MDR on UPI under review as cash use grows, inflation debates follow

What Happened

The government is considering allowing a Merchant Discount Rate (MDR) charge on UPI transactions, while new data indicate that the growth of cash in public hands has accelerated recently. An analysis based on RBI data shows cash with the public rising to 41.8 lakh crore rupees as of July 31, 2026, and being about 13% higher than a year earlier. The growth rate of cash with the public rose from a pandemic-era peak of roughly 17% in 2020-21 to 4% in 2023-24, then climbed to 6.5% in 2024-25 and 12% in 2025-26. Meanwhile, the value of transactions on the UPI platform has been growing more slowly in recent years but remains faster than cash growth. UPI transaction value growth was 133% in 2019-20, 95% in 2020-21, 105% in 2021-22, then slowed to 20.3% in 2025-26 and 18.7% as of August 2026 (April-August period), still outpacing the 13% growth in cash with the public in the same period. The government’s Finance Ministry and the Payments Corporation of India have said the MDR charge would not apply to the general public and would apply only to certain high-value merchants and transactions.

Why It Matters

Experts suggest that simultaneous growth in cash and digital payments could indicate higher economic activity and price levels, raising questions about inflation measurements. Pronab Sen, a former chief statistician, argues that ongoing growth in both payment forms could imply inflation is being understated in official data, though current CPI inflation stood at 4.45% in July 2026 and wholesale inflation at 9.8% in the same month. The potential cost shift from MDR onto merchants could, in turn, influence consumer prices if merchants pass costs to customers.

Background

India recently passed the Taxation and Other Laws (Amendment) Bill, 2026 in the Monsoon session, which enables the government to levy MDR on electronic transactions such as UPI and RuPay debit card payments. Public assurances from the Finance Minister and the Payments Corporation of India stated that the MDR would not be charged to the general public, with applicability limited to certain high-value merchants and transactions. Opposition voices warned that merchants required to pay MDR might raise prices to offset the new cost, potentially driving some users back to cash.

Key Facts

• The government is considering MDR charges on UPI transactions.
• Cash with the public reached 41.8 lakh crore rupees as of July 31, 2026, about 13% higher than the previous year.
• Growth in cash with the public rose to 12% in 2025-26 and 6.5% in 2024-25, after a 4% rate in 2023-24.
• Growth in UPI transaction values was 133% in 2019-20, 95% in 2020-21, 105% in 2021-22, 20.3% in 2025-26, and 18.7% as of August 2026 (April-August period).
• In the same period, UPI growth remained higher than cash growth (18.7% vs 13% in the April-August comparison).
• Public assurances say MDR would apply to certain high-value merchants and transactions, not to the general public.
• Inflation data for July 2026: CPI 4.45%; wholesale price inflation 9.8% in July 2026.
• Pronab Sen cautions that rising cash and digital payments could signal undercounted inflation.

What Happens Next

Policy makers have indicated MDR would not affect the general public, but MDR applicability to merchants could influence pricing strategies if costs are passed on. No further dates for MDR implementation were specified in the material, and inflation implications remain a subject of expert debate based on official data and payment trends.