NEW DELHI: India’s small retailers fear a squeeze on digital payments just as festive-season commerce gathers pace. The 0.4% merchant discount rate (MDR) on UPI person-to-merchant transactions above Rs 2,000 has prompted trade bodies to warn that the added cost could nudge merchants back towards cash.
Borne by merchants — consumers are outside its ambit — the charge is capped at Rs 300 for transactions of Rs 75,000 and above and takes effect October 15.
“Small merchants will now think twice about whether to accept cash or UPI,” said Kumar Rajagopalan, CEO of the Retailers Association of India (RAI). “During the festive season, a large share of transactions crosses the Rs 2,000 mark, and the moment a fee attaches itself to digital payment, cash becomes the path of least resistance.”
The more fundamental grievance is the Rs 1 lakh monthly UPI collection threshold for zero-MDR protection. RAI said the limit amounts to just Rs 12 lakh in annual digital receipts and does not reflect the scale of many micro enterprises. With more than 90 million enterprises classified as micro and around 90% operating below the GST threshold, the association argued that zero-MDR protection should extend beyond street vendors and the smallest P2PM accounts. The All India Consumer Products Distributors Federation (AICPDF) has sought a “substantially enhanced” threshold, saying the current limit ignores the growth in business volumes even among petty retailers.
A drift from UPI to cash would also shrink the digital trail associated with sales. “This cuts against the government’s own formalisation agenda,” Rajagopalan said. “UPI acceptance should be incentivised, not taxed.”
RAI has also questioned treating all UPI transactions alike, arguing that bank-account-linked payments do not carry the cost structure of credit-linked ones. “We don’t see the case for charging a bank-to-bank UPI payment the way you’d charge for credit,” Rajagopalan said, adding that the government should bear the cost of normal UPI transactions given the wider benefits of traceable, GST-linked commerce.
Timing is a sore point too. “Introducing MDR on UPI at the start of festive season could not have come at a more challenging time for the industry,” said Santosh Katariya, president of the Clothing Manufacturers Association of India.
India SME Forum president Vinod Kumar said UPI is fundamentally an account-to-account system and any merchant charge should be cost-based and transparent; the forum is surveying MSMEs nationwide on transaction values, margins and the MDR’s impact. AICPDF, while backing free UPI for consumers and P2P transfers, wants clarity on whether MDR will apply to electricity bills, taxes, BBPS and other essential payments.
Petrol pump dealers have joined the pushback, seeking a blanket exemption from MDR at fuel outlets, irrespective of transaction value. In a letter to Finance Minister Nirmala Sitharaman, the All India Petroleum Dealers Association said fuel purchases are routinely high-value while dealers operate on prescribed margins — largely unchanged since October 2017 even as wages, electricity and compliance costs have risen — and cannot raise selling prices to recover payment costs. Even the flat Rs 5 per transaction would add up, it said, seeking relief from both fixed and percentage-based MDR.
Some experts said free UPI creates economic value far exceeding the roughly Rs 16,000 crore MDR might generate — lower cash-handling costs, formalisation, credit-enabling digital trails and the efficiency of digitising billions of transactions.
Government officials, however, called such fears misplaced and ruled out even a partial rollback. “MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments,” the finance ministry said, adding that individuals retain “unlimited free usage, with no monthly quotas, volume restrictions or tiered caps”.
Source: The Financial Express
