Govt clears ₹1,500 cr scheme to boost low-value BHIM-UPI transactions

Don't want to miss the best from Business Standard?

The Union Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday approved an incentive scheme for the promotion of low-value BHIM-UPI transactions (person to merchant - P2M) for financial year 2024-25, with an estimated outlay of ₹1,500 crore.

 

Under the scheme, incentives will be provided for UPI transactions up to ₹2,000, specifically benefitting small merchants. The government aims to increase digital payments penetration while minimising financial burden on merchants and consumers.

 

Key features

 

• Incentive of 0.15 per cent per transaction value for UPI (P2M) transactions up to ₹2,000 for small merchants.
• Zero Merchant Discount Rate (MDR) for transactions across all categories, ensuring cost-free digital transactions.
• 80 per cent of the admitted claim amount by acquiring banks will be disbursed without conditions each quarter.
• The remaining 20 per cent will be released only if banks maintain technical decline below 0.75 per cent and system uptime above 99.5 per cent.

 

Objectives and benefits

 

• Encourage small merchants to adopt UPI by eliminating additional transaction costs.
• Enhance financial inclusion by increasing UPI adoption, particularly in Tier-3 to Tier-6 cities and rural areas.
• Improve digital infrastructure by ensuring higher system uptime and efficiency.
• Support the government's vision of a less-cash economy, fostering transparency and financial accountability.

 

The scheme aligns with India’s digital payment growth strategy, with a target of ₹20,000 crore in total transaction volume for FY25. The initiative follows previous government-led efforts to incentivise digital transactions, including zero MDR on RuPay debit cards and BHIM-UPI payments since January 2020.

 

Government's commitment to digital payments

 

Over the last three financial years, the Government of India has significantly increased payouts for digital transaction incentives:

 

• FY 2021-22: ₹1,389 crore
• FY 2022-23: ₹2,210 crore
• FY 2023-24: ₹3,631 crore

 

The incentives are disbursed to acquiring banks, which further distribute them among other stakeholders, including issuer banks, payment service providers, and app providers.

 

The Cabinet’s approval of the scheme reinforces the government's commitment to boosting digital payments adoption, ensuring seamless transactions, and strengthening India’s financial technology ecosystem.