Hurdles to overcome before becoming ‘Digital India

Source: The post is based on the article “Hurdles to overcome before becoming ‘Digital India’” published in “The Hindu” on 31st July 2023.

Syllabus: GS3- Science and Technology- developments and their applications and effects in everyday life

News: In this article author discusses how UPI has grown rapidly in India, outpacing other digital payment methods. Despite this growth, many bank accounts remain inactive, and digital transactions are not widespread across all demographics. Comparing to other countries, India’s digital adoption, especially among women and rural areas, lags.

About UPI payments in India

Growth: UPI payments have seen rapid growth, with its share in digital retail payments rising from under 20% in 2021 to 27% in 2023.

Comparison: UPI’s growth outpaces other methods like NEFT, IMPS, and debit card payments. For instance, 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 were 3%, 3%, and 1.5%, respectively.

Financial Inclusion: While 80% of Indians have bank accounts, only 35% conducted digital transactions in 2021 (22% in 2014 and 29% in 2017).

Gender Gap: More men (41%) than women (28%) made digital transactions in 2021. Comparatively, in Vietnam, 48% of men and 44% of women did. Brazil had 80% men and 73% women, China saw 87% men and 85% women, and Kenya reported 82% men and 74% women.

What are the benefits of UPI payments?

Rapid Adoption: Since its introduction in 2016, UPI transactions have shown consistent growth. By March 2023, UPI accounted for 27% of digital retail payments in India.

Speed and Efficiency: UPI is a real-time payment systems, unlike NEFT. This means faster and instant transfers, making it preferable for many users.

Push for Financial Inclusion: The rise of UPI payments has the potential to enhance financial inclusion. As of 2021, 80% of the Indian population had bank accounts, with UPI simplifying transactions for them.

Wider Acceptance: The reach of UPI is evident when even local shops or “kirana” stores adopt it, showcasing its ease and accessibility.

Shift from Traditional Methods: The increasing UPI usage led to a decrease in NEFT transactions from 64% in mid-2021 to less than 54% by 2023.

What are the challenges of UPI payments?

Inactive Accounts: While 80% of Indians had bank accounts in 2021, 38% of these were inactive. This high rate of inactivity could hinder the broader use of UPI.

Limited Use: Only 35% of the population carried out any digital transaction in 2021, showing limited UPI penetration despite its growth.

Gender Disparity: A significant gap exists between men (41%) and women (28%) using digital transactions, indicating potential barriers for women to access or trust UPI.

Rural-Urban Divide: Digital payment adoption is lower in rural areas (30%) compared to urban areas (40%).

Global Comparison: India’s digital adoption lags behind countries like Vietnam, Brazil, China, and Kenya, both in overall usage and gender parity.