Evaluating UPI's Role in Advancing Financial Inclusion and MSMEs' Development in India

In 2016, the Indian government took a very firm stance on the black money market, which was followed by demonetization. Afterward, the government realized that the economy would benefit more from digital transactions and plastic money, considering Singapore as a reference. People were struggling to meet their basic needs; consequently, the government understood the importance of stabilizing the money supply, leading to the emergence of digital transactions and UPI. Objective: to investigate the dynamics of UPI transactions post-2020 and how UPI has been very critical in making financial inclusion a possibility in the Indian scenario. The paper also evaluates the role of UPI in MSMEs growth and development. Methods: Information about UPI transactions, including their volume and value, the number of active users, and their geographic distribution, was gathered using the NPCI dataset, on which we ran a linear regression model. For MSMEs, we saw a span of the last 4 years through the government’s annual report. Findings: Linear regression showed time predicts UPI transaction volume (R² = 0.97, p < 0.001) and value (R² = 0.837, p < 0.001), indicating that UPI adoption growth explains much of the rise in digital activity. The compound annual growth rate of UPI transaction value was about 19.75% from 2020 to 2024. The MSME transaction data from 2020-21 to 2023-24 shows a trend of an increase in the number and value of transactions, with the vast majority of them being carried out online during this time.