MDR Won’t Push India Back to Cash, Says NITI Aayog’s Rajiv Gauba

When the National Payments Corporation of India (NPCI) announced a modest 0.4% merchant discount rate (MDR) on person‑to‑merchant (P2M) UPI transactions exceeding ₹2,000, many wondered if the move would nudge shoppers back to cash. A day later, NITI Aayog member Rajiv Gauba gave a calm, detailed response: the new charge is squarely aimed at businesses, not at the ordinary buyer.

“MDR doesn’t have to be paid by the consumer; it’s for the merchants,” Gauba told Moneycontrol. “They already paid a similar charge before UPI launched in 2016, so nothing fundamental is changing.” In other words, shopkeepers aren’t expected to hike prices simply because a payment now carries a tiny fee.

For context, merchants have long absorbed credit‑card MDRs ranging between 1.5% and 2.5%, and debit‑card MDRs up to 0.90%, according to the Department of Financial Services. The new UPI levy is therefore far lower than what many businesses have been accustomed to paying on other card networks.

Gauba was quick to dismiss the notion that the fee would revive cash usage. “It won’t reverse the trend towards a cash economy at all — zero,” he said, adding that cash‑based transactions have been on a steady decline for years.

The government’s rationale behind the MDR is sustainability. Running the UPI ecosystem is not cheap; the finance ministry estimates an annual cost of about ₹20,000 crore. By levying a small fee on high‑value transactions, the authorities hope to create a revenue stream that can fund infrastructure upgrades, especially in tier‑2 and rural areas.

Crucially, the framework is designed to be selective. Around 96% of merchant transactions will remain outside the MDR net, and person‑to‑person (P2P) payments will stay completely free. Small merchants whose monthly QR‑code receipts stay below ₹1 lakh are also exempt. Moreover, 5% of the collected MDR will be earmarked in a dedicated fund to help tiny traders adopt UPI acceptance.

The Reserve Bank of India has backed the move, noting that a fair distribution of MDR revenue could spur investment in technology, payment‑acceptance networks and overall scalability of the platform.

All told, the 0.4% charge kicks in from 15 October 2026. While the fee adds a new line item for larger merchants, the consensus – echoed by Gauba – is that everyday consumers will barely notice any change, and the digital‑payments march will continue unabated.