From ‘Cashless’ to the ‘Burden of Charges’

From buying salt, pulses, vegetables, milk and biscuit packets to making large business transactions, payments through a small app on a mobile phone have now become an integral part of the daily lives of Indians. The Unified Payments Interface (UPI) has brought the digital economy into the hands of ordinary people. It has also reduced the problems of handling cash for everyone from small traders to large organisations. However, opening the door to charges on a system that has expanded for so long under the ‘Zero Merchant Discount Rate’ policy raises important questions about the future of the digital economy.

The possibility of imposing a Merchant Discount Rate (MDR) on UPI transactions by the very government that widely promoted UPI appears to be a contradiction in policy. After encouraging digital payments through various incentives and awareness campaigns to make them a part of people's lives, the question now is what impact it will have if the cost of maintaining this system is shifted to merchants. In particular, the possible impact on small traders, street vendors and self-employed groups who depend heavily on UPI should be assessed in advance.

There is some truth in the government's argument. Every digital payment system involves costs related to technological infrastructure, cybersecurity, servers, banking networks and fraud prevention. Reserve Bank Governor Sanjay Malhotra has also stated that someone has to bear the cost of maintaining such a system. But the real question is not whether there is a cost; it is who should bear that cost, how much they should bear, and through what mechanism.

This is where a balance is needed between public interest and economic policy. Even if MDR is not directly imposed on consumers, if a merchant includes the additional cost in the prices of goods, the burden will ultimately reach the consumer. For example, when a merchant sells goods worth ?2,000 through a digital payment, and has to pay a certain percentage as a transaction fee, the merchant may bear that amount from the profit. But merchants operating with small profit margins may also transfer the burden to consumers through higher prices or additional charges.

Therefore, the government's explanation that ‘there will be no charges on the customer’ alone is not sufficient. Direct charges and indirect price increases may be two different ways of collecting money, but their impact on the consumer's pocket can be the same. Particularly at a time when there are inflationary pressures, even a small increase in the cost of small-value transactions can affect the consumption expenses of ordinary families.

Another major strength of the UPI system is its simplicity and low cost. The ability to make digital transactions easily, from as little as one rupee to thousands of rupees, is one of the main reasons for its popularity. The figures showing that UPI transactions worth nearly ?29.88 lakh crore took place last month demonstrate the enormous scale the system has reached. The 19 per cent increase in transaction value compared with July last year is also evidence of the rapid expansion of digital payments. In such a huge system, even a small percentage of charges can have a significant impact on the overall economy.

Another risk cannot be ignored here. If the cost of digital payments increases for merchants, some of them may begin encouraging cash payments. If small shops and low-margin businesses start limiting digital payments, it could reverse the progress made by the government in digital financial inclusion over the past decade. The advantages of digital payments over cash transactions, such as transparency, transaction records and tax compliance, could also be affected.

At the same time, the fact that the digital payment system involves maintenance costs cannot be ignored. The question is how these costs can be shared efficiently without pushing the burden onto consumers. The government, banks, payment companies and large digital platforms can work together to develop a system in which these costs are shared. Measures such as protection for small merchants, exemptions for low-value transactions and transparent limits on fees are necessary.

Digital India does not simply mean replacing cash with a mobile phone. It means building a payment system that is affordable, secure and equally accessible to the people. After bringing UPI into the lives of ordinary people, policies should not be designed in a way that makes the people pay for its success. Instead, the entire financial structure supporting the system should be reorganised in a fair manner.

If charging fees becomes unavoidable, the government should openly disclose who will bear the burden and to what extent. Rather than making such major policy changes without parliamentary discussion or adequate public debate, impact assessment, transparency and stakeholder consultations are important in a democratic system of governance. If promoting digital payments is a policy objective, imposing additional costs on them should not weaken that very objective.

Ultimately, the question is not simply whether MDR should be imposed or not. The real questions are: Who is benefiting from the growth of the digital economy? Who is bearing the cost of maintaining it? And whose pocket is ultimately paying that cost? The success of ‘Digital India’ cannot be measured only by the number of transactions. Its true measure is how affordable, secure and accessible it remains for ordinary people. Any policy that loses sight of this standard risks turning the digital revolution, instead of being a source of strength, into another blow to the pockets of ordinary people.