UPI sustainability hinges on incentives, continued investment: Eco Survey

The survey added that complementary investments in digital capabilities and institutional capacities should be a priority to expand gains from digital payments

The long term sustainability of India’s real time transaction system Unified Payments Interface (UPI) is dependent on incentives, along with continued investment in infrastructure, reliability and risk, according to the Economic Survey presented on Thursday.

 

Complementary investments in digital capabilities and institutional capacities should be a priority to expand gains on digital payments, it added. Sources said that this indicated an appetite to introduce a merchant discount rate (MDR) on UPI, but the final decision rests with the government. 

 

“Looking ahead, the long-term sustainability of UPI will depend on aligning incentives across the ecosystem to support continued investment in infrastructure, reliability, and risk management, while preserving the openness and interoperability that underpin its success,” the report said. 

 

 

Industry sources said the sustained growth of UPI was subject to the monetisation of the payments system through a nominal MDR for large merchants. 

 

“Larger merchants can afford paying a nominal MDR for UPI payments, especially since a much higher rate of about two per cent is levied for accepting credit card payments,” a source with knowledge of the matter said, adding that this would open up monetisation opportunities for stakeholders, while keeping UPI free for most small merchants. 

 

This comes at a time when UPI has clocked a record 21.63 billion transactions with a cumulative value of ₹27.96 trillion in December 2025.

 

“The zero-cost, public-good design has been central to rapid adoption, particularly among small merchants, and has enabled digital payments to become a default option for everyday transactions,” the survey explained. 

 

Access to digital transactions is a friction point due to digital divide and not necessarily resistance to the system, it said. 

 

For the benefits of UPI to be evenly distributed, digital capabilities, awareness, and confidence need to be deepened. 

 

It said that UPI had become a general-purpose payments instrument, with at least 60 per cent using it across major transaction categories, such as store purchases, peer-to-peer transfers, bill payments, and online commerce. “Nearly 80 per cent reported using UPI for three or more distinct use cases, with broadly similar patterns across gender and rural-urban locations,” it said quoting a survey. 

 

Despite widespread use, over 90 per cent of UPI users continue to use cash regularly, reflecting the hybrid nature of transactions in India. 

 

Meanwhile, a view over digital transactions have meant that lenders can identify underserved but creditworthy borrowers. It said that credit linked to digital payments have not come at the expense of higher defaults. 

 

“This evidence highlights the power of publicly provided, interoperable infrastructure to support inclusion at scale and to align technological change with macro-level financial development,” it said.