UPI not free even now, govt subsidising it, says RBI Guv Sanjay Malhotra

For the sustainability of the Unified Payments Interface (UPI) it is important that the associated costs are borne by someone, RBI Governor Sanjay Malhotra said on Wednesday, while emphasising that he never said that the burden will be borne by the users.

 

“Who pays is important, but not so important as someone footing the bill. For sustainability, whether collectively or individually, someone pays for the costs. The government is subsidising it…I never said that users will have to pay,” Malhotra said while addressing the post-Monetary Policy Committee press conference.

 

Previously, at a public forum, Malhotra had said that the government is subsidising various players such as banks and other stakeholders in the UPI payments system but some costs have to be paid.

 

 

“My sense is that it is not free even now, someone is paying for it, the government is subsidising it. But, somewhere the costs are being paid. The government policy has helped in expanding the use of UPI,” he added. 

 

Every year, the central government earmarks a certain amount for the promotion of UPI peer-to-merchant (P2M) transactions and RuPay debit card transactions. This subsidy is disbursed to banks and fintech companies at the end of each financial year.  

 

However, the government has slashed financial year 2026 (FY26) subsidy outlay for promoting UPI P2M and RuPay debit card transactions as compared to FY25. It has allocated ₹437 crore for FY26, a 78 per cent cut from a final outlay of ₹2,000 crore allocated for FY25. 

 

This was the second time in a row when incentives to promote such digital payments were slashed after the scheme was introduced in FY23. In FY24, a subsidy amounting to ₹3,268 was approved. The government had approved the incentive scheme in April 2022 with an initial outlay of ₹2,600 crore.

 

That said, the final allocation for such subsidies tends to be higher than the initial outlay. For example, the government only allocated ₹1,441 crore in FY25, which rose to ₹2,000 crore in the final allocation. 

 

The digital payments industry believes that the amount allocated for FY26 may not be sufficient to cover costs required for processing UPI transactions, adding that ₹10,000 crore may be required on an annual basis to maintain and expand UPI services. 

 

In March, the Payments Council of India (PCI), a representative body of digital payments players in India, wrote to Prime Minister Narendra Modi seeking introduction of a 0.30 per cent merchant discount rate (MDR) regime on transactions made through UPI at large merchants. MDR refers to a fee that merchants pay banks or companies processing payments for executing a transaction.  

• Cost dynamics
• Consumers will not be charged for  UPI use, Malhotra clarifies
• Government is currently subsidising UPI costs for banks and payment players
• Subsidy for FY26 cut by 78% to ₹437 crore  from ₹2,000 crore in FY25
• Final allocations are often higher than initial outlays, as seen in previous years