Despite the government passing a tax bill and other laws (amendments) in parliament in 2026, which provides benefits for various sectors, including electronics manufacturing, foreign investment, and REIT/InvIT, this law also allows the government to introduce an MDR commission on UPI. This issue is currently causing active debate and criticism.
The government asserts that the MDR commission will not apply to ordinary users and small traders, but only to large entrepreneurs for payments exceeding 2000 rupees. Furthermore, according to the government, the reduced MDR can be distributed among banks and payment service providers, which, in the view of the authorities, will provide significant support to the banking and financial system.
However, a leading economist objected to the government's stance, stating that the argument that consumers will not feel the impact of MDR is flawed. Economist Ajit Ranade insisted that payments through UPI should remain free.
Ranade emphasized that UPI has become an integral part of India's digital public infrastructure. In July, the system processed 24 billion transactions worth approximately 30 trillion rupees. He noted that the new bill itself does not introduce MDR, but it removes the protection that previously supported a zero MDR rate for UPI and RuPay. Consequently, a charge for using the UPI service may be introduced in the future.
In response, Finance Minister Nirmala Sitharaman stated that any MDR commission would be paid exclusively by traders, not consumers. She also added that most transactions, including small payments to street vendors, would remain free for traders.
To this, Ranade countered, pointing out that this does not guarantee consumer protection. He believes it is incorrect to assume that charging MDR to traders will eliminate the impact on end-users; either traders will absorb it or pass the costs on to consumers through price increases.
Nevertheless, he acknowledged that over 85% of person-to-merchant transactions are small amounts, such as 20 rupees for tea or 150 rupees for a driver, and no fee will be imposed on such transactions.
Ranade agreed that using UPI entails significant costs. Banks, payment service providers, and NPCI spend money on servers, cybersecurity, fraud detection, dispute resolution, and settlements. Industry estimates suggest annual costs of approximately 20,000 crore rupees, with government reimbursement covering only a small portion of these expenses. He stated that the cost of UPI cannot be ignored, and banks and payment companies cannot be expected to subsidize UPI indefinitely.
However, he clarified that there is a difference between cost and price. Public infrastructure can be expensive, but its maintenance does not necessarily require charging users for every use, as all segments of society benefit from it. Ranade applied this analogy to UPI, noting that its value increases as the number of users and merchants grows.
Ranade suggested that the government should use other mechanisms to cover the costs of maintaining UPI. He mentioned that the dividend paid by the Reserve Bank of India to the government in 2025-26 amounted to 2.86 trillion rupees. Annual UPI expenses are about 7% of this amount, and these funds could compensate banks without imposing charges on traders.
