UPI as Public Infrastructure: India’s Funding Debate
By ThePip Desk
Experts advocate for treating India’s UPI as public infrastructure, funded publicly, not via transaction fees, due to its extensive economic and social benefits.
India’s Unified Payments Interface (UPI) should be treated as critical public infrastructure, not a commercial product requiring transaction fees to sustain itself. This argument, advanced by Rouhin Deb and Ashwin Sethi, directly challenges the current debate around Merchant Discount Rate (MDR) and its application to digital payments.
UPI’s Broad Societal Value
The true value of UPI extends significantly beyond direct transaction costs, delivering substantial economic and social benefits. These advantages accrue to consumers, merchants, banks, and the government alike.
For financial institutions, UPI has drastically reduced cash handling costs across the banking system. It also fosters enhanced financial inclusion, bringing more individuals into the formal economy.
The system improves traceability for tax collection purposes, offering greater transparency for authorities. Moreover, UPI creates new business opportunities for various payment platforms built on its underlying framework.
Rethinking MDR’s Narrow Focus
The prevailing discussion concerning MDR often focuses solely on transaction processing expenses. This narrow approach fundamentally overlooks the extensive broader returns and systemic value generated by the platform for the entire economy.
A Public Funding Model Proposed
Deb and Sethi propose a policy framework where the core UPI rail remains free, operating with zero MDR. This crucial infrastructure would instead be funded through a transparent compact based on its public utility.
This funding mechanism relies on an independent assessment of incremental costs and the significant social and economic returns UPI generates. It specifically mandates targeted government support and continued cost-sharing from direct beneficiaries.
Under this model, commercial entities would still monetize value-added services built atop the free UPI infrastructure. This structure aims to foster innovation and healthy competition within India’s burgeoning digital payments ecosystem.