The Parliamentary Standing Committee on Finance has called for the early implementation of the tiered Merchant Discount Rate (MDR) framework for UPI transactions, warning that delays could leave payment service providers dependent on inadequate government subsidies and weaken investments in payment infrastructure.
“In the view of the Committee, while statutory enablement now exists to permit calibrated MDR on high-value transactions, any delay in notifying and operationalising this framework leaves payment service providers heavily dependent on inadequate subsidies, thereby threatening critical investments in cybersecurity, fraud prevention, and network infrastructure,” it said in its report tabled in Parliament on Wednesday.
The panel flagged the sharp mismatch between the Rs 2,000 crore budgetary allocation for 2026-27 and the industry’s estimated operational cost of Rs 20,700 crore for running UPI. It said the allocation covered barely 10% of actual operational costs. The estimate is based on an operational cost of Rs 1.38 per transaction and around 15,000 crore P2M transactions recorded last year.
The Department of Financial Services told the panel that MDR of up to 0.30% of transaction value was applicable to UPI person-to-merchant transactions until December 2019. Zero MDR was introduced from January 2020 to accelerate digital payment adoption and encourage a shift from cash to digital payments.
However, the ministry said the zero-MDR policy had “eliminated the core revenue streams for the UPI ecosystem”. The government subsequently introduced an incentive scheme to support banks and other ecosystem participants and encourage digital payments.
To reduce the burden on the exchequer, the Department is examining restoring MDR for certain high-value transactions or merchants and introducing a tiered incentive structure to “phase out the Government support in the next few years”.