UPI MDR: Retailers, clothing manufacturers flag impact of 0.4% charge on MSMEs

The Retailers Association of India (RAI) and the Clothing Manufacturers Association of India (CMAI) on Wednesday expressed concerns over the government’s decision to reintroduce a 0.4 per cent Merchant Discount Rate (MDR) on UPI just ahead of the festival season.

In fact, RAI has called for a graded structure that separates debit-linked from credit-linked UPI transactions and pairs any merchant charge with incentives to ensure small retailers remain in the formal payment system. It said it will take the matter up with the National Payments Corporation of India and the Ministry of Finance.

The MDR of 0.4 per cent is being imposed on UPI person-to-merchant transactions above ₹2,000, capped at ₹300 for transactions of ₹75,000 and above. Santosh Katariya, President, CMAI, said this development comes at the start of the festival season, a critical period for merchants, retailers and consumer-facing businesses, many of whom are already working hard to revive demand and improve margins.

“Adding another cost to digital transactions at this juncture risks putting further pressure on an ecosystem that is still finding its footing,” he said. The Retailers Association of India (RAI) warned that the charge could undo years of progress in digital payment adoption among India’s small retailers, just as the festive season gets underway.

The framework keeps consumers outside its ambit, but the burden still lands on merchants, it noted “Small merchants will now think twice about whether to accept cash or UPI. During the festive season, a large share of transactions crosses the ₹2,000 mark, and the moment a fee attaches itself to digital payment, cash becomes the path of least resistance,” said Kumar Rajagopalan, CEO, RAI.

He added that UPI acceptance should be incentivised, not taxed. “We don’t see the case for charging a bank-to-bank UPI payment the way you’d charge for credit. Where UPI is linked to a credit line, a fee is easier to defend, because the cost structure genuinely resembles a credit product.

We urge that the government should bear the cost of normal UPI transactions since it repays the government with GST and traceable transactions instead of cash transactions,” Rajgopalan added. RAI said the shift back to cash would also hurt the government’s own formalisation push.

“NPCI keeps UPI running for the entire country, RBI or the government should be underwriting that cost, not merchants. The state gets a formal, traceable transaction it can tax out of every UPI payment. It should be paying for the enablement, not passing the bill down to the smallest retailer in the chain,” Rajagopalan said.