India’s recent implementation of ethanol-blending and digital payment reforms underscores the crucial role of inclusive processes and institutional safeguards in ensuring policy durability and public acceptance amidst resistance and technical challenges.
A familiar principle of public administration is being put to the test in India: sound policy can fail if the process behind it is weak. In recent weeks, two government initiatives have shown how even a defensible reform can run into resistance when those most affected feel they were not properly brought in.
The first is the ethanol-blending programme, under which the government has pushed the share of ethanol in regular petrol to around 20%. Officials say the move has reduced reliance on imported crude, softened the impact of volatile global oil prices and supported cleaner fuel use. The Centre has also defended the fuel against criticism, saying E20 is safe for vehicles and that claims of engine damage are not supported by evidence. It has acknowledged, however, that mileage can fall modestly because ethanol contains less energy than petrol. Reports in the Indian press have put the decline at roughly 1% to 5%, with automakers saying the fuel is generally safe but older vehicles may face compatibility issues.
What has complicated the rollout is not the policy aim but the way it has been executed. Vehicle owners have complained that the fuel delivers less mileage, forcing them to pay more per kilometre even if the pump price does not change. Some motorists have also reported mechanical problems, though the government has denied widespread damage and said only a small number of contamination cases were found. Industry observers note that carmakers needed a clear timetable well in advance so they could adapt engines and components, while India also appears to have lacked an independent testing and certification structure for ethanol-mixed fuel. In Brazil, by contrast, an outside body helps regulate such blends.
The second example is the government’s move to allow a merchant discount rate, or MDR, on certain Unified Payments Interface transactions. MDR is the fee paid by merchants to banks or payment networks for processing digital payments. There is nothing unusual in the government’s decision to revisit a zero-fee regime that has been heavily subsidised for years. Officials have said person-to-person UPI transfers will remain free, while merchant payments could attract charges based on turnover or transaction size.
That said, the design of the system still leaves room for concern. The National Payments Corporation of India, which runs UPI, is a not-for-profit entity promoted by the Reserve Bank of India and the Indian Banks’ Association, but it is owned by a set of core promoter banks that may stand to gain from the MDR framework. The same body will help determine key thresholds for the levy. As with ethanol, the issue is not necessarily the direction of policy but the absence of enough institutional distance and process safeguards. The lesson is plain enough: reforms are more durable when the government wins consent, builds in checks and separates the regulator from the regulated.
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