Will UPI Stay Free? The Reported Subsidy Hike Demand Ahead Of Budget 2026 Explained
Payment system operators are reportedly planning to seek a substantial increase in government subsidies for merchant discount rates (MDR) on Unified Payments Interface (UPI) transactions during the upcoming Union budget consultations.
The industry says that the current funding is far too low to maintain the zero-MDR policy for low-value UPI payments, according to an Economic Times report. MDR is the fee merchants pay to banks or payment providers for processing online transactions.
For this financial year, the government has allocated Rs 427 crore for digital payment incentives. This marks a huge gap compared to the estimated Rs 5,000–6,000 crore spent annually on covering UPI transactions below Rs 2,000.
Will The Zero-MDR Regime End?
According to the report, the industry representatives also plan to seek permission to impose an MDR of 25–30 basis points on low-value UPI payments at large merchants with annual turnover above Rs 10 crore. A basis point is a hundredth of a percentage point.
A senior executive at a major payments system operator told ET that funding for low-value UPI transactions needs over Rs 6,000 crore, far above the allocated amount of Rs 427 crore.
"We will also propose MDR on high-value merchant transactions,” the executive said.
Government allocations for digital payment incentives grew from Rs 1,500 crore in 2021-22 to Rs 3,500 crore in 2023-24, before falling to Rs 2,000 crore in 2024-25. For 2025-26, the budget estimates show a sharp drop to Rs 427 crore, despite record-high UPI transactions.
Since 2020, the government has mandated zero MDR on low-value UPI transactions, but each low-value merchant transaction costs about Rs 2, the ET report added, citing Reserve Bank of India's discussions. Currently, this cost is absorbed entirely by banks and fintechs. Payment operators argue that this model is unsustainable given UPI's massive growth.
Surge In UPI Transactions
UPI payments account for about 85% of all digital transactions by volume in India. In October, UPI recorded an all-time high of Rs 27.28 lakh crore in transaction value. The average daily load during the month was worth nearly Rs 88,000 crore, the report added. According to National Payments Corporation of India (NCPI), the umbrella organisation that facilitates UPI payments, the total transactions stood at 2,070 crore in October.
-
Opinion | India at 38: From Innovation Overperformer to Innovation Powerhouse
India now has 453 VC-backed deep science startups, 18 of them late-stage, after 117 percent growth since 2020. Laurus Labs, at USD 9.3 billion, is the most valuable deep science company in any middle-income economy outside China.
-
Navigating Energy Crossroads: S Jaishankar's Call For Diversified Supply Chains At G20 Ministerial Meeting
As geopolitical fault lines continue to test maritime trade routes and commodity flows, Jaishankar's message remains pertinent: true economic resilience requires open markets, protected transit lines, and a genuine commitment to multilateral cooperation rather than coercion.
-
Indians Are Travelling, But Not Every Journey Is A Holiday | The Week In Whys
Pilgrims, patients and working women are the real travellers, and the system hasn't quite caught up with them.
-
Getting To Work Costs Women More | The Reason Why
It is not just about women paying more than men. It is about women paying much more in cities than in villages.
-
AI Bias In Investing Cannot Be Eliminated, But It Can Be Governed
Framing is a particularly important example as identical financial information presented in terms of gains rather than losses can lead an LLM to reach a different assessment.
-
Joining The Dots | Dark Skies, Steady Diya: Why Hope Holds This Diwali
With war, a weak rupee and foreign outflows weighing on sentiment, policymakers at the NDTV World Summit and market veterans at NDTV Profit Ignite: Diwali Edition offered the same advice: stay invested and filter out the noise.
-
The Curious Case of Equitas Small Finance Bank And A CEO Who Quit For Stock
PN Vasudevan believes persistent investor concerns over a perceived conflict of interest had become a governance overhang on Equitas Small Finance Bank's stock, even as the lender improved profitability and asset quality.
-
Talking Points This Week: AI Cash Burn, A Tiger Comeback And An India That Still Finds Its Own Path
India is not immune to higher oil or tighter global liquidity, yet its earnings base is broader, its domestic policy levers are still available.
-
Foreign Investors Own Half Of HDFC Bank and ICICI Bank. An LTCG Cut Could Matter Most Here
Foreign portfolio investors have US$115 billion parked in HDFC Bank, ICICI Bank. If the government cuts long-term capital gains tax, Jefferies says returning foreign money could land here first.
