Incentivise, not penalise, digital

India's digital journey has been nothing short of transformational.

- R.S. Sharma

The country has built world-class digital public infrastructure (DPI) in areas such as identity (Aadhaar), payments (Unified Payments Interface), and financial inclusion (the Jan Dhan-Aadhaar-Mobile trinity). These foundational platforms have reduced friction across sectors and empowered citizens across socio-economic strata. Now, with the emergence of domain-specific digital public infrastructures such as the Open Network for Digital Commerce, the Ayushman Bharat Digital Mission in healthcare, and digital agriculture initiatives, India is set to redefine how markets, services, and innovation scale in an inclusive manner.

But while the infrastructure is robust, misaligned incentives threaten to limit the potential of these digital rails. Simply put, in many everyday scenarios, digital payments cost more than cash—a paradox that undercuts the idea of a cashless economy.

Take the case of UPI. In May, it clocked nearly 19 billion transactions worth over ₹25 trillion. UPI has surpassed all other instruments in both volume and reach, becoming the primary mode of payment for millions. Its success is no accident—it is free to use, both for peer-to-peer and merchant payments.

What goes unacknowledged is that UPI also reduces the systemic cost of currency management. The Reserve Bank of India (RBI) and commercial banks together spend around 0.15-0.2 per cent of currency in circulation annually on printing, distributing, and securing cash—particularly small-denomination notes. UPI displaces much of this burden through instant, traceable micropayments.

At a macro level, it is a strategic tool for formalisation, transparency, and fiscal efficiency. Given these benefits, one would expect digital payments to be actively incentivised. Yet in practice, users are often penalised for going digital.