The government is set to end free UPI payments after six years, introducing a 0.4% Merchant Discount Rate. The Retailers Association of India (RAI) expressed concerns on Wednesday that this change could hinder the growth of digital payment adoption among small retailers, particularly as the festive season approaches.
“This cuts against the government’s own formalisation agenda. UPI acceptance should be incentivised, not taxed,” Rajagopalan was quoted as saying. “NPCI keeps UPI running for the entire country, RBI or the government should be underwriting that cost, not merchants. The state gets a formal, traceable transaction it can tax out of every UPI payment.
This comes after the government introduced a 0.4 per cent fee on transfers worth more than ₹ 2,000 made to merchants through the platform from October 15, while explicitly ring-fencing everyday person-to-person transactions as well as small payments from any charge. The MDR, capped at ₹ 300 for transactions of ₹ 75,000 and above, keeps consumers outside its ambit but places the cost on merchants, many of whom operate on thin margins, RAI said, news agency PTI reported.
“For MSME retailers already running on thin margins, burden creates a straightforward incentive to steer transactions back toward cash,” it said. “Small merchants will now think twice about whether to accept cash or UPI,” said RAI CEO Kumar Rajagopalan. RAI said the shift back to cash would also hurt the government’s own formalisation push, as transactions that move off the UPI network no longer feed into GST reporting, the opposite of what a decade of digitisation policy has tried to build. It should be paying for the enablement, not passing the bill down to the smallest retailer in the chain,” Rajagopalan further said.
