Cashless Economy and UPI In India

A cashless economy is one in which the flow of cash is absent (or in practice negligible), and all financial activities are conducted through electronic mediums such as credit/debit cards, Unified Payments Interface (UPI), National Electronic Funds Transfer (NEFT) etc. Such economies have several advantages:

  • Convenience: One need not carry wads of cash or even a wallet or queue for ATM withdrawals. Transactions can easily be conducted through phones or even wearables like a ring or wristband. Additionally, there is no hassle of change.
  • Discounts: Several government schemes have been implemented to economically incentivise online payments.
  • Tracking payments: Online payments help one keep record of their expenses seamlessly and help them budget better. They also function as proofs of payment.
  • More Secure: It is easier to block a credit card or e-wallet if stolen or lost than to retrieve cash.
  • Taxation: It becomes easier for the government to levy taxes, helping curtail the black economy.

There are also disadvantages like the exclusion of the non-tech savvy and the risk of overspending due to the sheer convenience, however, the pros outweigh the cons.

History and Explanation

While e-payment services in India are helped by the emergence of startups in this arena and the spread of the banking system, India’s cash-to-GDP ratio, indicating the cash in circulation as a ratio of GDP, remains startlingly high around 14% in FY22.

Several government policies have affected India’s transactional nature. The most prominent of these in recent years is the BJP government’s Demonetisation initiative, which demonetised the Rs. 500 and Rs. 1000 currency notes in an effort to mitigate black money and funding for terrorism.

Since the implementation of this policy, there has been a push in the economy, both by the government and the people towards digital payments.

The government has advertised several methods of e-payment, introduced cashback schemes, initiated discounts for certain services if paid for electronically, etc. These policies have incentivised going cashless and the number of digital transactions shot up from 672 million in November 2016 to 4.1 billion in December 2020, a six fold increase. It is important to note that the December 2020 number is also shaped by the COVID-19 pandemic as more people preferred e-payment methods to avoid direct contact. This number grew to 23.06 billion by December 2022.

New Methods and Apps:

  • BHIM: The biggest scheme of the government is probably the BHIM (Bharat Interface for Money) app. It was launched by the National Payments Corporation of India (NPCI) based on the concept of UPI on December 30, 2016. BHIM allows transactions between VPAs (Virtual Payments Addresses), or even non-UPI accounts. BHIM transactions work seamlessly 24×7 including on weekends and bank holidays. It serves as a mechanism for transferring money remotely between different accounts. It allows one to send or receive payments through Aadhar.
  • E-Wallet: An e-wallet app allows you to hold money online and pay through your smartphone, smartwatch, or tablet instead of carrying cash and/or plastic cards. One can link their bank account to a wallet app or transfer money online from their bank account to the wallet. Several Indian startups in this area have become prevalent in the economy of today. These include Paytm, PhonePe, PayZapp etc.
  • UPI: It is a service introduced by the National Payments Corporation of India (NPCI) and was launched on April 11, 2016. It merges several bank accounts into a single mobile application, often combining several bank features. It is the most prevalent and convenient form of e-payment in India and allows you to conduct transactions through even a QR code. There are several UPI apps, including Amazon Pay and Google Pay.
  • Wearables: Wearable payments refer to contactless payments made via devices that can comfortably be worn on one’s body such as rings, smartwatches, and wristbands. With a simple tap on a card machine, one can pay for items and services. It usually has a limit on the value of transaction that can be made through it for security purposes.

Recent Developments:

The NCPI recently announced that starting April 1, 2023, a 1.1 percent fee would be charged on UPI merchant transactions exceeding Rs. 2000 when using wallets and credit cards. UPI is based on the principle of ease of payments: it now thus allows you to set up recurring payments. You may also now attach it to FastTag to skip the queue when passing tolls or paying for parking. The robust nature of UPI QR code, which allows one to scan a QR code and send money directly to the merchant has proved beneficial especially to small vendors who were earlier reliant on cash. The government has launched programs to raise rural usage of UPI through awareness drives and providing UPI-able devices to small vendors. This has been helped by the availability of cheap mobile internet and phones in India.


The UPI system has been a game-changer for the Indian economy. It is expected to grow further in the future due to the continually increasing awareness and smartphone accessibility. However, despite the sheer convenience of UPI, cash continues to be the dominant force in India. The value of currency in circulation has increased with each fiscal year. ATMs are more prevalent especially in rural areas as compared to UPI infrastructure, reproducing the reliance on cash. These ATMs mean that plastic money in India serves more as a tool for withdrawing cash than for making payments. India is making a move towards cashless economy but there is still a need for infrastructure development measures and awareness-building to realise this goal.

Note: I have taken the photographs/illustrations from internet. They belong to the author/photographer/designer of the original article/s.

12 thoughts on “Cashless Economy and UPI In India

  1. Shivam!!You have made a thorough study of the growth of digital transactions in India,we are really proud that though,people here are supposed to be less educated comparatively,India has comprehensively outclassed the rest of the world in digital
    Payments…sometimes I wonder if India accounts for more than 50%of the Digital Payments of the entire world…Great Study, Shivam!!

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