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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.
Wangdi et al. (Sun,) studied this question.
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