Free UPI, forever
UPI is arguably India’s biggest success. It is the world’s largest real-time payment platform. Almost half of such payments, globally, happen on it. In absolute terms, there were more than 24,000cr UPI transactions in 2025-26, altogether worth 314L cr. For perspective, India’s GDP last fiscal was 346.4L cr. How did UPI grow so big? There are many reasons, but the one that spurred its growth most was removal of MDR or ‘merchant discount rate’. That’s the fee banks and other intermediaries charge to make UPI payments go through. When MDR was waived, UPI became “digital cash”, so even grocers and autowallahs started accepting it.
Now, UPI is India’s main currency. So, it’s odd that govt wants to restore MDR on it. The finance minister moved a bill on Tuesday to allow this. If The Taxation and Other Laws (Amendment) Bill passes, UPI payments over 2,000 to merchants could face MDR of 0.25%-0.4%. That doesn’t sound like much. On 2,000, the MDR would be “just” 5-8. And as govt says, only 5% of UPI merchant payments involve sums greater than 2,000. Still, the move sounds unfair on principle.
Why is MDR needed? Payments industry claims processing UPI transactions is costly. They have to spend on servers, software, staff, fees, etc. But there’s no transparency about the per transaction cost. We can only guess: govt subsidy for 95% of UPI merchant transactions – those below 2,000 – was 2,196cr last fiscal. The other 5% surely can’t cost more. In which case, UPI is already paying for itself many times over.
Consider this: in 2025-26, RBI destroyed 1,700cr spoilt notes, and spent 4,875cr on printing fresh currency. How much more would it have spent on currency if we didn’t have UPI? But printing is the smallest cost of physical cash – it has to be sorted, transported, stored, authenticated. Have banks considered how many thousand crores UPI has saved them in staff costs and rent for additional branches and ATMs?
A Visa report estimated that cash cost India 1.7% of GDP in 2014-15. Even 0.1% of GDP today amounts to over 30,000cr. And then, there’s improved tax compliance with increasing digitalisation of payments. So, for the nation, free UPI is a gift that keeps giving. Govt should look at this big picture, and find other ways to compensate financial intermediaries for UPI’s costs.
