UPI payments above Rs 2,000 are at the centre of a growing debate ahead of October 15, when a 0.4 per cent Merchant Discount Rate (MDR) is set to apply to certain merchant transactions. Traders and merchant groups in several states have opposed the proposed charge, with some warning that they could stop accepting UPI payments above the threshold if the new system takes effect.
Former NITI Aayog Vice Chairman Rajiv Kumar has now joined the debate, urging the government not to introduce merchant charges on UPI transactions for at least a few more years.
Speaking to news agency PTI on Monday, Kumar said UPI should be treated as a public good and argued that its wider economic benefits outweigh the cost of maintaining the digital payment infrastructure.
"Their overall benefits will far outweigh the cost of Rs 20,000 crore that the public exchequer has to bear for maintaining the UPI infrastructure. So let's continue with zero-fee UPI transactions for at least a few more years until the currency-to-GDP ratio shows some tendency to decline," Kumar said.
Kumar said the government should reconsider the policy only when there are clear indications that the currency-to-GDP ratio is falling. He also cautioned that introducing a transaction fee could encourage a shift towards cash.
"This presents a very significant opportunity for transactions to shift back to cash; charging the smallest of fees will incentivise the regressive behaviour. For now, best to continue with status quo for keeping a good thing going," he said.
Why Is UPI Facing Opposition Over MDR?
The proposed change primarily affects higher-value payments made by customers to merchants. Kumar pointed out that while nearly 96 per cent of UPI transactions are below Rs 2,000, payments above the threshold make up an estimated 66 per cent of the total transaction value.
The government, however, has maintained that the new MDR is not a charge on customers. The Finance Ministry said users will continue to make UPI payments without being charged directly.
"Customers will not be charged for making such payments through UPI," the ministry said, adding, "MDR is a charge levied within the merchant payment ecosystem. It is not a charge levied on customers making UPI payments."
The ministry has also said there will be no monthly quota, transaction-volume restriction or tier-based limit on free UPI usage.
What Happens From October 15?
Under the new arrangement, a 0.4 per cent MDR will apply to person-to-merchant UPI transactions above Rs 2,000. The charge will be capped at Rs 300 for transactions of Rs 75,000 or more.
A separate fixed MDR of Rs 5 per transaction above Rs 2,000 will apply to selected essential and low-margin sectors, including railways, telecom, insurance, fuel and agricultural inputs.
These sectors account for around 17 per cent of P2M transaction volume and about 46 per cent of P2M transaction numbers.
The proposed MDR has also become a political issue, with Congress leader Rahul Gandhi criticising the move and alleging that Prime Minister Narendra Modi had succumbed to US pressure. The BJP has rejected the allegation and accused the Congress of spreading misinformation, stressing that the MDR will not be recovered from customers.