In the Union Budget 2026–27, the central government has reduced the allocation for the UPI and RuPay incentive scheme by nearly 10%, even as digital payments in India continue to scale new highs. The outlay for FY27 has been set at ₹2,000 crore, down from ₹2,196 crore provided in the revised estimates for FY26. The scheme plays a critical role in supporting India’s digital payments ecosystem by compensating banks and payment service providers for offering zero merchant discount rate (MDR) transactions on low-value BHIM-UPI and RuPay debit card payments.

Key Highlights

• The government has reduced the FY27 allocation for the UPI and RuPay incentive scheme to ₹2,000 crore, nearly 10% lower than last year.
• The move comes despite continued growth in digital payment volumes across India.

The incentive programme was introduced to encourage merchants, particularly small businesses, to adopt digital payments without bearing transaction costs. However, industry stakeholders have expressed concern that the reduced allocation may be inadequate to sustain the rapidly expanding volume of UPI and RuPay transactions. India’s digital payments network has seen exponential growth over the past few years, with UPI emerging as the backbone of everyday retail transactions across urban and rural areas.

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Payments companies and banks have reiterated that while zero MDR has helped drive adoption, it has also placed pressure on their revenues and infrastructure costs. Several industry participants have renewed calls for a tiered MDR structure, particularly for large merchants, arguing that this would help create a more sustainable business model without hurting small traders.

The government’s decision to pare back funding suggests a gradual shift towards encouraging the payments ecosystem to become more self-sustaining, even as policymakers continue to prioritize financial inclusion, digital penetration, and the long-term stability of India’s payments infrastructure.