1. Credit/debit cards payments: Narendra Modi govt must bear MDR charges, not oil companies

Credit/debit cards payments: Narendra Modi govt must bear MDR charges, not oil companies

Although it was always known that the transition back to merchant discount rates and interchange fees—these were discontinued during demonetisation.

By: | Published: February 28, 2017 5:07 AM
MDR charges, demonetisation, narendra modi, PM Modi, OMCs, credit/debit card for oil, oil companies, Digitalisation, digital payment, card payment, cashless transaction, BJP government Although it was always known that the transition back to merchant discount rates and interchange fees—these were discontinued during demonetisation. (Source: Reuters)

Although it was always known that the transition back to merchant discount rates and interchange fees—these were discontinued during demonetisation—would be difficult, what has really stirred controversy are the charges on payment by credit/debit card for oil. While the government had announced a roll-back of the charge for fuel purchases, it was never clear who would bear the costs. But now, according to a report in Mint, the government has decided to transfer the burden on to the oil marketing companies (OMCs).

Although that means less burden on the dealers who were protesting against having to pay the MDR given their low margins, the decision—even if it is acceptable to oil companies—is a regressive one.

Even if these charges constitute a small portion of payments—at 0.4% (for debit cards) and 1% (for credit cards), there is not much a company would have to shell out—it would still add to the OMCs’ costs. More important, while the government shouldn’t ideally impose such conditions on companies, even if they are fully-owned and operated by it, this is not the case here. With shares of at least two major OMCs publicly traded, the imposition of the costs is a levy on the shareholders.

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The government should have taken on the costs as the move to electronic and card payments ultimately benefits it on many counts—from a fall in the cost of printing currency notes to easier tracking of transactions. Digitalisation is not going to be as smooth as the government would like it to be if it keeps passing the costs onto others.

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