Can UPI really change India?

After final approval from Reserve Bank of India (RBI), Unified Payment Interface (UPI) is finally operational in India. It is developed by National Payments Corporation of India (NPCI), the umbrella organization for all retail payment systems in the country. UPI which is an improved version of Immediate Payment Service (IMPS) is expected to help India move towards becoming a cashless economy.

“There will be a time – I don’t know when, I can’t give you a date – when physical money is just going to cease to exist” – Robert Reich, Economist

Before starting the discussion on the benefits and potential of Unified Payments Interface in India, it is important to revisit the definition of a cashless economy.  Ideally, a cashless economy as it sounds is an economy which involves no or close to zero cash transactions i.e. almost all the transactions are carried out using cards, internet banking or digital wallets keeping the cash transactions minimal. But in reality, no country has so far achieved this golden standard of 100% cashless transactions Belgium being the closest contender with 93% of all consumer transaction carried out using cashless means.

India having one of the highest cash to GDP ratio (12.4%), lags far behind most of the developed countries in terms of cashless transactions.


According to a report published by Fletcher school of Law and Diplomacy, close to 85% consumer transaction in the country is still carried out using cash. India is also at the top in the number of currency notes in circulation and their combined value in home currency. Maintaining these currency notes is not cheap either. RBI and commercial banks in India spend close to $3.5 billion annually on currency operations. Although these numbers are slowly decreasing thanks to several government initiatives like Jan Dhan Yojana and Digital India, but we are still far behind in financial literacy and financial inclusion, especially in rural areas and unavailability of proper infrastructure for facilitation of digital payments  makes the problem even worse. UPI in its present form promises to solve these problems by leveraging smartphone and the internet for digital and hassle free consumer transactions. It has the potential to transform Indian economy by curbing black money and tackling the counterfeiting of currency. UPI, just like any other cashless mode is immune to physical damage and can significantly reduce the environmental and economic impact of printing and distributing cash in the country.

India is expected to replace the US as world’s second largest smartphone market (by units) by 2017. This coupled with increasing penetration of internet in the country will serve a crucial role in directing UPI towards success. The introduction of UPI by RBI is definitely a revolutionary step towards true digitisation of the country’s economy and its success will totally depend on government’s dedication towards the improvement of last mile connectivity and promotion of innovation which can make smartphones and the internet available for all.


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