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The Centre has allocated INR 2,000 Cr under the incentive scheme for promotion of RuPay debit cards and low-value BHIM-UPI transactions of up to INR 2,000 for 2026-27

According to the Union Budget 2026-27 documents, this number is near 5X higher than INR 437 Cr budgeted for FY26

While the sustained incentives have played a critical role in the growth of UPI, the industry has been calling to move beyond incentives by reintroducting MDR

The Centre has allocated INR 2,000 Cr under the incentive scheme for promotion of RuPay debit cards and low-value BHIM-UPI transactions of up to INR 2,000 for 2026-27.

According to the Union Budget 2026-27 documents, this number is near 5X higher than INR 437 Cr budgeted for FY26. However, it is lower than the INR 2,196 Cr revised estimate for FY26.

Under the scheme, which was introduced in Union Budget 2021-22, the government reimburses banks for the cost of processing RuPay debit card and low-value BHIM-UPI transactions so that customers and small merchants can use these digital payments at zero or very-low cost.

These incentives are typically provided at the rate of 0.15% per transaction value for transactions up to INR 2,000 pertaining to the category of small merchants

In March 2025, the Union Cabinet approved an estimated outlay of INR 1,500 Cr for this scheme.

While the sustained incentives have played a critical role in the growth of UPI, the industry has been calling to move beyond incentives. Reintroduction of merchant discount rates (MDR) has been a long-standing demand of the industry.

MDR, which is a fee charged to merchants by banks or payment service providers for processing digital transactions through UPI, was brought down to zero from January 1, 2020, to push for digital payments. As a result, fintech players who operate in the UPI market don’t earn revenue by processing UPI transactions.

In March 2025, the Payments Council of India (PCI) wrote to PM Narendra Modi seeking urgent reconsideration of zero MDR on UPI and RuPay debit card transactions. The industry body, whose members include Infibeam Avenues, Amazon Pay, Google Pay, Cashfree, Jio Payments Bank, called for an MDR of 0.3% on UPI payments above the ticket size of INR 2,000 for P2M transactions where merchants have an annual turnover of INR 20 Lakh.

While the Centre said there are no plans to introduce MDR, PCI chairman Vishwas Patel today expressed disappointment on the allocation of INR 2,000 Cr for incentivising digital transactions.

Patel said that the PCI was expecting an incentive of above INR 10,000 Cr and the INR 2,000 Cr allocation would ultimately choke the entire ecosystem for funds.

“With these kinds of incentives for the fintech industry, it will be very difficult to get the next set of 300 Mn Indians on the digital payments bandwagon as well as deploy acceptance mechanisms in the hinterland of our country. With increasing deployment and servicing costs as well as increasing RBI compliance costs, it will choke the growth,” he noted.