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The growth in internet users and the advent of smartphones and advanced online payment structures gave a boost to the already rapidly growing E-commerce Industry. This article is explaining about the correlation between commerce and economy, and how a change in the nature of commerce which brought a change in the mode of payment, or vice-versa, has affected the economy while doing this one must remember that commerce does not mean business it is rather a subset of business. That is commerce deals with the distribution of goods and services and not manufacturing or production. It also explains unbundling and re-bundling of money due to the digitization of money and how the same affects the economy.


The change of mode of payment plays an important role in the dream of making the Indian Economy a World Class economy. Digital transactions or digitalization of transactions has proved helpful in different sectors like industry, business, trade, and many other sectors.3 With the advent of technology and major government activities taking place online due to initiatives like Digital India, the dependence of the public as a whole on online transactions has gained pace. The benefits of a cashless economy cannot be denied as it leads to less administrative cost and with the use of proper accounting software reduces workload and manpower also increasing efficiency.4 In this paper, we will be studying how Covid-19 played an important role in pacing the Digitalization of transactions and its effect on the Indian economy concerning trade and commerce.


The current work is aiming to find out the substance of the following concepts. For this, the author has taken into consideration journals, books, news clips, government data, records, etc. The objectives of this study are to explicate the content of;

  1. Effects of Covid 19 Pandemic on transaction mode in India
  1. Effects of Digitization of Money on the Indian Economy


Covid-19 pandemic: A pandemic caused due to the new Coronavirus named Covid-19. The origin of the virus is Wuhan, China. An outbreak of this virus throughout the world with an alarming level of speed and severity made the WHO declare the outbreak as a pandemic.5 It leads to a lot of deaths and the top priority of the governments was to curb the growth of the virus through different measures but mainly through the lockdown. The restriction of movement due to the lockdown affected the manufacturing industry, imports and exports, transportation, tourism, and ultimately the economy.6

Digitalization: It is about automating parts of your financial process to reduce manual work, eliminate errors, and reduce efficient and competent business functions. It is the use of digitized data to increase productivity and efficiency of the business process or process while reducing costs.7

Transaction mode: Transaction means exchange. It is the transfer of money through an online platform or simply cashless modes of payment or payment systems.8

Indian economy: The Indian Economy is a developing economy. It is a Mixed economy. Indian economy is heavily based on the agriculture sector so it wouldn’t be wrong to call the economy an agricultural-based economy.9 Indian Economy is a rapidly growing economy, thanks to India’s vast population with a huge scope of human capital as a huge chunk of the population are youth. One other reason could be the rapidly developing and growing service sector like e- commerce, it sector, outsourcing, etc.10


Relationship Between Commerce & Economy: Economy and commerce share a very close relationship. Commerce has existed since people began trading products and services with one another. Commerce is the exchange or buying and selling of goods on a large scale involving

Commerce creates place utility in goods. Commerce is the consumers. Certain nations specialize in the manufacturing or

production of specific items. These items are produced or manufactured at a reasonable cost and commerce makes these goods available at different places where they are required.

The production, consumption, and exchange of goods and services by individuals, businessmen, governments, or nations  are called the economic system. The economic growth of society

Economic development is an increase in the production and distribution of goods and services. Money isn’t considered a factor of production but it does help to make the production process easier. Hence a change in the mode of payment doesn’t affect the process of production itself. Although money isn’t directly involved in the production of goods and services it is used to pay for raw materials, wages, and other materials hence a change in the mode of payment does affect this part of production which is essentially commerce as it is the involves the buying of goods and services.

The relationship between commerce and economy, Commerce may deal with man’s behaviour in the pursuit of wealth. Economics deals with wealth creation and how it is transferred between people and how they use or consume their wealth. As the world’s population grows, so does the demand for all kinds of commodities. Consumer spending power has increased, it has also increased demand for all types of goods and services. And all of this has given a push to commercial activities or commerce in general. Substantial changes have occurred in the nature of commerce during the Covid-19 pandemic which we will be discussing and dealing with in the next subtopic.

Boost to E-Commerce During Covid-19: Covid-19-induced lockdown brought a shift of people from purchasing commodities from physical stores to an E-commerce platform. Favourable conditions helped the boom in E-commerce in India. The national-wide lockdown, social distancing norms, huge smartphone base, relatively high internet penetration rate along with cheap data prices all came together and the E-commerce platform witnessed a huge surge in customer base, especially from Tier II and Tier III cities.

Growth of e-markets: Soon after the lockdown, Flipkart witnessed a 50 per cent increase in its user database. Further, Flipkart registered 65 per cent growth in the “Unlock” phase from Tier 3 regions according to its press release on December 18, 2020. It also witnessed a 47 per cent year- on-year customer growth in Tier 3 cities. 11

Increase in consumer registration: As detailed in an Economics time article a Goffers representative said that 64 per cent of new customers on the platform in 2020 were first-time online grocery shoppers, while 20 per cent would be completely new to e-commerce.12

Rapid Growth in online shopping platform: it reflects that there was substantial growth in online shopping platforms was not only limited to electronics, fashion, household products, and furniture but also grocery and food delivery platforms.

Hike in buying frequency in Online platforms among consumers: There was not only an increase in the customer base but also buying frequency of products per month also increased due to Covid-19 while the percentage of people purchasing 0-2 products per month decreased from 45 per cent to 33 per cent, and the percentage of people purchasing more than 7 products per month increased from 5 per cent to 12 per cent.

(Refer to Page no. 12 for Chart No. 1)

Boost in e-commerce and change in payment mode: Well, these platforms existed before Covid-19 so what exactly helped E-commerce to survive and flourish during the pandemic. One of the most important reasons could be said to be the shift of people towards the pre-existing payment systems for digital transactions facilitated by UPI and online payments instead of Physical cash. That is the change in the payment method during the pandemic due to the fear of Covid-19 itself which gets transmitted through the air or even touching infected surfaces. Still traditional physical retail dominated the market, accounting for 93 per cent of a 1.2 trillion market. Even the projected growth of the industry could be credited to the change in the mode of payment during the pandemic according to an Economic Times article “India’s e-commerce penetration will double to 11 per cent by 2024” back in 2020. There was growth not just in B2C business but also in B2B business, in fact, B2B e-commerce is far more advanced and bigger than B2C, mainly because the volume of Business in B2B is very large even though the no. of players involved is less compared to that of B2C. This Growth in B2B sales has also affected the nature of payment transactions and the economy ultimately.13



  1. The digital and the physical was converging long before 2020 as businesses strove to create seamless customer experience across every customer The Covid-19 demonstrated that the sun is setting faster on cash. With the onset of the pandemic lockdown, commerce began to accelerate at a new rate, leaving little place for slow legacy systems, and the necessity for speed comes at the sacrifice of cash.
  2. Cash was used to pay 70 per cent of the time until 2020, but the pandemic drastically changed that habit, with the number dropping to 34 per cent. As a result, many customers are switching to digital wallets and debit cards. This cashless payment trend may be detected before 2020, but the pandemic has accelerated the transition to a cashless society, with cash decreasing 36 per cent at the point of sale in
  • India’s push towards a less cash economy was propelled post-Demonetisation in November 2016, through continued government involvement by way of its targeted regulatory policies. This helped India to come out with more evolved digital payment ecosystems than even economically developed countries like the U.S.A., Japan, the U.K., and
  1. Then India entered what could be called the era of Payment 4.0. When the lockdown was first imposed in March digital payments witnessed a drop not only in their volume but also in the value of their transactions. “The volume of UPI transactions slipped from

132.57 crores in February to 124.68 crores in March, while the value in UPI transactions slipped from 2.23 lakh crore in February to 2.02 lakh crore in March.”14

  1. NPCI data on IMPS revealed that transactions fell from 24.78 crores to 21.68 crores. Although the Financial year of 2020 started with a decrease in digital payment we saw a revival in Digital payments from May as the government relaxed the lockdown norms and pushed for digital payments 15When the world as a whole was reeling through a reduction in non–cash payment projections as it was previously projected to grow by 15 to 16 per cent in the year 2020, While UPI an Immediate payment service system in India handled transactions worth 4.16 trillion in December 2020 which is nearly double of what
  1. One of the reasons why this phenomenon occurred could be due to the pandemic all of us saw what the World payments reports of 2021 called “Payment 4.x” or “Payment on Steroids”.17 This was also witnessed in India. So what is Payment 4.x, before the payment industry in India and abroad the payments were personalized through partnerships or invisible pay which is basically payment 0.
  • But during the Covid-19 a need for a shared platform or infrastructure which is more data efficient reduces cost and is easily regulated and also offers its user some added value created the Payment x. And This Payment 4.x applies to both B2B and B2C transactions18.
  • India already had an upper hand in this as it had a similar platform called the UPI. This kind of platform had reduced losses, and operational costs as nearly no fees are taken during money transactions. Aside from B2C e-commerce there also was a rapid rise in B2B e-commerce with the help of platforms like GeM (Government E-Marketplace) which is a B2B E-commerce marketplace for government organisations and departments to procure goods and services from MSME in the country. It had more than 10 lakh sellers and Financial Express online had reported in December that GeM added more than 40 thousand new sellers during the Covid-lockdown, and the government procurement from these sellers was worth 23,424 crores in the financial year 2020- 2021.19



The rapid digitization of money has certainly affected the economy directly or indirectly. It brought a change in the behaviour of consumers and traders alike. Year-over-year growth in B2B sales via e-commerce enabled the company to operate at a cheaper cost, resulting in increased profitability.

  1. A microeconomic analysis will show that the shift in payment systems from cash to digital, particularly during Covid-19, has resulted in sustained growth in B2B e- commerce, with significant reductions in transportation, sourcing, warehousing, and material management
  2. A macroeconomic analysis could show how the growth of B2B usually brings down inflation rates which in return provides better and increased productivity, increased profit and competition between companies. In 2020 alone e-commerce grew by 36 per cent year on
  • A lot of Indian start-ups became unicorns since the start of the pandemic. Many of these are in the E-commerce sector and depend on online payment. The advent of these new monies, that is, digital currencies which have overhauled how payments and user data interact enabling high-speed peer-to-peer transfers, could reshape the nature of currency
  1. Digital currencies have the potential to reduce the switching costs generated due to network externalities that, in the past, transaction costs made it difficult to frequently switch among different currencies, due to exchange rates of different currencies which also fluctuate widely, giving people an incentive to conduct trade within their currency But the arrival of digital transactions has affected this aspect of trade and commerce, making traders more comfortable trading overseas.
  1. Digital money for sure has brought a change in the network externalities and cross- subsidisation which in return impacted their pricing. 20Digital payment instruments linked to platforms will effectively merge conventional money’s functionalities with the platform’s functionalities and data. As a result of the digitisation of money, the entire nature of retail completion is changing as the platforms and technologies regarding digital currencies are becoming more and more accessible, as a result of which a lot of retailers are turning digital so that they get a bigger share of customer base online.
  2. Digital money has shown us the future of commerce and retail, that is, more and more people are turning to online shopping than ever before. Overall the implications of the rise in the number of people using Digital currencies bring with it changes to technology, the supply chain, and the nature in which trade and commerce used to occur this ultimately hugely affects the
  • The pandemic has accelerated the fall of the use of cash on the other hand it has helped in the ongoing digitalisation of the economy and is changing the way people pay. With Central Bank Digital Currencies(CBDCs) set to be an internal part of the “future of finance” and have far more commonality with cash than any other kind of digital currencies and are also the closest thing to the next evolution of traditional monetary 21


Digital payments are easy, quick, and convenient and also help in tracking your spending. Digital

improvements given by electronic payment systems in combination with mobile devices are driving the fall in the relative importance of cash. A cashless society also brings along with it the prediction of a reduction of crime, as the lack of actual money eliminates cash theft and robbery, as well as counterfeiting. The advent of a cashless society is inevitable as central banks in developing and mature economies across the world are witnessing and the role Covid-19 played in this boost is irrefutable as it boosted the adaptability of the masses towards cashless transactions and hence helped the society in a way or the other to move towards a more cashless society.

1 Student, KIIT School of Law, Bhubaneshwar-24


2 Assistant Professor, KIIT School of Law, Bhubaneshwar-24


3 https://www.managementstudyguide.com/digital-payments-pros-and-cons.htm,visited on 21/06/22 at 10.06 pm.

4 https://www.motilaloswal.com/blog-details/Benefits-of-going-cashless-in-India/1121, visited on 21/06/22 at 10.09 pm.

5 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7569573/, visited on 21/06/22 at 10.11 pm.

6 https://www.oecd.org/coronavirus/policy-responses/the-territorial-impact-of-covid-19-managing-the-crisis-and- recovery-across-levels-of-government-a2c6abaf/, visited on 21/06/22 at 10.15 pm

7 https://kissflow.com/workflow/bpm/business-process-automation/reasons-why-you-automate-your-business- process/, visited on 21/06/22 at 10.18 pm

8 https://razorpay.com/learn/digital-payments-india-definition-methods-importance/, visited on 21/06/22 at 10.21 pm

9 Adam Cagliarini and Anthony Rush, (June 2011 B) https://www.rba.gov.au/publications/bulletin/2011/jun/3.html/, visited on 21/06/22 at 10.25 pm

10 ibid

11 https://storiesflistgv2.blob.core.windows.net/stories/2021/12/Press-Release-Flipkart-Year-End-Study-2021.pdf

12 https://economictimes.indiatimes.com/industry/services/retail/lockdown-proved-inflection-point-for-e-commerce- in-india/articleshow/81665377.cms?from=mdr

13 https://www.irjet.net/archives/V4/i12/IRJET-V4I1204.pdf

14 https://www.business-standard.com/article/economy-policy/upi-transactions-drop-in-march-rtgs-shoots-up-due-to- lockdown-120042100349_1.html

15 https://www.business-standard.com/article/economy-policy/may-digital-payments-see-an-uptick-indicating- revival-in-economic-activity-120060101323_1.html

16 https://www.business-standard.com/article/economy-policy/upi-handled-record-2-23-bn-transactions-worth-rs-4- trn-in-december-121010101202_1.html

17 https://worldpaymentsreport.com/payments-4-x-is-here-buckle-up-for-the-new-era-in-payments/

18 https://financial-services.worldline.com/en/home/blog/2021/october-21/20211012-payments-4x-payment- institutions-must-transform-to-survive.html

19 https://www.financialexpress.com/industry/sme/msme-eodb-gem-becomes-indias-first-e-commerce-portal-to-hit- this-mega-milestone-transaction-value-crosses-rs-80k-cr/2179852/

20 https://scholar.princeton.edu/sites/default/files/markus/files/02c_digitalmoney.pdf

21 https://economictimes.indiatimes.com/tech/technology/how-central-bank-digital-currencies-may-impact-the- monetary-system/articleshow/89295344.cms