Answer

Introduction

India’s economy is witnessing a decisive shift from cash to digital payments through UPI. In April–June 2025, 34.9 billion UPI transactions worth ₹20.4 lakh crore equaled 40% of private final consumption expenditure, up from 24% two years ago. Household currency savings fell from 12.5% (2020-21) to 3.4% (2023-24), while ATM withdrawals halved between 2019 and 2025, marking a structural move towards a UPI-driven economy.

Body

Difference between Cash -dominated Economy and UPI-driven Economy

Benefits of UPI to the Indian Economy

• Enhanced Financial Inclusion: Digital payments reach even remote areas, integrating informal sector participants into the formal financial system.
  Eg: RBI and NPCI launched Payments Infrastructure Development Fund (PIDF) in 2021 o boost digital payment adoption in tier-2 and tier-3 cities.
• Transaction Efficiency and Cost Reduction: Instant settlements reduce reliance on cash handling and minimize operational costs.
  Eg: Households spent Rs 3.4 lakh crore on food and beverages through UPI in April-June 2025, streamlining micro-transactions.
• Formalisation of Economy: Encourages documentation of transactions, boosting tax compliance and reducing the shadow economy.
• Promotion of Investment and Credit Flow: Facilitates easier remittance, loan repayments, and investments via digital channels.
  Eg: In July 2025, households transferred Rs 93,857 crore to debt collection agencies and Rs 61,080 crore to brokers through UPI.
• Data-Driven Policy Making: Large-scale digital transaction data helps the government monitor consumption patterns and economic activity.
  Eg: UPI usage trends allow RBI and other agencies to assess the extent of formalisation in different sectors for policy interventions.

Conclusion

The rise of UPI represents a transformative leap from cash-dominated informality to digital formalisation, strengthening transparency, efficiency, and financial inclusion. Going forward, sustained efforts should align with the Ratan Watal Committee on Digital Payments (2016), which recommended promoting low-cost, interoperable digital infrastructure, reducing cash usage, and deepening financial access.

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