India’s push towards cashless transactions slows as cash in circulation rises sharply, prompting policy reconsideration of transaction fees on UPI payments amid a shifting financial landscape.
India’s move towards digital payments is entering a more complicated phase. Unified Payments Interface, or UPI, remains the backbone of the country’s cashless push, but recent figures suggest that physical currency is also gaining ground again. That shift is unfolding as the government weighs whether to allow a merchant discount rate, known as MDR, on selected UPI transactions.
Data cited by India Brand Equity Foundation shows UPI had 55.49 crore users by June 2026 and processed 24,161.69 crore transactions worth ₹314.23 lakh crore in FY2025-26. Even so, the pace of growth is cooling. Business Standard reported that UPI transaction value rose 30% in FY2025-26, down from 41.75% the previous year, after much faster expansion in earlier years.
At the same time, cash in circulation is climbing at a faster pace. Business Standard reported that currency in circulation rose 11.9% in FY2025-26 to ₹41.68 trillion by March 15, 2026, the sharpest increase since FY2020-21. Another report put cash with the public at about ₹41.8 lakh crore as of July 31, 2026, with annual growth accelerating to roughly 13% so far in FY2026-27.
The numbers suggest that India’s payment system is not moving in a straight line from cash to digital money. UPI has transformed small retail purchases, bill payments and person-to-person transfers, but cash remains deeply embedded in informal trade, rural markets and other parts of the economy where digital acceptance is uneven. Rising economic activity, inflation and precautionary cash holdings may also be supporting demand for both forms of payment at once.
That backdrop helps explain why MDR is back on the policy agenda. Zero MDR has made UPI cheap for merchants and consumers, but it has also left banks and payment firms reliant on government support to fund the infrastructure behind the system. Business Standard reported that industry participants see the absence of MDR as a constraint on long-term sustainability, while policymakers are said to be considering a narrower model that could leave most small payments and person-to-person transfers free.
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