FMCG distributor body All India Consumer Products Distributors Federation (AICPDF) has urged the government to reconsider the proposed Merchant Discount Rate (MDR) on UPI transactions, arguing that the cost would disproportionately burden small retailers, distributors and other low-margin businesses.
In a representation to Prime Minister Narendra Modi, also marked to the finance and commerce ministries, the federation said UPI should continue to operate as a zero-MDR payment system for merchants.
“UPI is a service used by the entire economy, not by traders alone. If there is a requirement to recover a portion of the cost of maintaining this enormous digital infrastructure, the Government should examine a broad-based mechanism rather than making the merchant the sole payer,” AICPDF National President Dhairyashil H Patil said.
The federation cited UPI transaction value of around ₹328 lakh crore and estimated expenditure of about ₹20,700 crore on operating and supporting the ecosystem. This, it said, translates into an aggregate cost of around 0.06% of transaction value.
Financial Impact
AICPDF said imposing an MDR of 0.4% could have a significant impact on FMCG retailers and distributors, which operate on thin margins while bearing costs related to rent, manpower, logistics, inventory, working capital, expiry, damage and collection risks.
The federation also sought an exemption from MDR for B2B FMCG payments, including retailer-to-distributor and distributor-to-company settlements. It argued that applying MDR at multiple stages could result in repeated transaction costs within the same supply chain.
“India’s digital-payment revolution must remain affordable for the very merchants who have made it successful. UPI should continue to be an enabler of commerce and financial inclusion, not become an additional cost on India’s small-business ecosystem,” Patil said.
AICPDF also raised concerns over MDR being calculated on tax-inclusive payments and sought clarity on the proposed ₹1 lakh monthly UPI receipt threshold. It asked whether MDR would apply only to transactions above the threshold or to all transactions once the threshold is crossed.
The federation has urged the government to examine alternative funding mechanisms for the UPI ecosystem, provide appropriate GST relief on MDR and ensure that small businesses have affordable options for both digital and cash payments.