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The government is considering restoring MDR on select high-value UPI transactions or introducing a tiered incentive system to reduce its financial burden. The Finance Ministry told a parliamentary panel that the current ₹2,000-crore incentive covers only a fraction of the industry’s costs. UPI has had zero MDR since 2020 to promote digital payments.

New Delhi: The government is considering restoring the merchant discount rate (MDR) on certain high-value UPI transactions or introducing a tiered incentive structure to gradually reduce government support for the digital payments ecosystem, the Finance Ministry has told a Parliamentary panel.

In a reply to the Parliamentary Standing Committee on Finance, the Department of Financial Services (DFS) has said that it was examining the two options in view of the sustainability of the Unified Payments Interface (UPI) ecosystem and the burden on the government exchequer.

The department is examining the feasibility of restoring MDR for certain high-threshold transactions or merchants and a tiered incentive structure that would phase out government support over the next few years.

On Wednesday, the panel -- in its report tabled -- noted that the government has allocated Rs 2,000 crore to incentivise UPI transactions and compensate for losses arising from zero-MDR transactions, compared with the industry's estimated operational cost of Rs 20,700 crore.