India’s ubiquitous UPI system, handling billions of transactions daily, sparks debate over sustainable funding as government subsidies struggle to cover rising operational costs.
India’s Unified Payments Interface has become so routine that many users scarcely notice it. A scan of a QR code or a payment into a merchant account appears to cost nothing, yet the system behind it is carrying a vast and still-growing load. In July 2026 alone, NPCI data showed UPI handled 23.66 billion transactions worth ₹29.88 trillion across 741 live banks, while other recent data put the user base at 55.49 crore by June 2026.
That scale has revived an old policy question: if UPI is free at the point of use, who is paying for the pipes underneath? The Reserve Bank of India raised that issue in a 2022 discussion paper on payment charges, arguing that payment firms need revenue to cover operations, upgrades and risk controls. The paper also said deferred settlement between banks adds complexity and cost, and estimated that a person-to-merchant UPI transaction worth about ₹800 cost roughly ₹2 to process at the time.
For now, the state is still propping up the system. The Department of Financial Services has said the government provided ₹8,276 crore in budgetary support between FY2021-22 and FY2024-25 through incentive schemes. That included support for RuPay debit cards and low-value BHIM-UPI merchant payments before the Cabinet approved a revised scheme in March 2025 focused only on low-value BHIM-UPI person-to-merchant transactions to small merchants. Under that framework, a payment of up to ₹2,000 to a small merchant could attract an incentive of 0.15 per cent, while larger merchant payments and higher-value transactions did not qualify.
The political debate has now widened beyond whether to restore merchant discount rates, or MDR, on some transactions. Parliament has passed the Taxation and Other Laws (Amendment) Bill, 2026, giving the government power to specify which electronic payment modes receive statutory protection from charges, while the Department of Financial Services has told lawmakers it is weighing either a return of MDR for selected high-value transactions or a phased withdrawal of government support. Industry concerns are sharpened by estimates cited by a parliamentary committee that put the UPI ecosystem’s operating cost at ₹20,700 crore, far above the government’s recent incentive outlay.
Supporters of the current approach argue that bringing back fees could push merchants and consumers towards cash, which also carries costs even if they are less visible. Ajay Srivastava, founder of the Global Trade Research Initiative, has argued that UPI should be treated as public infrastructure rather than a commercial service, and that the larger platforms benefiting from the network ought to shoulder more of the expense. His case reflects the broader dilemma now facing policymakers: UPI has become essential financial infrastructure, but the question of who funds it, and for how long, remains unresolved.
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