Almost ten years ago on 8 November 2016 when PM Narendra Modi personally, in a highly insensitive and arbitrary manner, junked about 86 per cent of the total value of currency in circulation at the time in India in one evening, it was a major blow to the country’s economic backbone. The ramifications of that mindless move are being felt across the economy even today with record levels of unemployment, shut factories, especially in the MSME category, an ever-depreciating rupee and an ever-rising cost of living. At that time, the government had vowed to turn the country into a “cashless economy” where all financial transactions would be conducted either through cards or the Unified Payments Interface (UPI), an instant real-time payment system which was domestically developed by the National Payments Corporation of India (NPCI).
Transactions on UPI were made free to facilitate the government’s vision of a cashless economy. Nevertheless, the Reserve Bank of India had time and again come up with reports revealing that cash in circulation was still at record high. Just before demonetisation in November 2016, currency in circulation stood at roughly Rs 16.63 lakh crore. In 2026, the RBI reported that total cash in circulation has crossed Rs 42 lakh crore, more than doubling in a decade. The RBI terms this phenomenon as the “cash paradox.” Usually, cash is used by citizens to avoid being taxed multiple times for the same transaction. Cash, too, it must be remembered is produced by government and is not illegal nor its use clandestine.
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Now, with the government imposing a fee on UPI in the form of the Merchant Discount Rate (MDR) on selected UPI transactions above Rs 2,000 from 15 October, the ‘vision’ of a digital or cashless economy seems to have come a cropper. Under the new rules, a 0.4 per cent MDR will apply to specified person-to-merchant UPI transactions above Rs 2,000. This, everyone understands, is a slight opening of the door that will be flung wide open very soon. The government also adds that the MDR charge will be paid by the merchant, not the customer. However, it will be too naïve to accept this as all businesses in India will have no choice but to pass on all their tax burdens to the consumers.
The government claims that it has started discussions with payment aggregators and other platforms to ensure the MDR is not passed on to consumers. Banks have also been advised to ensure that merchants do not transfer the cost. However, the government has not made public how exactly this daily monitoring will work in a country as vast as India. This explains why reports are coming in from various parts of the country with merchants simply refusing to accept UPI payments above the Rs 2,000 threshold. In Ghaziabad, Uttar Pradesh, traders have started putting up notices outside their shops saying “UPI Payment Will Not Be Accepted” in response to the proposal, while fuel stations across Madhya Pradesh have announced that they will not accept digital payments above Rs 2,000, saying the MDR would wipe out their thin profit margins. All these imply that the fee on UPI will ultimately be borne by the consumer, no matter what many of the apologists for the government claim.
Questions are also being raised on the timing of imposition of the MDR move. The Indian government is being accused by critics of succumbing to pressure from the United States, especially after it signed an interim trade deal with America which many perceive as being disadvantageous to India and highly tilted in favour of the US. The success of the UPI in India was seen by American payment giants like Visa and Mastercard as a major stumbling block in the country’s vast consumer market. Some critics point that the fee on UPI has been imposed to make India’s payments market a level-playing field for global credit/debit card companies like Visa and Mastercard. A timeline of events over the past eight years appear to put things into perspective. About two years after the public rollout of UPI in India, on 21 June 2018, Mastercard complained to the US Trade Representative (USTR) that India was favouring RuPay and called India’s approach protectionist. On 9 August 2021, Visa CEO Alfred Kelly met USTR executives and complained that India’s policies appeared to favour NPCI.
On 17 September 2025, USTR invited American companies to report foreign trade barriers. On 31 March 2026, USTR put its concerns on record stating that there was “non-level playing field” in India. Then in August 2026, the New Taxation Bill 2026 was passed by the Indian Parliament and in September came the MDR. All in quick succession to please the Master, it seems.
Even the UPI market in India, for all its infrastructure created by NPCI and banks and the scale created by Indian citizens, is being dominated by US-owned companies. PhonePe owned by Walmart and GooglePay control about 78 per cent of UPI volume in India. While these things once again prove that India is a vast consumer market that multinational corporations do not want to miss, it also vividly shows that India has become the latest economic battleground of large American companies wishing to reap in super profits.
As far as common citizens are concerned, in all likelihood, the MDR on UPI is only going to make cash the king again. This is another policy blunder of the government as was the case with demonetisation, the GST rollout, or the recent highly unpopular ethanol blending in petrol programme. Such policies, no matter what the intention of the government, only end up filling the lives of ordinary Indians with more hardship.
