How digital payment revolution fuelling India’s economic growth

But being the world’s most populated country; India needs to further accelerate its growth in coming years and decades because providing dignified living conditions to such a large chunk of population obviously requires a much bigger economy. Otherwise, India’s per capita income will be abysmally low even if it eventually achieves the tag of world’s third largest economy

There was yet another good tiding for India and the Indian economy last week. S&P Global Market Intelligence made it amply clear that India would outpace Japan and emerge as the world’s third largest economy with a GDP of $7.3 trillion by 2030. India’s GDP reached $3.5 trillion in 2022. Presently, India is the third largest economy in Asia and the fifth largest one in the world. It has to outgrow Europe’s Germany and Asia’s Japan to reach the coveted third spot. We are now in the middle of the year 2023. As per the S&P’s projections, India will achieve this monumental feat in just seven-and-a-half years from now. The global rating agency further said that India would continue to be one of the world’s fastest growing major economies over the next decade. That means India has long-term growth prospects.

Is that not a good piece of news? It indeed is. For a country which was extremely poor when it attained Independence from the repressive shackles of British rule in August 1947, achieving world’s third largest economy status in a span of about 84 years will not be a small achievement. This milestone will also be the need of the hour as India is now the world’s most populated country.

Recently, the International Monetary Fund (IMF) raised India’s growth prospects for the current fiscal i.e. 2023-24 to 6.3 per cent. In its October 2023 World Economic Outlook (WEO), the global lender went for this upward revision of India’s growth by 0.2 percentage points because the country witnessed a much stronger consumption in the first half of this calendar year. It forecast a lower growth of 6.1 per cent for this fiscal in July this year. With this latest upward revision, IMF’s projections for India are in line with those of the World Bank. Of course, the Reserve Bank of India (RBI) forecasts a much higher growth rate of 6.5 per cent for FY24. Whatever may be the variations in these projections, but one thing is certain. India has good economic growth prospects.

While India is all set to clock higher growth this fiscal and beyond, the world economy is not in a good stead. The IMF, which said the world economy was still limping, pegged the global growth for 2023 at 3 per cent. In its latest outlook, the world body also cut the global growth forecast for 2024 to 2.9 per cent from 3 per cent earlier. That means global economic growth is heading for a slowdown.

This brings us to an interesting question. How India is bucking the global trend of weaker economic activity and poised to post a robust growth? I recently went to a canteen in a hospital. Given the nauseating environment all around, we rarely feel like eating in a hospital premises. Isn't it? In this hospital owned by the Telangana government and run on a non-profit basis, a private company is operating the canteen and the ambience is on par with any other mid-range restaurant outside. Upon enquiry, I came to know that this particular company with its head office at a remote corner of Hyderabad operates canteens and eateries at more than 150 places including several hospitals. That’s not a small business.

When the bill was being paid, the cashier there said there was no change available with him and asked us to transfer Rs 10 through UPI so that he could return the balance amount in higher currency denominations. This shows that the digital payment ecosystem is so widespread now that it is even being used whenever there is no change available for a commercial transaction!

For many, the hospitality services company mentioned above doesn’t appear to be a game changer on the face of it. So is the Rs 10 digital transaction used as a change. But these are what are driving India’s growth story. People are rarely using paper currency these days. This is a reality not only in Hyderabad, but also in interior places.

As per recent report by paytech organization Worldline, UPI transactions in India zoomed 62 per cent to 51.91 billion in January-June 2023 from 31.95 billion in the same period a year ago. Adding credit cards to the UPI ecosystem seems to be one of the reasons for the enormous upswing in UPI-based digital transactions. Expectedly, mobile transactions accounted for the lion share. Interestingly, person-to-merchant (P2M) accounted for 57.5 per cent in June this year, indicating the increased use of Unified Payment Interface (UPI) for commercial transactions.

Further, the average ticket size (ATS) for these transactions came down to Rs 653 in June 2023 from Rs 883 in January 2022. This means UPI transactions are getting smaller by the day as people are increasingly using it for micro payments. These numbers reveal that India is currently going through a digital payment revolution which is facilitating movement of money at a jet speed.

This circular economy is the one which has pushed India into a high orbit of economic growth. So, positive projections about India’s growth story should not come as a surprise for us.

But being the world’s most populated country; India needs to further accelerate its growth in coming years and decades because providing dignified living conditions to such a large chunk of population obviously requires a much bigger economy. Otherwise, India’s per capita income will be abysmally low even if it achieves the tag of world’s third largest economy. But propelling India’s economy to a much higher growth level requires a multi-pronged strategy that can fuel super growth in key infrastructure and industrial segments. A lot will depend on how the central government formulates its policies over the next few years. But India can achieve higher economic growth over a longer period if it has the right policies and right people at the right places. There is no doubt about it.