What Explains the Adoption of Digital Payment Methods Among Individuals and Firms in India, and How Have Public Policy Interventions Streamlined and Shaped the Structure of This Transition?

This empirical study examines the adoption of digital payment methods in India, with a particular focus on the Unified Payments Interface (UPI). It evaluates the role of government intervention in facilitating its integration among households and firms. The findings indicate that adoption is highly contextual rather than uniform, varying across income levels, age, profession, access to digital infrastructure and financial literacy. Higher-income respondents demonstrated greater financial understanding and more diversified payment choices, while lower-income groups exhibited more concentrated usage patterns. From a theoretical perspective, the study identifies UPI adoption as generating a positive consumption externality, leading to under-adoption and social welfare loss in the absence of intervention. Government measures such as subsidies and incentives are shown to internalize this externality and expand adoption toward the socially optimal level. At the macroeconomic level, increased UPI usage may act as a short-run leakage due to formalization and higher tax visibility, but holds the potential to function as a long-run injection by strengthening financial intermediation and economic efficiency.