New Delhi: The government is weighing two options to make UPI (Unified Payments Interface) financially independent and eliminate the subsidy crutch. While one is to restore MDR of merchant discount rate for high-value transactions, the other is to draw up a tiered incentive structure. These options has been conveyed by the Union finance ministry to the Parliamentary Standing Committee on Finance. reports stated. But the general impression is that the common people won’t have to bear any additional financial burden due to these steps.
Option to apply MDR on UPI
According to the Department of Financial Services, the government is looking at the possibility of implementing MDR on certain and large UPI transactions. MDR is a fee charged to merchants who accept digital payments. The government’s second option is to introduce a tier-based incentive system. Through this, the government support given to UPI can be gradually reduced in the next few years. Its objective is to make the UPI system financially sustainable in the long run. Howevere, there has not been any clarity on what will happen if merchants who have to pay MDR will realise it from the common people conducting these transactions.
MDR was levied earlier
Earlier MDR was applicable on UPI merchant transactions in India. Till 2019, MDR of up to 0.30% of the amount under transaction was charged on some UPI merchant transactions. After this, in January 2020, the government implemented zero MDR on all UPI transactions. The sole purpose of this step was to promote digital payments among the common people. Now the government is again contemplating reintroduction considering changes in this system for large transactions.
Increasing financial burden
According to the Parliamentary committee report, the government has budgeted Rs 2,000 crore to promote UPI transactions and compensate for the losses caused by zero MDR. At the same time, the estimated operational cost of the industry is around Rs 20,700 crore. The government’s current support is much less than the actual cost of the industry. The committee has said that this difference may affect the security of the UPI system and investments related to infrastructure.
Record UPI transactions
Thnaks to the sustained support of the government, the month of July witnessed a new record in UPI usage, when as much as Rs 29.9 trillion exchanged hands through this app. The number of transactions, too, reached a peak of 23.66 billion in the last month.
