The COVID-19 pandemic had a profound impact on the global economy with its direct and indirect implications on world production output, supply chains, and financial markets worldwide. Amidst these times, the digital economy played a crucial role in mitigating the negative effects and facilitating recovery in several nations across the globe. In India also, the digital economy grew multi-fold on the back of increased demand and supply for digital solutions.

The evidence to this comes from the fact that as of 31st May 2023 out of the total 108 unicorns, 44 unicorns were born in 2021 and 21 unicorns were born in 2022, mostly in digital space. Furthermore, the establishment of robust digital infrastructure by the Government of India has strengthened the foundation of the digital economy of India.

Growth of Digital Transactions

 India stands second highest in terms of internet users coming second after China. Combined with high number of internet users, growing broadband penetration (825 million as of November 2022), technological advancements, high Average Data Consumption per Month Per User (19.5 GB in 2022), low costs of data usage (Rs 13.5 per GB in 2022) and the Government’s thrust on building digital infrastructure, digitalization in India has propelled at a rapid pace. These factors have given a push to the emergence of the start-up ecosystem among the relatively young population, which has been quick in adopting and using digital technologies.

With the widespread adoption of the internet and mobile devices, India has seen a surge in digital transactions, e-commerce, and the emergence of several technology startups. Some of the notable Indian startups which have seen exponential growth due to the growing digital economy of India are Paytm, PhonePe in digital payments, Flipkart and Meesho (B2C retail), Byju’s (online education), Zomato, Swiggy (food delivery), Ola (taxi hailing service), PharmEasy (pharmaceuticals). A research by National Payments Corporation of India (NPCI) and People Research on India’s Consumer Economy in 2021 showed that one-third of Indian households are now using digital payments in one way or another.

As per the study conducted by Redseer and Plural by Pine Labs, this percentage stands at 35 per cent in 2023.The number is further set to rise exponentially with the increase in penetration of mobile phones, and with the introduction of 5G. As mobile phone usage expands and 5G technology integrates with the Internet of Things (IoT), the 2 number is expected to rise exponentially. This presents newer opportunities for businesses in fin-tech through adoption of new digital payment methods, automation and personalized customer interactions.

Digital transactions at new highs

 Coordinated efforts of the Government of India and the different stakeholders have led to a significant increase in digital payment transactions, contributing to the growth of businesses and the overall economy. With these efforts, digital payment transactions have significantly increased in the past few years.

The last nine years saw the numberof digital transactions in India rising from a mere 127 crore in 2013- 14 to12,735 crore transactions in 2022-23 (as on Mar 23, 2023), which is over 100 timesincrease.UPI has emerged as the preferred payment mode of the citizens and has recorded 886.3 crore digital payment transactions with a value of Rs. 14 lakh crore in April 2023 (Research Unit, Press Information Bureau, 2023).

According to Union Minister Shri Ashwini Vaishnaw, the digital payments transactions amounted to USD 1.5 trillion annualised basis in December 2022. Also, with the Indian economy getting increasingly integrated with the global system, cross-border payments have assumed greater significance.

To this end, the Government of India is making efforts towards enhancing the global footprint of domestic payment products such as UPI and RuPay network. Indian digital payment systems is available in Singapore, UAE, Oman, Saudi Arabia, Malaysia, France, BENELUX markets – Belgium, the Netherlands and Luxembourg – and Switzerland, among others showcasing the growing spread of India’s digital infrastructure. In line with this, the use of digital payments continues to be promoted so that each citizen of the country can access digital payment facilities that are affordable, convenient, and secure.

India is also one of the fastest-growing FinTech landscapes in the world, driven primarily by the advancement in the digital transactions segment. In the FinTech space, India is the second-highest funded geography after the U.S. in Q1 2023 and occupies a spot in the top five geographies in terms of total funding activities.

FinTech startups in India attracted investments worth USD 1.2 billion during the first quarter of 2023. To further facilitate integration with global digital economy and centralized currency, in December 2022, RBI announced the launch of the first pilot for the retail digital rupee.

This pilot will test the robustness of the entire process of digital rupee creation, distribution, and retail use in real-time. In a bid to foster the integration of India’s digital economy at the grassroots level, the Government of India introduced the Jan Dhan-Aadhaar-Mobile (JAM) trinity. By directly transferring cash benefits to the bank accounts of beneficiaries, the JAM trinity has effectively prevented the misappropriation of Government subsidies.

Aadhaar plays a vital role in identifying the direct beneficiaries through their biometric data, while Jan Dhan accounts and mobile phones facilitate the direct transfer of funds into the beneficiaries’ bank accounts. During the COVID19 pandemic, the JAM Trinity played a crucial nationwide role as the Government swiftly transferred financial aid directly to the intended beneficiaries’ accounts, even amidst restricted movement of people and resources.

Furthermore, the integration of biometric identification through Aadhaar with Jan Dhan accounts ensures that the benefits reach the intended recipients, leaving no room for corruption. The use of mobile phones to facilitate these transfers enables instant transactions and minimizes logistical challenges.

Global trends in digital transactions

 The global volume of digital transactions has also seen a steep growth in the past few years. The real-time payment (RTP) transactions which represent the instant fund transfers between bank accounts 8witnessed record highs in 2022.ACI (Advanced Commerce and Information) Worldwide’s March 2023 report reveals that more than 70 countries across six continents have embraced real-time payments. The report indicates a remarkable surge in transaction volume, reaching 195 billion in 2022, which represents an impressive year-on-year growth of 63%.

 The global RTPs are projected to reach a total of 511.7 billion by 2027, indicating a compound annual growth rate (CAGR) of 21.3 percent from 2022 to 4 2027. By 2027, RTPs are expected to make up 27.8 percent of all electronic payments globally. Countries like Bahrain, Brazil, and Thailand, which have recently embraced real-time payments, have experienced substantial growth due to collaborative efforts within the industry, Government mandates, widespread merchant adoption, strong brand recognition, and complementary services such as digital wallets

Amidst the growth in digital transaction globally, India has continued to dominate the RTP landscape, with an astounding 89.5 billion transactions (by volume) in 2022, experiencing a year-on-year growth rate of 76.8 percent. India accounted for 46 percent of all global real-time transactions during that period. The value of digital payments to GDP increased from 660% in 2014-15 to 862% in 2018- 19making the shift to digital payments in India clearly perceptible. Real-time payments are forecast to boost India’s GDP by USD45.9 billion in 2026 as real time payment transaction volumes are set to exceed 206 billion by that time.

Source: Times of Oman