The Unified Payments Interface (UPI) has transformed digital payments in India by enabling instant, cashless transactions. A recent Reserve Bank of India (RBI) study reveals Telangana leads the country in per capita UPI transaction volume. This reflects a broader trend of rising digital payments and declining cash demand across the economy.
UPI Usage Intensity Across States
The RBI paper uses PhonePe transaction data to estimate UPI usage intensity. Telangana tops the list, followed by Karnataka, Andhra Pradesh, Delhi, and Maharashtra. These states show the highest per capita volume of UPI transactions. The presence of urban centres and economic hubs, along with employment migration, drives this high intensity in southern and western India and the national capital region.
Decline in Cash Demand
The rise of UPI is linked to a steady decline in cash usage. ATM cash withdrawals as a percentage of GDP have fallen consistently. This indicates a shift from cash to digital payments in everyday transactions. The convenience and speed of UPI make it a preferred option for consumers and merchants alike.
Peer-to-Merchant Payments and Transaction Size
UPI’s growth is evident in the increase of peer-to-merchant (P2M) payments. Most P2M transactions are low value, typically under ₹500. The average transaction size or ‘ticket size’ has decreased over time, showing UPI’s adoption for small, daily expenses such as groceries, transport, and dining.
PhonePe’s Role in UPI Transactions
PhonePe is the dominant UPI platform in India, handling 58% of total transaction volume and 53% of transaction value. The RBI study uses PhonePe data as a proxy to assess overall UPI intensity. This marks PhonePe’s crucial role in the digital payments ecosystem and its widespread acceptance across diverse regions.
Regional Variations in Cash Usage
Despite high UPI usage in many states, cash withdrawal intensity remains elevated in northeastern states, Kerala, Goa, and Delhi. Factors contributing to this include tourism, service sector cash needs, remittance inflows, rural cash dependence, and limited digital infrastructure in some areas. Delhi’s mixed profile reflects both high digital usage and cash demand.
Impact on Economy and Society
The shift towards digital payments like UPI supports financial inclusion and transparency. It reduces the cost and risks associated with cash handling. Increased digital transactions also aid in better tracking of economic activity, which can improve policy decisions and tax compliance.
Questions for UPSC:
- Critically discuss the impact of digital payment systems like Unified Payments Interface (UPI) on the Indian economy and financial inclusion.
- Examine the role of urbanisation and migration in the adoption of digital technologies in India. How do these factors influence regional disparities?
- Analyse the challenges faced by rural and remote areas in adopting digital infrastructure and suggest measures to improve digital payment penetration.
- Estimate the effects of declining cash usage on the informal economy and discuss the implications for government revenue and monetary policy.
