructure. Its regulatory body is the National Payments Corporation of India, or NPCI.
The role of the Government of India in promoting digital payments and training users has also been commendable. Initially, a large section of the population lacked the technical knowledge required to use UPI. However, the arrival of smartphones greatly assisted in making this campaign successful. The number of smartphone users in the country has now reached approximately 35 crore.
Earlier, discounts and incentives were offered for digital payments in railway ticketing and various other forms of booking. Subsequently, however, it was observed that additional charges were being imposed on railway tickets, online bookings and several other digital payments. Recently, there has also been discussion about imposing additional charges on digital payments.
It is worth noting that whenever the scale of business and the volume of transactions increase in a particular sector of the economy, the government’s revenue advisers begin exploring possibilities for raising revenue from it. For example, in the 1990s, service tax was introduced on the services sector, which had previously remained outside the tax net, in order to generate government revenue. Similarly, as people’s interest in the stock market increased, the government introduced the concepts of the Securities Transaction Tax, or STT, and capital gains tax.
However, if the government introduces any proposal to impose a tax on UPI transactions, it would impede the momentum of digital payments in India.
Another disappointing aspect of the progress of digital payments in India is the increasing number of digital and cyber fraud cases. Several incidents of so-called “digital arrest” have been reported repeatedly. Through such digital-arrest scams, cybercriminals have allegedly defrauded people of nearly ₹4,000 crore. The government took cognisance of the matter rather late and instructed banks to remain vigilant and actively track suspicious transactions with the help of new technologies. The Reserve Bank of India is also conducting several public-awareness campaigns in this regard.
Nevertheless, when it comes to new technological innovations, Indian governments have been active from the very beginning. Despite being a poor country in the past, India never hesitated to adopt space technology, nuclear technology, information technology, telecommunications technology and digital technology. From policymaking and incentives to investment, research and development, successive governments have undertaken comprehensive efforts.
Just as India gradually became a leading country in software, UPI payments and start-ups, it can now also emerge as an important global power in artificial intelligence. The investment being made by private and foreign corporate giants in the establishment of data centres in India is a noteworthy development in this regard.