Knowledge Nugget | RBI Digital Payments Index: A must-know for UPSC Exam

Why in the news?

The Reserve Bank of India (RBI) has recently released a composite Reserve Bank of India – Digital Payments Index (RBI-DPI). The index for March 2025 stands at 493.22 as against 465.33 for September 2024, which was announced on January 29, 2025. Notably, RBI-DPI stood at 445.5 at the end of March 2024.

Key Takeaways :

1. The increase in RBI-DPI index was driven by significant growth in parameters viz. Payment Infrastructure – Supply-side factors and Payment Performance across the country over the period.

2. The central bank had announced the construction of a composite RBI-DPI in March 2018 as a base to capture the extent of digitisation of payments across the country.

3. The index comprises five broad parameters that enable the measurement of the deepening and penetration of digital payments in the country over different periods.

4. These parameters are Payment Enablers (weightage 25 per cent); Payment Infrastructure – Demand-side factors (10 per cent); Payment Infrastructure – Supply-side factors (15 per cent); Payment Performance (45 per cent); and Consumer Centricity (5 per cent).

5. The index is published on a semi-annual basis from March 2021 onwards with a lag of four months.

6. The index series since its inception is as under:

FYI: The data itself may not be as important as identifying the overall trend, which is of primary significance.

After knowing about the RBI-DPI, let’s understand the Unified Payments Interface (UPI) and its significance in the rise of digital payments in India.

UPI Transaction in India

1. According to a recent note by the International Monetary Fund (IMF) titled “Growing Retail Digital Payments: The Value of Interoperability,” India has emerged as the global leader in fast payments, largely driven by the success of the Unified Payments Interface (UPI).

2. Launched in 2016, UPI is a system developed by the National Payments Corporation of India (NPCI) and regulated by the RBI. It allows users to send and receive money instantly using just their phone numbers or unique identifiers called UPI IDs.

3. Unlike other payment methods, such as NEFT and IMPS, UPI also lets users or merchants request money from others by sending a simple message through their bank app.

4. One of the reasons why UPI is so successful is that it’s completely free of charge. You can transfer any amount of money to anyone, anytime, without paying any extra fees to NPCI. You can also use UPI to make small payments at local shops, as there is no minimum limit on the transaction amount. Plus, UPI has a handy feature called AutoPay, which lets you set up recurring payments for your bills and subscriptions, saving you time and hassle.

5. UPI transactions are processed in real-time, using the existing NEFT, RTGS, and IMPS systems for settlements. UPI also ensures a high level of security and privacy for transactions. UPI transactions are backed by robust safety protocols and stringent regulatory measures established by the RBI.

6. UPI transactions are protected by advanced encryption protocols such as TLS, AES, and PKI, which ensure that sensitive information including user credentials and transaction data remains confidential during transmission.

7. UPI 2.0 is the latest version of UPI and offers several new features and improvements over UPI, such as overdraft facility, one-time mandate, invoicing, and signed intent and QR. These features aim to enhance the security, convenience, and transparency of UPI transactions for both customers and merchants.

8. Notably, The NPCI has announced a new set of regulations on UPI system that came into effect from August 1.  NPCI has introduced fixed time slots for autopay transactions via UPI. Rather than transactions being processed at random throughout the day, it will take place at specific time. These payments will include planned payments including auto payments, subscriptions, utility bills, or EMIs. Although it’s a behind-the-scenes change, it should help the platform run faster and reduce congestion throughout the day.

8. UPI users will only be able to check their account balance 50 times a day.

BEYOND THE NUGGET: RBI’s Financial Inclusion Index (FI-Index)

1. Financial inclusion across the country improved to 67 in March 2025, up from 64.2 in March 2024, according to the recently released Financial Inclusion Index (FI-Index) by the RBI. “Improvement in FI-Index in FY2025 is contributed by usage and quality dimensions, reflecting deepening of financial inclusion, and sustained financial literacy initiatives,” the RBI said in a release.

2. The FI-Index has been conceptualised as a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with the government and respective sectoral regulators.

3. The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.

4. The FI-Index comprises of three broad parameters: Access (having a weight of 35 per cent in the index), Usage (weight 45 per cent), and Quality ( weight 20 per cent). The weight of each parameter comprises various dimensions, which are calculated based on a number of indicators.

5. The FI-Index has been constructed without any base year, and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion. It is published annually in July every year.

Post Read Question

Consider the following statements with reference to Reserve Bank of India – Digital Payments Index (RBI-DPI):

1. It is published on a semi-annual basis from March 2021 onwards with a lag of four months.

2. The RBI had announced the construction of a composite RBI-DPI in March 2018.

3. The index comprises five broad parameters that enable the measurement of the deepening and penetration of digital payments in the country over different periods.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

(Sources: rbi.org.in, UPI powers your daily transactions, but do you know how it works? Here’s a breakdown, New UPI guidelines to kick in from August 1,Knowledge Nugget: RBI’s Financial Inclusion Index – A must-know for UPSC aspirants)

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