Today, UPI is the most preferred payment option in India. From grocery to malls, people are using UPI for payments. It is easy, fast and secure. But UPI is not just a payment option, it is also helping in growth of Indian economy. In this article, we will tell you how UPI is boosting Indian GDP.
UPI’s Evolution and Global Influence:
In just eight years, UPI has become the default option for transactions in India, influencing global payment systems. In December 2023 alone, UPI facilitated transactions worth Rs 18.23 trillion, with a monthly volume of 12.02 billion.
UPI’s Contribution to GDP:
While UPI has made digital transactions more convenient, its contribution to India’s broader economy is a critical question. Examining this involves understanding the opportunity cost and how it facilitates credit-driven spending.
Opportunity Cost and Cost Savings:
The ease and convenience of UPI transactions reduce the economy-wide cost of transactions. For instance, the decline in Cash on Delivery (COD) orders in e-commerce, with UPI now constituting 52%, has saved the industry nearly USD 200 million in 2022.
Real-Time Payments and GDP Growth:
Real-time payments, spearheaded by UPI, are projected to boost India’s GDP by USD 45.9 billion in 2026. In 2021, India led the world in real-time transactions, unlocking USD 16.4 billion of additional economic output.
UPI’s Role in Equity Markets:
The increased interest in equity markets, especially through digital brokerages, has boosted UPI transactions. The transaction limit for UPI payments in schemes like Retail Direct and IPO applications has been raised from Rs 2 lakh to Rs 5 lakh.
Substitution of Cash and Impact on Currency:
The shift from cash to UPI has led to a decline in small denomination notes. UPI now constitutes 73% of the total volume of retail payments, contributing to the reduction in the use of small-value cash payments.
UPI’s Role in Household Savings and Credit Market:
UPI’s widespread acceptance has provided an opportunity to include millions in the formal credit market. UPI transactions serve as a proxy to assess people’s loan repayment capacity, enabling lenders, particularly non-banking finance companies (NBFCs), to offer easy and convenient loans.
Fintech Sector Growth:
The introduction of UPI has been a key factor in the growth of the fintech sector in India. UPI transactions provide alternate data for creditworthiness determination, reducing the distance between borrowers and lenders and fostering stronger relationships between UPI and fintech lending.
Embedded Finance and Future Trends:
The integration of UPI in e-commerce has led to embedded finance, enabling various financial services like equity and mutual fund investments. The progression from embedded payments to embedded finance is evident in innovations like Buy Now, Pay Later (BNPL) options.
In conclusion, the impact of UPI on India’s economy goes beyond the convenience of digital transactions, influencing spending habits, financial inclusion, and even shaping global payment trends.
