A Small UPI Fee Could Carry a Large Economic Cost

The Ministry of Finance, in an August 8 PIB release titled “No Charges for UPI Users,” has clarified that consumers will not pay transaction charges and all person-to-person payments will remain free. If a merchant discount rate is introduced, it will apply only to selected merchant payments above a fixed threshold. Most merchant transactions, the Ministry says, will remain free.

The Global Trade Research Initiative says India should keep all UPI payments permanently free. UPI is an essential public good, like government hospitals, roads, bridges and currency, and should not be forced to recover its costs from users. India can easily afford the roughly ₹20–25 billion needed annually to maintain the zero-charge system, especially when UPI generates much larger benefits by reducing cash use, increasing financial inclusion, formalising the economy and improving tax compliance.

Also, the concern is not limited to what the government plans today: the proposed amendment opens the door for future governments to extend charges to smaller payments and more merchants through notifications, without seeking Parliament’s approval for another change in the law.

Also Read: Merchant Fees Should Not Be levied On UPI Under External Pressure

Government’s Case: The Ministry says the amendment to Section 10A of the Payment and Settlement Systems Act, 2007, is only an enabling provision. UPI’s rapid growth requires continued spending on cybersecurity, fraud prevention, technology and infrastructure. According to the Ministry, a self-sustaining revenue model will also attract more companies, increase competition and prepare UPI for future growth. After Parliament passes the Taxation and Other Laws (Amendment) Bill, 2026, an NPCI-headed “UPI and Services Steering Committee” will decide whether MDR should be introduced.

GTRI Response: The key question is not only what the government intends today, but what the amended law will allow tomorrow. The Ministry says any MDR will be small, threshold-based and limited to selected merchant payments. But once the protection under Section 10A is weakened, future governments could extend MDR to smaller payments and more merchants through notifications.

UPI should be treated as essential public infrastructure, like roads, ports and currency. It should not be required to recover its full cost from each transaction. Keeping UPI free reportedly costs the government only around ₹20–25 billion a year—an amount India can easily afford.

This modest investment supports payments worth trillions. It also promotes financial inclusion, brings more businesses into the formal economy, improves tax compliance and reduces dependence on cash.

Even a small fee could push price-sensitive merchants back to cash. Printing, transporting, guarding, counting and replacing currency costs the economy far more than maintaining UPI. The government may therefore save more by keeping UPI free than it would earn from MDR.

Foreign Pressure? The Ministry has called reports suggesting external influence “completely false and misleading.” It says UPI is an Indian innovation and that the government remains committed to keeping it free for citizens.

GTRI Response: The government may deny that foreign pressure caused the amendment, but it cannot deny that sustained US pressure exists.

The US Trade Representative’s 2026 National Trade Estimate Report criticises Indian policies that it claims favour UPI, RuPay and other domestic payment systems. It raises concerns about RuPay’s advantage in UPI-linked credit payments, NPCI’s proposed 30% market-share cap for third-party apps and the expansion of the National Common Mobility Card. This shows that India’s digital-payment policies remain an active trade issue with the United States.

Ironically, Walmart-owned PhonePe and Google Pay already process more than 80% of UPI transactions. India has repeatedly deferred NPCI’s 30% market-share cap, now scheduled for December 2026.

Introducing MDR could make these dominant platforms even stronger. PhonePe alone processes around 45% of UPI transactions. If payment apps receive a share of MDR revenue, PhonePe could gain significant income and potentially improve its valuation ahead of a future public listing. The government should disclose who will receive MDR revenue and explain how it will increase competition rather than strengthen the existing duopoly.

Brazil’s experience offers a warning. The United States criticised Pix, Brazil’s successful public instant-payment system, for affecting American payment companies and later cited Pix among its concerns while imposing an additional 25% tariff. Brazil nevertheless refused to weaken Pix. India should show similar resolve in defending UPI and RuPay.

India should keep UPI and RuPay payments free, enforce the market-share cap and consider annual participation fees on dominant platforms such as Google Pay and PhonePe instead of taxing transactions. India’s payment policy must remain firmly in Indian hands.

GTRI Appeal

In just 10 years, India has built the world’s largest real-time payment system and made it available free to everyone—from large companies to vegetable sellers, autorickshaw drivers, domestic workers and small rural merchants. It now serves about 491 million people and 65 million merchants and handles nearly half of the world’s real-time payments. Free UPI has reduced cash use and business costs, expanded financial inclusion, improved tax compliance and helped small merchants build records for obtaining bank loans.

India provides far larger subsidies for important public purposes: about ₹2.03 trillion for food, ₹1.68 trillion for fertilisers, ₹228 billion for agricultural credit support and ₹125 billion for petroleum and LPG. Against these amounts, the ₹20–25 billion annual cost of keeping UPI free is tiny. It is also a highly productive public investment that supports transactions worth hundreds of lakh crore rupees and saves the country the larger costs of managing cash. India can easily afford to bear this cost. It should strengthen its world-leading payment system, not weaken it with charges that could push small merchants back to cash. UPI must remain free.