Government may do away with UPI subsidies

Mumbai: The Indian government is considering discontinuing subsidies for low-value Unified Payments Interface (UPI) transactions, according to sources familiar with the matter. This move comes after the introduction of the merchant discount rate (MDR) on larger UPI payments, which has led banks and payment companies to begin earning transaction-linked revenue from the network.

The government had budgeted ₹2,000 crore for incentives on UPI and RuPay transactions for the fiscal year 2027, but no fresh subsidy has been paid for transactions since April 2025, the sources said. The decision to introduce MDR on larger-value UPI payments was aimed at gradually moving the ecosystem away from taxpayer-funded subsidies, according to a senior banking official.

No fresh subsidies have been paid for transactions over the past 18 months, and the government does not wish to continue subsidizing payments to large merchants using public funds. The government's UPI incentive disbursements have plummeted from ₹3,631 crore in fiscal year 2024 to ₹1,046 crore in fiscal year 2025. The government started compensating banks and payment companies after MDR on UPI and RuPay debit-card transactions was set to zero in January 2020 to boost digital payment adoption.

However, the incentive scheme was designed to help small merchants accept digital payments and support the investment in secure payment infrastructure, particularly in smaller cities and rural areas.