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Q43 (IAS/2017) Economy › Economy Current Affairs › Digital payments ecosystem Official Key

Which of the following is a most likely consequence of implementing the ‘Unified Payments Interface (UPI)’?

Result
Your answer: —  ·  Correct: A
Explanation

The correct answer is option A. UPI uses the Unified Payments Interface Protocol (UPI-P) that provides additional features and functionality, such as interoperability, where UPI-P allows users to transfer money between bank accounts held at different banks, and instant settlement, where UPI-P transactions are settled instantly[1]. This direct bank-to-bank transfer capability reduces the necessity of mobile wallets as intermediaries for online payments, since users can transact directly from their bank accounts.

Option B is incorrect as there is no evidence suggesting digital currency will completely replace physical currency in two decades. Option C is incorrect because while the digital sector accounts for 50% of India's inward FDI compared with 20% a decade ago[2], this is related to the broader digital sector, not specifically to UPI implementation causing drastic FDI increases. Option D, while UPI does facilitate financial inclusion by improving access to formal financial services and reducing transaction costs[3], the effectiveness of direct subsidy transfers depends on multiple factors beyond just UPI, including Jan Dhan accounts and Aadhaar integration—making UPI alone not the primary driver of this effectiveness.

Sources
  1. [1] https://www.adb.org/sites/default/files/publication/964626/adb-brief-299-india-unified-payments-interface.pdf
  2. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 15: Budget and Economic Survey > 15.2 Economic Survey 2022-23 > p. 450
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Which of the following is a most likely consequence of implementing the ‘Unified Payments Interface (UPI)’? [A] Mobile wallets will not …
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 2.5/10 · 2.5/10
You're seeing a guest preview. The Verdict and first statement analysis are open. Login with Google to unlock all tabs.

This question tests 'Functional Literacy' of a technology, not just its definition. It requires understanding the architectural difference between 'Stored Value' (Wallets) and 'Account-to-Account' (UPI). The key was to identify the immediate structural obsolescence (Wallets) rather than vague long-term hopes (FDI/Currency replacement).

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Will implementation of the Unified Payments Interface (UPI) eliminate the need for mobile wallets for online payments?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 4/5
"UPI uses the Unified Payments Interface Protocol (UPI-P) that provides additional features and functionality, such as • interoperability, where UPI-P allows users to transfer money between bank accounts held at different banks; and • instant settlement, where UPI-P transactions are settled instantly, meaning that the money is immediately transferred from the sender’s account to the recipient’s account."
Why this source?
  • Describes UPI's interoperability (bank-to-bank transfers across different banks), which enables direct payments without intermediary wallet accounts.
  • Notes instant settlement, meaning funds move immediately between bank accounts — a wallet-like intermediary becomes less necessary for online transactions.
Web source
Presence: 4/5
"The Unified Payments Interface (UPI) has significantly impacted the digital payment landscape in India by promoting financial inclusion. • UPI helped reduce the use of cash and checks in India and the cost of financial transactions, increase the adoption of digital payments by merchants and consumers, and improve the efficiency of government"
Why this source?
  • States UPI has significantly impacted digital payments and promoted financial inclusion.
  • Explicitly says UPI 'helped reduce the use of cash and checks' and 'increase the adoption of digital payments by merchants and consumers', implying reduced reliance on alternative payment methods such as mobile wallets.
Web source
Presence: 3/5
"Aadhaar also provides authentication for the Unified Payments Interface (UPI), created by the National Payment Corporation of India. The single interface platform is used by digital payments applications, which have rapidly sprung up since November 2016 built by technology companies such as WhatsApp, banks, and the government itself."
Why this source?
  • Explains UPI is authenticated (via Aadhaar) and 'used by digital payments applications' built by tech firms and banks.
  • Shows that apps can integrate the single UPI interface directly, reducing the need for separate wallet infrastructure in online payment flows.

Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > Digital India: a Step Forward in e-Governance > p. 778
Strength: 5/5
“The government also intended to enhance and improve connectivity of all villages and rural areas through internet networks. There is no doubt that e-infrastructure, e-participation, and government e-services were put in place and made to work to improve transparency. The Unified Payments Interface (UPI), a payment system allowing mobile-enabled money transfers between bank accounts, and the Bharat Interface for Money (BHIM) for a less-cash economy were developed and put to good use, and certainly proved helpful to the citizens.”
Why relevant

Defines UPI as a payment system allowing mobile-enabled money transfers between bank accounts (person-to-person and person-to-merchant).

How to extend

A student could combine this with knowledge of merchant acceptance and bank account penetration to ask if direct bank-to-bank UPI flows can cover all use-cases that wallets currently serve.

Exploring Society:India and Beyond ,Social Science-Class VII . NCERT(Revised ed 2025) > Chapter 11: From Barter to Money > New Forms of Money > p. 243
Strength: 4/5
“This is called digital money which is in electronic form. Have you observed other people around you making or receiving payments without using coins and notes? Different payment methods like debit cards, credit cards, net banking, UPI (Unified Payments Interface), etc., are also used for transactions. These mediums directly transfer money from one person's bank account into another. You will learn more about the modern methods of monetary transactions later.”
Why relevant

States UPI and other methods directly transfer money from one person's bank account into another (listing UPI among methods that replace coins/notes).

How to extend

Use this to contrast wallets' stored-value model versus account-to-account transfers and judge whether account-based UPI can substitute stored-value conveniences (e.g., offline use, unbanked users).

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > How will e-Rupee work? > p. 78
Strength: 4/5
“And the requirement of inter-bank settlement would disappear.• Transactions can be both person to person and person to merchant (payments to merchants can be made using QR Codes)• Users will be able to transact with e-rupee through a digital wallet offered by the participating banks and stored on mobile phones and other devices• Just like we withdraw cash from our bank deposits in the same way we can transfer our bank deposits to a CBDC wallet and this transaction is recorded in Core Banking Solution (CBS) of the bank.• But when transactions are made from one CBDC wallet to another CBDC wallet then this transaction is not recorded in the CBS of the bank and remains anonymous.”
Why relevant

Explains e-Rupee transactions can be made using digital wallets offered by banks and merchant payments via QR codes—showing QR/ wallet interfaces remain relevant even with new account-based instruments.

How to extend

A student could infer that even account-based digital currency may still rely on wallet-like apps/QR flows, so examine whether UPI similarly needs app/QR layers that wallets provide.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 10.Oversight of payment and settlement systems > p. 70
Strength: 4/5
“For many years in India, banks have been the traditional gateway to extend payment systems. Over a period of time, given the demand for varied payment services and in keeping with the fast pace of technological changes, non-bank entities have also been permitted access to the payment space. These non-banks are co-operating, as well as, competing with banks, either as technology service providers to banks or by directly providing retail electronic payment services. It may be noted that licensed banks also need to obtain specific permission from RBI for setting up and operating a payment system. This is because banking function is different and operating a "payment system" (which facilitates payment from one entity to other) is different.”
Why relevant

Notes non-bank entities have been permitted access to the payment space and can provide retail electronic payment services, implying competition/coexistence between banks (UPI) and non-bank wallets.

How to extend

Combine with market-structure knowledge to assess whether regulatory/competitive incentives would preserve mobile wallets alongside UPI rather than eliminate them.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 22. Consider the following statements: > p. 250
Strength: 3/5
“Which of the statements given above is/are correct? • (b) 2 only • (a) 1 only • (d) Neither 1 nor 2 • (c) Both 1 and 2 • 23. Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'? • (a) Mobile wallets will not be necessary for online payments. • (b) Digital currency will totally replace the physical currency in about two decades. • (c) FDI inflows will drastically increase. • (d) Direct transfer of subsidies to poor people will become very effective.”
Why relevant

Contains a multiple-choice prompt that explicitly lists 'Mobile wallets will not be necessary for online payments' as a possible consequence of implementing UPI (presented as a hypothesis to consider).

How to extend

Use this as an explicit framing: a student can treat it as a testable claim and seek empirical factors (user preference, functionality gaps, offline/credit features) to verify or refute it.

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Statement analysis

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Statement analysis

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