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Digital Payments UPSC NOTE


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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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Digital Payments UPSC NOTE
Digital Payments UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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