UPI MDR Reintroduction Looms: Public Currency Holdings Surge

India’s public currency holdings have seen a significant increase, reaching ₹41.8 lakh crore by July 31, FY27. This 13% year-on-year rise, observed in Reserve Bank of India data analysed by The Hindu, suggests a possible return to cash transactions.

Key Data Points

• Cash with Public by July 31, FY27: ₹41.8 lakh crore
• Year-on-Year Increase: 13%
• Zero MDR Policy Implemented Since: 2020
• UPI Free for Customers Since: 2016

This trend emerges as the growth margin between cash and Unified Payments Interface (UPI) transactions narrows. A recent legislative development, the passing of the Taxation and Other Laws (Amendment) Bill, 2026, could potentially reintroduce Merchant Discount Rate (MDR) charges on UPI transactions.

MDR is defined as the fee businesses pay to banks and payment system providers for processing online transactions. Currently, a zero MDR policy, which has been in effect since 2020, encourages digital payments via UPI and RuPay debit cards.

Understanding Potential MDR Impact

Should these MDR charges be reinstated and subsequently passed on to consumers, it might significantly alter public payment behaviour, potentially driving a shift back towards cash. While the government has provided assurances that MDR would primarily apply to merchants, concerns persist regarding the ultimate burden on customers.

The Payments Council of India (PCI) has consistently stated that UPI has remained free for customers since its inception in 2016. However, the platform’s evolution into the world’s largest real-time payment system has initiated discussions about sustainable infrastructure support.

Managing billions of secure transactions monthly requires robust infrastructure, necessitating a balance between supporting the system and protecting consumers and small merchants. The ongoing debate around UPI charges highlights the complex interplay between fostering digital adoption and ensuring the long-term viability of payment systems.