Reserve Bank governor Sanjay Malhotra has said it is too early to determine who would bear the cost if the government permits a merchant discount rates (MDR) on some unified payments interface (UPI) transactions.
MDR is a fee paid by a merchant to the bank or payment service provider processing a digital transaction. By definition it is not a charge levied directly on the customer making the payment or the one receiving it.
The governor’s comments come a day after finance minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill, 2026, that seeks to give the Centre greater discretion to decide which electronic payment modes must remain free of charges or not.
“It is very premature to talk right now,” Malhotra told repoters at the post-monetary policy press conference here Wednesday. “The costs have to be paid by someone.” Malhotra was speaking to reporters after his monetary policy briefing here on Wednesday. The monetary policy committee of the RBI has left the policy rates unchanged even as it revised its GDP growth rate for FY27 to 6.7% from 6.6% earlier, and inflation to 5% from 5.1% earlier.
However, the proposed law does not impose a fee or set an MDR rate though it has been reported in a section of the media that the government is weighing 0.25-0.4% MDR on merchant payments above Rs 2,000, while keeping person-to-person payments free of charges.
Asked whether users could eventually bear the cost, he said: “consumers already pay for payment infrastructure in some form, even when the cost does not appear as a separate transaction fee as the cost may be borne by the government, businesses or the wider economy rather than the person making a particular payment.”
“The priority,” according to Malhotra, “is to continue investing in payment infrastructure and determine how those costs should be funded.” To promote the digital payments in the wake of the November 216 note-ban, the government had been making budgetary provisions to support the digital payments infra. But over the years, the budgetary support has been steadily coming down. Yet as of now all the UPI payments are free.
The 2027 budget allocated Rs 2,000 crore to support low-value BHIM-UPI and Rupay transactions which will be used to reimburse banks and payment operators for maintaining the zero-MDR framework on small-ticket payments.
In FY26, this allocation was around Rs 2,196.21 crore, rebounding from Rs 427 crore in FY25. The subsidy typically covers up to 0.15% of transaction value specifically for small-merchant P2M payments up to Rs 2,000.