India’s digital transformation is poised to significantly boost its economy, with the Reserve Bank of India (RBI) projecting that generative AI (gen AI) could contribute between $359 billion and $438 billion to the country’s GDP by 2029-30. This growth is evident in the increasing integration of AI into business processes, with AI adoption by Indian firms rising from 8% in 2023 to 25% in 2024.
The digital economy, which currently accounts for about 10% of India’s GDP, is expected to grow further, with predictions suggesting it could make up 20% of the GDP by 2026, based on trends from the past decade. Michael Debabrata Patra, Deputy Governor of RBI, highlighted these developments at the DEPR Conference on Digital Technology, Productivity, and Economic Growth.
Patra also mentioned India’s strong position in the global AI landscape, noting the country’s robust talent base and digital infrastructure. With a young population, a thriving IT sector, and advanced public digital platforms, India is well-positioned to harness the full potential of AI and other emerging technologies for economic growth.
However, with rapid technological advancements come challenges. These include disruptions to traditional technologies and labor markets, the need for significant investment in infrastructure, and risks related to cybersecurity, data privacy, and ethical concerns.
In the financial sector, digitalization is driving major improvements. According to Patra, Indian banks have successfully implemented mobile and internet banking, with 75% offering digital account opening, KYC processes, and doorstep banking services. The use of digital lending, payment aggregator services, and even IoT technologies is becoming more widespread. Private sector banks, in particular, are leading the way in adopting these technologies.
AI has played a key role in boosting productivity in India’s banking sector. Patra shared examples from an AI-assisted analysis of Indian banks’ annual reports, showing significant gains such as a 25-30% reduction in customer acquisition costs, a 40% reduction in customer wait times, and a savings of 14,500 person-days per month. The shift to digital has also reduced paper usage by 84 tons, while cutting fuel consumption by 400,000 liters.
One of the standout achievements in India’s digital finance landscape is the Unified Payments Interface (UPI). Launched in 2016, UPI has become a major success, with 16.6 billion transactions recorded in October 2024 alone. The system’s successful debit reversals have also improved, rising from 77% in October 2023 to 86%.
Embedded finance is another growing trend in India, where financial services are integrated into non-financial platforms like apps and websites. This trend has gained traction globally, with the market for embedded finance projected to grow at a 25.4% compound annual growth rate (CAGR) between 2023 and 2032. In India, approximately 5,000 active fintech companies are working to optimize operations and support small and medium enterprises (SMEs) in sectors such as supply chain finance.
Patra also highlighted the country’s internet usage trends, noting that 40% of India’s rural population and 78% of individuals aged 20-30 use the internet. The digital shift is driving changes in consumer behavior, with one-third of households making online purchases of consumables, 25% buying consumer durables, and nearly 10% purchasing food online.
India is actively participating in international initiatives such as Project Nexus and mBridge, which explore the integration of open finance API-based frameworks across countries. Patra emphasized the importance of balancing financial innovation with risk mitigation and ensuring clear communication with stakeholders.
