Walk into almost any small shop in urban India now, a vegetable stall, a tea counter, a roadside phone repair kiosk, and you will find the same small laminated square taped somewhere near the till. A QR code, usually a little worn at the corners. It looks like nothing. It is easy to read it as nothing more than a convenience, one more way to avoid making change. I want to make the case that it may be something considerably larger : the first layer of formal economic infrastructure that has ever reached inside an informal enterprise.
The instinct is to describe India’s Unified Payments Interface as a payments story. It is usually told that way. But that description undersells what has actually happened. Kenya’s M-Pesa, the system UPI is most often compared to, solved a problem of exclusion. It built a working substitute for the banking system in places the banking system had never reached. UPI did something structurally different. It did not need to build an alternative to the banking system, because by the time UPI arrived, India had already spent a decade building the underlying architecture: bank accounts opened at scale through Jan Dhan, a digital identity layer through Aadhaar, cheap smartphones, cheap data, and an interoperable settlement layer built by the National Payments Corporation of India. M-Pesa moved cash into mobile money and back into cash again. UPI simply moves money from one bank account to another, instantly, for free, across any bank and any app. It did not create a financial system. It removed the friction sitting on top of one that already existed.
That distinction matters more than it sounds like it should, because it changes what the technology is capable of becoming. A system built to include the excluded has a natural ceiling: once everyone has access, the job is largely done. A system built to remove friction inside an existing architecture has no such ceiling. It can keep becoming more things. And it has. UPI processed something in the range of twenty three billion transactions in a single recent month, worth close to thirty trillion rupees. A meaningful share of that is no longer person sending money to person. It is person paying merchant : the vegetable seller, the tea stall, the kiosk. That distinction between the two kinds of transaction is, for the question I actually want to ask, the only one that matters. A friend transferring five hundred rupees to another friend tells an economist very little. A shopkeeper who now has thousands of digitally recorded customer payments has, without asking for it, begun keeping a kind of financial diary that never existed before.
So the real question is not whether UPI increased digital payments. It plainly has, and that fact alone is no longer interesting. The real question is whether this new layer of infrastructure has changed the economic life of India’s informal enterprises and the workers inside them, the enormous share of the country that has never worked inside a large formal firm and, on present trends, may never need to.
Consider what a small retailer’s economic footprint used to look like. Customer hands over cash. Cash goes into the till. The proprietor has a rough, private, largely unverifiable sense of how the business is doing, and so does everyone else, including any bank that might otherwise lend to it. That opacity was never a personal failing. It was structural. A lender facing a business with no verifiable transaction history has almost no way to price the risk of lending to it, so very often it simply doesn’t.
Once even a portion of those transactions move through a digital rail, something changes that has nothing to do with convenience. The enterprise begins, almost as a byproduct of accepting payment, to generate a transaction history. That history can do at least three things a purely cash business could never do for itself. It can extend the enterprise’s reach to customers who no longer need to carry cash at all. It can give the enterprise a form of financial visibility it never had before, a record a lender can actually examine. And if that record is ever used in a credit decision, it can open a door to working capital that a cash-only business, however well run, could never have walked through.
That is the mechanism worth testing : digital payment leading to a transaction record, leading to lower information asymmetry between the enterprise and the financial system, leading to credit, leading to investment, leading, eventually, to higher output per worker and higher enterprise income. It is a plausible chain. It is not yet a proven one, and the difference between those two things is the entire second half of this essay.
The World Bank’s 2022 Informal Sector Enterprise Survey, covering nine cities from Surat to Varanasi, gives the first real look at how far this has already gone inside individual businesses rather than in aggregate national statistics. Among the enterprises surveyed, ninety percent reported accepting digital payments from customers. Nearly half reported using digital payments more broadly in how they ran the business, and a similar share reported using digital payments even to pay their own workers. These are not nationally representative figures, and the World Bank is careful to say so. But they establish something that matters regardless: digitalisation did not stay a consumer habit. It walked into the enterprise itself.
The more recent evidence is more striking, and more ambiguous. India’s Annual Survey of Unincorporated Sector Enterprises, a survey of nearly half a million establishments representing something like seven crore enterprises and twelve crore workers, has been analysed by SBI Research to show a strong positive association between digital adoption and labour productivity, alongside higher formalisation and better access to credit. The headline number is large enough to be suspicious of : something in the order of a seventy six percent increase in labour productivity associated with a one unit increase in their digital adoption measure.
That number should not be read as a causal claim, and it isn’t one. It is an association, and associations run in both directions. It is entirely possible, perhaps even likely, that the more productive, better run enterprises were simply the ones most inclined to digitalise in the first place, in which case the arrow of causality runs backward from the one the number implies. Digitalisation did not necessarily make these firms more productive. More productive firms may simply have been the kind of firms that adopt new tools early. Until that ambiguity is resolved, the number is suggestive, not settled.
Resolving it is, at least in principle, within reach, which is itself a small piece of good news for Indian economic research. The country now has, for the first time, the pieces needed to run a genuine causal test rather than another descriptive one : enterprise-level data on productivity and digital adoption from ASUSE and the World Bank survey, payments data on merchant transaction intensity and timing from NPCI, labour data on employment and earnings from the Periodic Labour Force Survey, and industry-level data on output and capital from RBI’s KLEMS database. Put together as a panel and used to ask whether the productivity association between digital adoption and enterprise performance survives once you control for firm characteristics, sector, location, time, and access to credit, the answer would tell us something genuinely new. Not whether India digitalised. Everyone already knows that. Whether digitalisation is doing the economic work it appears to be doing.
If it holds up, the implication reaches well past payments. Development economics has a fairly settled story about how workers become more productive: they move out of agriculture, into manufacturing or formal services, into larger and more capital intensive firms, and productivity rises as a consequence of that formalisation. Piketty asks who owns capital. Karabarbounis asks why labour’s share of income has fallen. Autor asks how technology reshapes the tasks workers actually perform. India may be adding a different question to that list entirely : can digital infrastructure raise the productivity of labour without first requiring workers to move into large formal enterprises at all. Not informal worker moving into formal firm moving into higher productivity, in other words, but informal worker gaining access to digital infrastructure, then market reach, then finance, then higher productivity, without the middle step ever needing to happen.
If that turns out to be true, the deeper claim is not that India built a better payment system. It is that India built a different kind of infrastructure altogether: one that behaves less like a convenience and more like an institution, reducing transaction costs and information asymmetry in the way that formal financial and organisational structures traditionally did, but without requiring the enterprise itself to become formal to benefit from it. Digital infrastructure, in other words, substituting for some of what formalisation used to be needed for.
None of this is settled yet, and it is worth being honest about exactly what isn’t. We can say UPI has reached an extraordinary scale, that digital payments have penetrated deep into the informal enterprises that have been surveyed, and that digital adoption is positively associated with productivity, formalisation and credit access. We cannot yet say that UPI caused those gains rather than merely accompanying them, that the effect is even across India’s enormously varied informal sector, that it raises wages, or that it increases employment. The honest position is that India has a strong empirical relationship and a genuinely plausible mechanism, and that this is enough to justify a serious causal study, not enough to call the question closed.
But return, for a moment, to that laminated square taped by the till. If the chain holds, even partially, then what is stuck to that counter is not simply a faster way to pay for tomatoes. It is a transaction history quietly becoming a financial history, one shop at a time, in an economy where the overwhelming majority of workers have never had one. A QR code, on this reading, is not the end of the story about how India’s informal economy modernises. It may be the beginning of it.