Govt cuts outlay for UPI, RuPay incentive scheme by nearly 10%

Mumbai: The central government has cut the outlay for an incentive scheme for transactions undertaken on the Unified Payments Interface (UPI) and homegrown card network RuPay platforms by nearly 10% for the next financial year.

Even as transaction volumes for both UPI and RuPay have continued to rise, the outlay announced in the budget on Sunday has been cut to ₹2,000 crore for FY27, compared to ₹2,196 crore in FY26 (revised estimate). The initial budgeted outlay for FY26 was ₹437 crore.

As part of the incentive scheme, the government subsidises such transactions for the promotion of RuPay debit cards and low-value BHIM-UPI P2M (person-to-merchant) transactions. The government had subsidised transactions to the extent of ₹1,923 crore in FY25.

The upward revision in outlay for FY26 and similar level of subsidy for FY27 marks a “U turn” in the government’s support for India’s digital payments ecosystem amidst expectations that UPI incentives could be phased out, especially after the Reserve Bank of India did not extend its PIDF (Payments Infrastructure Development Fund) scheme, Bernstein Research said in a note.

“This signals a reversal from last year’s moderation in incentives, which had raised concerns around a potential withdrawal of support for UPI payments,” the note said.

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Valid till 31 December 2025, the PIDF scheme provided incentives on installation of payment devices with the aim of accelerating digital payments infrastructure across tier-III to tier-VI centres, as well as underserved regions including the Northeastern states and the Union territories of Jammu & Kashmir and Ladakh.

For the six months ended 30 September 2025, listed UPI payments platform and the third largest third-party application provider (TPAP) Paytm recognised ₹128 crore in incentive revenues under the scheme.

TPAPs are entities authorised by National Payments Corporation of India (NPCI) — a body that facilitates services such as UPI and RuPay cards — to provide UPI payment and transaction services to allow users to make digital payments. These companies, such as PhonePe, Google Pay, Paytm and NPCI-backed BHIM, act as intermediaries between banks and customers.

Industry experts believe the upward revision in FY26 outlay reflects that digital payments still require government support to grow, given zero merchant discount rate (MDR) on such payments, thus minimising monetisation options for ecosystem players.

“As UPI continues to scale across transactions and use cases, the role of NPCI in maintaining interoperability, reliability, and low-cost access remains central,” said Anup Agarwal, co-founder of Kiwi, a credit card-on-UPI platform. “Sustained incentives are critical to preserving this affordability while enabling responsible innovation across the ecosystem.”

Not enough incentive

However, not all are happy with the allocation announced. Vishwas Patel, chairman of Payments Council of India, and managing director of Avenues AI Limited (formerly Infibeam Avenues), said the expectation was that the government would allocate ₹10,000 crore for the PIDF scheme.

“With zero MDR of UPI and the government allocating a mere ₹2,000 crore for processing 30 crore (300 million) transactions every day for free, will choke the entire ecosystem for funds for scaling and growth,” he said.

Backed by these limited incentives, it will be “very difficult” for the fintech industry to bring the next set of 300 million Indians on to the digital payments bandwagon as well as deploy acceptance mechanisms in the hinterland, Patel said, adding that increasing deployment and servicing costs as well as increasing RBI compliances costs are expected to “choke” growth going forward.

While the government has maintained that UPI remains a ‘public good’, the budget announcement has again sparked conversation around introduction of a tiered charge at least for large merchants on the UPI network.

“We don’t want to survive on government incentives. The only solution is for the government to allow us to charge a low, controlled MDR of 30 basis points on UPI P2M transactions only for merchants with more than ₹20 lakh turnover,” Patel said, adding that smaller merchants and UPI P2P can continue to be zero charge.

Around 60 million merchants accept digital payments in India today, of which 90% are categorised as small merchants, as per RBI’s definition of a turnover of less than ₹20 lakh. Around 5 million merchants are categorised as large enterprises.

“Enabling MDR for Rupay Debit and UPI large merchants will ensure sustainable monetization for service providers without disrupting digital payment adoption at the grassroots level as the merchants already pay MDR for different payment systems,” Patel said. He added that merchants will continue to offer UPI even if they have to pay 30 bps as processing charges as they are anyway paying 2% for credit cards and other options, and UPI continues to be a favoured payment option.

However, Bernstein believes that the reinstatement of UPI incentives reduces the likelihood of MDR being introduced in the near term. Continued government support to offset infrastructure and operating costs remains a key positive for the ecosystem.

UPI processed 228 billion transactions worth a cumulative ₹300 trillion in 2025, 33% more than in 2024 in terms of the number of transactions (volume) and 21% higher in terms of value, according to data by the National Payments Corporation of India (NPCI)..

In December 2025, the platform processed a record 21.6 billion transactions worth ₹30 trillion, up 29% year-on-year in volume terms and 20% in value terms . During the month, it recorded an average of 698 million transactions a day and an average transaction amount of ₹90,217 crore a day. In January 2026, the UPI platform processed 21.7 billion transactions worth ₹28.3 trillion, up 28% on year in terms of value.

In the quarter ended December 2025, transactions made via RuPay cards stood at 259.8 million, 0.7% higher on quarter and 6.2% higher than the corresponding quarter of the previous year, as per data by NPCI. Value of RuPay card transactions was ₹87,431 crore, up 2.2% sequentially and 5.8% on year. However, this data includes transactions for both RuPay credit as well as debit cards.

Incentives under the subsidy scheme are broadly split between the issuing and acquiring sides in a 60:40 ratio. On the issuing side, the majority of the incentive accrues to issuing banks, while on the acquiring side, the bulk of the incentive flows to payment aggregators/acquirers.