Financial Deepening, Digital Payments and Economic Growth in India: A Comparative Empirical Study

Abstract

The introduction of digital financial services has transformed the manner in which financial transactions take place while has led to a significant change in Indian financial system. With the expansion of availability of banking and usage of financial services, an ecosystem of formal economy has developed which is technology driven. Financial deepening and financial services banking has led to the emergence of an important factor of economic growth. Some of the initiatives such as UPI, RuPay and various schemes for financial inclusion have supplied a boost to delivery and transactions of financial services. But at the same time, there are disparities between different regions with respect to banking development and economic growth in India. This research will be aimed at evaluating the financial deepening of eight different states of India and finding the correlation with digital payments and economic growth.
The article relies exclusively on secondary data gained from the Statistical Appendix of the Economic Survey 2025–26. A quantitative method has been applied to the analysis of transactions at the national level made with UPI and RuPay between 2019–20 and 2024–25 for comparing the evolution of digital payments. In the study, data from the same year of banks’ deposits, bank credit, and GST receipts was analyzed by states in order to identify their financial deepening and economic performance, i.e., eight regions were chosen: four from the north and from the south and four from the east and from the west of the country. Financial Deepening Index (FDI) was constructed using data of bank deposits and credits. Also, the results were analyzed in comparison with the trend analysis, descriptive statistics, and Pearson correlation coefficient being applied.
While India’s financial system has transformed into a largely digital ecosystem with rapid increase in UPI transactions and adoption of digital payments, there is significant variation in financial deepening across states. In terms of banking development indicator, states such as Maharashtra and Karnataka have registered higher values of banking development index, while Odisha’s index value is lowest. Correspondingly, states such as Maharashtra and Karnataka have also registered higher values of bank deposits and credit, while Odisha’s financial depth is lowest among the eight study states The study concludes that financial deepening and digital payment adoption together create a supportive environment for sustainable economic growth. The findings provide useful policy insights for strengthening financial inclusion, expanding digital payment infrastructure, and reducing regional disparities in India's financial development.