We propose a novel empirical framework, featuring a triangular causality model, that integrates digital, financial and real-sector linkages in India through the Unified Payments Interface (UPI). Grounded in the finance-led growth tradition and extending the bank-level digital-liquidity literature to a macro-transmission setting, we introduce and test the liquidity acceleration hypothesis, which posits that digital payment infrastructure may accelerate the transmission of capital-market liquidity to real economic activity. Using monthly data from August 2018 to August 2025, we employ a complementary suite of unit-root tests, the ARDL bounds-testing procedure for cointegration, and the Toda and Yamamoto (1995, Journal of Econometrics, 66, 225–250) augmented Granger causality test, supported by impulse response and forecast error variance decomposition analyses. The results reveal a stable long-run equilibrium among the three sectors and an asymmetric causal architecture in which the stock market acts as the exogenous driver, UPI appears to serve as a real-time conduit and industrial output responds strongly to the stock market and more tentatively to UPI. Financial-market innovations account for a progressively larger share of variance in digital and real activity over the forecast horizon, while remaining almost entirely self-determined. Together, these findings provide initial empirical evidence consistent with the liquidity acceleration hypothesis in the Indian context, positioning UPI not merely as a payments mechanism but also as a potential transmission channel through which financial liquidity appears to reach the real economy, with meaningful implications for India’s evolving digital–financial integration.
ACI Worldwide. (2024). Prime time for real-time 2024. https://www.aciworldwide.com/real-time-payments-report
2.
AguilarA., FrostJ., GuerraR., KaminS., & TombiniA. (2024). Digital payments, informality and economic growth (BIS Working Papers No. 1196). Bank for International Settlements. https://www.bis.org/publ/work1196.htm
3.
Al KhatibA. M. G. (2025). Beyond linearity: A critical review of the finance–growth nexus. Cogent Economics & Finance, 13(1). https://doi.org/10.1080/23322039.2025.2514690
4.
AzmehC., & Al-RaeeiM. (2024). Exploring the dual relationship between fintech and financial inclusion in developing countries and their impact on economic growth: Supplement or substitute?PLoS One, 19(12), e0315174. https://doi.org/10.1371/journal.pone.0315174
5.
BasnayakeD., NaranpanawaA., SelvanathanS., & BandaraJ. S. (2024). Financial inclusion through digitalization and economic growth in Asia-Pacific countries. International Review of Financial Analysis, 96(Part A), 103596. https://doi.org/10.1016/j.irfa.2024.103596
6.
BeckT., LevineR., & LoayzaN. (2000). Finance and the sources of growth. Journal of Financial Economics, 58(1–2), 261–300. https://doi.org/10.1016/S0304-405X(00)00072-6
7.
BernankeB. S., & GertlerM. (1995). Inside the black box: The credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(4), 27–48. https://doi.org/10.1257/jep.9.4.27
8.
BhattacharjeeA., & DasJ. (2021). Investigating the long-run and the short-run relationship between domestic macroeconomic forces and Indian equity market: Evidence based on ARDL bounds testing approach. Paradigm, 25(1), 61–76. https://doi.org/10.1177/09718907211003728
9.
CalderónC., & LiuL. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1), 321–334. https://doi.org/10.1016/S0304-3878(03)00079-8
10.
Chodorow-ReichG., GopinathG., MishraP., & TavaresA. (2020). Cash and the economy: Evidence from India’s demonetization. The Quarterly Journal of Economics, 135(1), 57–103. https://doi.org/10.1093/qje/qjz027
11.
CopestakeA., KirtiD., & Martinez PeriaM. S. (2025). Growing retail digital payments: The value of interoperability (IMF Fintech Note No. 2025/004). International Monetary Fund. https://doi.org/10.5089/9798229014250.063
12.
CornelliG., FrostJ., GambacortaL., SinhaS., & TownsendR. M. (2024). The organisation of digital payments in India: Lessons from the Unified Payments Interface (UPI) (BIS Papers No. 152). Bank for International Settlements. https://www.bis.org/publ/bppdf/bispap152_e_rh.pdf
13.
D’SilvaD., FilkováZ., PackerF., & TiwariS. (2019). The design of digital financial infrastructure: Lessons from India (BIS Papers No. 106). Bank for International Settlements. https://www.bis.org/publ/bppdf/bispap106.pdf
14.
FahadM., & ShahidM. (2022). Exploring the determinants of adoption of Unified Payment Interface (UPI) in India: A study based on diffusion of innovation theory. Digital Business, 2(2), 100040. https://doi.org/10.1016/j.digbus.2022.100040
15.
FamaE. F. (1981). Stock returns, real activity, inflation, and money. The American Economic Review, 71(4), 545–565. https://www.jstor.org/stable/1806180
16.
FangY., WangQ., WangF., & ZhaoY. (2023). Bank fintech, liquidity creation, and risk-taking: Evidence from China. Economic Modelling, 127, 106445. https://doi.org/10.1016/j.econmod.2023.106445
17.
GomberP., KauffmanR. J., ParkerC., & WeberB. W. (2018). On the fintech revolution: Interpreting the forces of innovation, disruption, and transformation in financial services. Journal of Management Information Systems, 35(1), 220–265. https://doi.org/10.1080/07421222.2018.1440766
18.
Government of India, Ministry of Electronics and Information Technology. (2015). Digital India: A programme to transform India into a digitally empowered society and knowledge economy. Government of India. https://www.digitalindia.gov.in/
HaoJ., PengM., & HeW. (2023). Digital finance development and bank liquidity creation. International Review of Financial Analysis, 90, 102839. https://doi.org/10.1016/j.irfa.2023.102839
21.
HaqueM. I., AzeezA. N. P., BanuN. A., & AkhtarS. M. J. (2025). UPI and financial inclusion in rural India: A case study. Development and Sustainability in Economics and Finance, 6, 100056. https://doi.org/10.1016/j.dsef.2025.100056
22.
HassanD., KamuA., CheeR., & MunH. C. (2024). Exploring structural breaks in the economic-financial nexus: Evidence from panel data analysis. International Journal of Academic Research in Accounting, Finance and Management Sciences, 14(4), 587–602. https://doi.org/10.6007/IJARAFMS/v14-i4/23243
23.
JohansenS. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2–3), 231–254. https://doi.org/10.1016/0165-1889(88)90041-3
24.
KeswaniS., PuriV., & JhaR. (2024). Relationship among macroeconomic factors and stock prices: Cointegration approach from the Indian stock market. Cogent Economics & Finance, 12(1). https://doi.org/10.1080/23322039.2024.2355017
25.
KingR. G., & LevineR. (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108(3), 717–737. https://doi.org/10.2307/2118406
26.
KwiatkowskiD., PhillipsP. C. B., SchmidtP., & ShinY. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54 (1–3), 159–178. https://doi.org/10.1016/0304-4076(92)90104-Y
27.
LevineR. (2005). Finance and growth: Theory and evidence. In AghionP. & DurlaufS. N. (Eds.), Handbook of economic growth (Vol. 1, Part A, pp. 865–934). Elsevier. https://doi.org/10.1016/S1574-0684(05)01012-9
28.
LucasR. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42. https://doi.org/10.1016/0304-3932(88)90168-7
29.
MaddalaG. S., & KimI.-M. (1998). Unit roots, cointegration, and structural change. Cambridge University Press.
30.
MahmudJ. (2024). Digital payments and economic growth: Analyzing the contribution of bKash to Bangladesh’s GDP. International Journal of Research and Innovation in Applied Science, 9(2), 55–63. https://doi.org/10.51584/ijrias.2024.90207
31.
McKinnonR. I. (1973). Money and capital in economic development. Brookings Institution Press.
32.
MishkinF. S. (1995). Symposium on the monetary transmission mechanism. Journal of Economic Perspectives, 9(4), 3–10. https://doi.org/10.1257/jep.9.4.3
33.
NaikP. K., & PadhiP. (2012). The impact of macroeconomic fundamentals on stock prices revisited: Evidence from Indian data. Eurasian Journal of Business and Economics, 5(10), 25–44.
34.
NarayanP. K. (2005). The saving and investment nexus for China: Evidence from cointegration tests. Applied Economics, 37(17), 1979–1990. https://doi.org/10.1080/00036840500278103
35.
NdakoJ. A., KumekaT. T., AdedoyinF. F., & AsonguS. A. (2025). Structural breaks in global stock markets: Are they caused by pandemics, protests or other factors?Transnational Corporation Review, 17(3), 200147. https://doi.org/10.1016/j.tncr.2025.200147
36.
NkoroE., & UkoA. K. (2016). Autoregressive distributed lag (ARDL) cointegration technique: Application and interpretation. Journal of Statistical and Econometric Methods, 5(4), 63–91.
37.
OziliP. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329–340. https://doi.org/10.1016/j.bir.2017.12.003
38.
ParamatiS. R., & GuptaR. (2011). An empirical analysis of stock market performance and economic growth: Evidence from India. International Research Journal of Finance and Economics, 73, 144–160. https://doi.org/10.2139/ssrn.2335996
39.
PesaranM. H., & ShinY. (1999). An autoregressive distributed-lag modelling approach to cointegration analysis. In StrømS. (Ed.), Econometrics and economic theory in the 20th century: The Ragnar Frisch centennial symposium (pp. 371–413). Cambridge University Press. https://doi.org/10.1017/CCOL521633230.011
40.
PesaranM. H., ShinY., & SmithR. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
41.
PwC. (2025). The Indian payments handbook 2025–2030. https://www.pwc.in/assets/pdfs/indian-payments-handbook-2025-2030.pdf
42.
RahmadaniS. A., AzwariP. C., & ZahraniS. (2024). Impact of inflation, interest rate, and use of electronic money on the amount of money circulating in Indonesia during the period 2015–2022. Jurnal Ekonomi, Bisnis & Entrepreneurship, 18(2), 682–694. https://doi.org/10.55208/kj82z318
43.
RambaldiA. N., & DoranH. E. (1996). Testing for Granger non-causality in cointegrated systems made easy (Working Papers in Econometrics and Applied Statistics No. 88). University of New England.
44.
ReddyK. S., & KumarasamyD. (2015). Is there any nexus between electronic based payments in banking and inflation? Evidence from India. International Journal of Economics and Finance, 7(9). https://doi.org/10.5539/ijef.v7n9p85
45.
Reserve Bank of India. (2024). RBI: Digital payments index for March 2024. https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58371
46.
RobinsonJ. (1952). The generalisation of the general theory. In The rate of interest and other essays (pp. 67–142). Macmillan.
47.
RomerP. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002–1037. https://doi.org/10.1086/261420
48.
SchumpeterJ. A. (1934). The theory of economic development (OpieR., Trans.). Harvard University Press. (Original work published 1911)
49.
SharmaS., & ChauhanN. S. (2025). The sound of progress: A case study on merchant adoption of UPI applications and soundboxes. Journal of Information Technology Teaching Cases. Advance online publication. https://doi.org/10.1177/20438869251325265
50.
ShawE. S. (1973). Financial deepening in economic development. Oxford University Press.
51.
Simran, & SharmaA. K. (2024). Asymmetric nexus between economic policy uncertainty and the Indian stock market: Evidence using NARDL approach. The Quarterly Review of Economics and Finance, 93, 91–101. https://doi.org/10.1016/j.qref.2023.11.006
52.
TiwariA. K., MutascuM. I., AlbulescuC. T., & KyophilavongP. (2015). Frequency domain causality analysis of stock market and economic activity in India. International Review of Economics & Finance, 39, 224–238. https://doi.org/10.1016/j.iref.2015.04.007
53.
TodaH. Y., & YamamotoT. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1–2), 225–250. https://doi.org/10.1016/0304-4076(94)01616-8
54.
WangL., LiS., FaZ., & WangY. (2025). Enhancing bank liquidity creation through digital innovation: Exploring the impact of macroprudential policy sentiments. Emerging Markets Review, 66, 101275. https://doi.org/10.1016/j.ememar.2025.101275
55.
WenW., & LiangY. (2025). Digital transformation and liquidity creation in commercial banks: Evidence from the Chinese banking industry. PLoS One, 20(2), e0318785. https://doi.org/10.1371/journal.pone.0318785
56.
WhiteH. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48(4), 817–838. https://doi.org/10.2307/1912934
57.
WickramasingheN. T., DeyshappriyaN. P. R., & GunarathneY. M. C. (2023). Stock market–economic growth nexuses: Evidence from Asian stock markets. South Asian Journal of Finance, 3(2), 131–144. https://doi.org/10.4038/sajf.v3i2.56
58.
WooldridgeJ. M. (2012). Introductory econometrics: A modern approach (5th ed.). Cengage Learning.
