Diffusion of digital payments in India, 2011–2012 through 2020–2021: role of its sectoral system of innovation

ABSTRACT

The aim of the paper is to analyse the extent to which digital payments in India have diffused since its introduction around 2010. The paper measures diffusion in terms of the rates of growth of digital payments in both volume and value terms and then employing the sectoral system of innovation framework to identify the factors that are crucial for its faster diffusion. The paper shows that despite its existence for more than a decade, digital payments have not diffused in value terms. The main factor identified for its slower diffusion is a decline in the rate of growth of real per capita income.

KEYWORDS:

• Digital payments
• demonetisation
• currency in circulation
• sectoral system of innovation

JEL CODES:

• E42
• E51,033,053

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 See Atlantic Council, https://www.atlanticcouncil.org/cbdctracker/ (accessed 5 February 2022).

2 See Feder et al. (1985), Sunding and Zilberman (2001), and Suri (2011) for a flavour of these studies.

3 Fiscal year from 1st April 2017 till 31st March 2018.

4 Over the long-term the share of currency in broad money (M3) has fallen, see Chart 10, Mohan and Ray (2018). Hence we choose currency in circulation.

5 We realise the difference in definition of digital payments between 2016–2017 (old) and 2017–2018 onwards (new). Though this may affect the level of the index, the trend, we believe will be unaffected and is our variable of interest.

6 m.rbi.org.in/scripts/publicationsview.aspx?id=12043 (accessed 2 November 2021).

7 As predicted by Katz and Shapiro (1986), UPI which is a robust and superior technology has become the standard for low value digital payments in India.

8 See Appendix 1 for the definition of digital payment we use for the regression analysis.

9 https://economictimes.indiatimes.com/industry/energy/oil-gas/no-more-discounts-on-credit-card-payment-at-petrol-pumps/articleshow/71294152.cms?from=mdr (accessed 1 December 2021).

10 As per https://m.rbi.org.in/scripts/PublicationsView.aspx?id=9455, Currency in circulation includes notes in circulation, rupee coins and small coins (accessed 8 February 2022).

Additional information

Notes on contributors

Sunil Mani

Sunil Mani is Director and Professor, Reserve Bank of India Chair at the Centre for Development Studies, Trivandrum, Kerala, India. His field of specialization is the economics and policy studies of technological change.

Chidambaran G. Iyer

Chidambaran G. Iyer is an Associate Professor at the Centre for Development Studies, Trivandrum, Kerala, India. His field of specialization include, technology, innovation, productivity and spillovers.