Govt Should Continue With Zero-Fee UPI Transactions For Few More Years: NITI Aayog's Former VC

NITI Aayog's former vice-chairman Rajiv Kumar on Monday suggested the government to continue with zero-fee UPI transactions for at least a few more years until the currency-to-GDP ratio shows some tendency to decline, and then review the situation.

Kumar told PTI that he is not in favour of charging any fee from merchants for using UPI for any transaction value, and the government should treat it as a public good with extensive positive externalities.

"Their overall benefits well far outweigh the cost of ₹20,000 crore that the public exchequer has to bear for maintaining the UPI infrastructure.

"...so let's continue with zero-fee UPI transactions for at least a few more years until the currency-to-GDP ratio shows some tendency to decline," he said.

While 96% of unit transactions are less than ₹2,000, it is estimated that nearly 66% of transactions by value are above this level.

"This presents a very significant opportunity for transactions to shift back to cash; charging the smallest of fees will incentivise the regressive behaviour.

"...for now, best to continue with status quo for keeping a good thing going," the eminent economist said.

Ending nearly six years of fully free UPI payments, the government on September 15 introduced a 0.4% fee on transfers worth more than ₹2,000 to merchants through the platform from October 15, while explicitly ring-fencing everyday person-to-person transactions as well as small payments from any charge.

"Customers will not be required to pay any charge when making such payments through UPI," the finance ministry had said in a statement, adding, "MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments." Also, individuals will continue to have "unlimited free usage, with no monthly quotas, volume restrictions or tiered caps on free UPI transactions", it had said.

The move drew sharp criticism from the opposition parties. Congress leader Rahul Gandhi had alleged that the levy was "once again surrender" by a "compromised" Prime Minister Narendra Modi to American pressure.

The BJP had hit back, accusing the Congress of spreading "fake news", saying the government had made it absolutely clear that MDR charges would not be levied on consumers.

From October 15, a 0.4% Merchant Discount Rate (MDR) will be levied on person-to-merchant (P2M) transactions above ₹2,000 through UPI (Unified Payments Interface), capped at ₹300 for payments of ₹75,000 and above.

Essential and thin-margin sectors -- railways, telecom, insurance, fuel and agricultural inputs -- will pay a flat MDR of ₹5 per transaction above ₹2,000, a move intended to keep costs predictable for critical services; these categories account for nearly 17% of P2M transaction volume but roughly 46% of P2M transactions.