MDR won’t force a cash comeback, says NITI Aayog’s Rajiv Gauba

When the National Payments Corporation of India (NPCI) rolled out a modest 0.4% merchant discount rate (MDR) on person‑to‑merchant UPI payments above ₹2,000, many wondered if it would nudge shoppers back to notes and coins. A day later, NITI Aayog’s Rajiv Gauba put those fears to rest.

“MDR is a cost that merchants bear, not the consumer,” Gauba told Moneycontrol. He reminded us that merchants have already been paying a credit‑card MDR of roughly 1.5‑2.5% and a debit‑card rate of up to 0.9% long before 2016. The new UPI charge is simply a re‑balancing of that old structure.

In his view, shopkeepers won’t start inflating prices because a buyer pays with a QR code instead of a card. “The mode of payment doesn’t dictate the price,” he said, chuckling that this is a common misconception.

Beyond reassuring shoppers, Gauba emphasized that the MDR is not a covert cash‑re‑introduction strategy. “Zero chance it will reverse the cash‑less trend we’ve built,” he declared, underscoring the government’s confidence in a digital‑first future.

The rationale behind the charge is sustainability. Running the UPI ecosystem – from servers to rural outreach – costs the government an estimated ₹20,000 crore a year. By channeling a small slice of high‑value transactions back to banks, payment service providers and app developers, the system can fund upgrades and expand reach, especially in tier‑2 and tier‑3 towns.

Importantly, the MDR will apply to only about 4% of merchant transactions. Small vendors with monthly QR‑code sales under ₹1 lakh stay exempt, and person‑to‑person transfers remain free. The Reserve Bank of India has backed the move, noting that a fair distribution of fees will spur further investment in technology and acceptance infrastructure.

In practice, the new rule kicks in on October 15. The government also plans to earmark 5% of MDR collections into a dedicated fund to help tiny merchants adopt UPI, a gesture that aims to keep the digital tide moving upward for everyone.