UPI Payment System: 'Someone has to bear the cost', says Santosh Mehrotra

Former Chief Economic Advisor Krishnamurthy Subramanian shares his perspective on the government's merchant discount rate (MDR) policy for UPI payments. Discussing UPI's role as a sovereign public good, he cautions against ad valorem transaction taxes and notes that merchants might shift back to cash transactions, incurring implicit opportunity costs. Instead of taxing transactions, he emphasizes utilizing the platform to drive credit creation in the economy. Subramanian points out that India's private credit-to-GDP ratio is around 60%, compared to the global average of 150%, offering massive scope for expansion. 'Utilize this for credit creation,' he asserts, explaining that interest income can sustainably fund infrastructure, technology, and cybersecurity needs.

In an interview with Rajdeep Sardesai, PhonePe Co-founder and CEO Sameer Nigam shared his perspective on the government's decision to introduce a 0.4% Merchant Discount Rate (MDR) on UPI transactions above Rs 2,000. Defending the move, Nigam stated, "We don't want subsidies from the government. We stand on our own feet." He explained that the notion that digital payments cannot expand with an MDR is unfounded, remarking, "It was a myth to begin with that MDR had to be free for payments to take off." Nigam highlighted that 95% to 96% of peer-to-merchant transactions fall below the Rs 2,000 threshold and essential categories such as petrol, utilities, and insurance have flat fee caps. He dismissed concerns that merchants will pass charges onto consumers, emphasizing that UPI still offers the lowest MDR globally.

A political controversy has erupted following the National Payments Corporation of India's announcement of a 0.4% merchant discount rate levy on Unified Payments Interface transactions exceeding 2,000 rupees. The opposition has criticised the decision, alleging that the move surrenders to American pressure and benefits digital payment companies with significant foreign shareholding. In response, the ruling Bharatiya Janata Party rejected the allegations, clarifying that the merchant discount rate charge will be borne exclusively by merchants rather than consumers. The government maintained that 96% of transactions remain unaffected, stating the charge ensures platform robustness without impacting the public.

The US House of Representatives is set to vote on a key bill that proposes tariffs of up to 100% on countries purchasing Russian oil, potentially impacting Indian goods. Having previously passed the US Senate on August 8, the legislation has been fast-tracked and now heads towards the US House. If approved by the US Congress and signed into law by the US President, it would grant the authority to impose secondary tariffs on nations trading in Russian oil. The measure gives presidential discretion on whether and where to levy such penalties, raising concerns in India over the weaponisation of international trade tariffs.