As the Union Budget 2026 approaches, India’s digital payments industry is urging the government to increase financial support and revisit the Merchant Discount Rate (MDR) structure to ensure long-term sustainability and growth of the Unified Payments Interface (UPI) ecosystem. After a notable shortfall in government compensation last year, payment companies and industry bodies are calling on the Finance Ministry to raise the subsidy for UPI transactions and consider restoring MDR charges, particularly for larger merchants.

Key Highlights

• Payment companies urge higher UPI subsidy allocation as current support fails to cover operational costs.
• Industry seeks selective return of MDR, especially for large merchants, to sustain digital payments growth.

Despite UPI’s remarkable expansion—with transaction volumes and values rising steadily and the platform processing tens of billions of payments each month—current subsidy allocations are seen as inadequate to cover the costs borne by payment providers. Payment industry representatives, including the Payments Council of India (PCI), have emphasized that the existing UPI subsidy falls short of what is required to support continued ecosystem expansion, especially into rural and emerging segments.

UPI transactions are currently conducted free of merchant charges, a policy introduced to encourage widespread adoption. In return, the government compensates payment firms for facilitating these transactions.

Originally, MDR for UPI was around 30 basis points before it was waived in 2020. However, recent subsidy levels have been far lower than industry estimates: while the government allocated around ₹1,500 crore for UPI subsidies last year, the industry had expected upwards of ₹5,000 crore.

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Industry leaders argue that without adequate budgetary support, the zero-MDR model may become difficult to sustain, particularly for serving small merchants and expanding digital payment penetration into less-served regions.

As part of their proposals, PCI and payment firms have also suggested reinstating MDR for large merchants with higher turnover and extending MDR consideration to all RuPay debit card transactions, aligning with existing fee structures in card payments.