Finance Ministry rejects foreign influence claims over UPI MDR, says India's digital payments decisions are made independently
The Finance Ministry issued a clarification rejecting claims that the decision to introduce a 0.4% Merchant Discount Rate (MDR) on UPI transactions above ₹2,000 was influenced by external pressure, stating that India's digital payments policy is decided independently
The clarification reiterated that UPI remains free for consumers and for merchant transactions at or below ₹2,000, which account for over 95% of UPI merchant payment volume, and that most small merchants remain exempt regardless of transaction size
The government stated that revenue generated from the new MDR is intended to support payment ecosystem participants and continued investment in digital payments infrastructure
The clarification situated the decision within the institutional structure governing UPI — the Reserve Bank of India (RBI) as regulator and the National Payments Corporation of India (NPCI) as the retail payments operator — to underline that the framework and decision-making remain domestically anchored
National Payments Corporation of India (NPCI) — Structure and Mandate
NPCI is the umbrella organisation that operates India's retail payment and settlement systems, including UPI, RuPay, IMPS, and FASTag. It is not a government department but a not-for-profit entity, which is central to understanding why "who decides" UPI policy is a layered question spanning both a regulator and an operating institution.
Key Details
- NPCI was incorporated in December 2008 as a Section 8 (not-for-profit) company under the Companies Act framework, jointly promoted by the RBI and the Indian Banks' Association (IBA)
- It was set up under the guidance and support of the RBI, exercising powers conferred under the Payment and Settlement Systems Act, 2007, to create a robust retail payment infrastructure
- NPCI launched UPI in 2016; it functions as the technical and operational backbone, while individual banks and payment apps (acting as Payment Service Providers) interface with users
NPCI's structure — a domestically incorporated, RBI/IBA-promoted entity operating under Indian statute — is the institutional basis for the government's claim that UPI's design and fee framework are set through a wholly domestic mechanism, not an externally influenced one.
RBI's Regulatory Authority Over Payment Systems
While NPCI operates UPI day to day, the RBI is the statutory regulator for all payment and settlement systems in India, and this regulator-operator distinction is central to how MDR and other UPI policy changes are actually authorised.
Key Details
- The Payment and Settlement Systems Act, 2007 is the principal legislation empowering the RBI to regulate and supervise payment systems; Section 10A of this Act (as amended) is the specific provision used to mandate charge-free status for UPI transactions up to a notified threshold
- The RBI's Payments Vision framework (Payments Vision 2025, succeeded by Payments Vision 2028) sets India's strategic direction for digital payments around five pillars: Integrity, Inclusion, Innovation, Institutionalisation, and Internationalisation
- The "Internationalisation" pillar explicitly frames UPI's cross-border linkages as a strategic extension of India's payments infrastructure rather than external dependence
The MDR notification itself was issued by the Finance Ministry's Department of Financial Services under Section 10A of the RBI-administered PSS Act, reinforcing that the legal chain of authority for the decision runs through Indian statute and regulatory institutions, not any foreign body.
UPI's Cross-Border Linkages and Digital Public Infrastructure (DPI) Diplomacy
Claims of "foreign influence" over UPI policy are conceptually distinct from UPI's genuine and separate international expansion, which is a deliberate export of India's Digital Public Infrastructure (DPI) stack rather than external control over domestic policy.
Key Details
- UPI is live or linked internationally in countries including Singapore (via the PayNow–UPI linkage), the UAE, Bhutan, Nepal, Sri Lanka, France, Mauritius, Qatar, and Cambodia
- India has signed Digital Public Infrastructure cooperation agreements or MoUs with 23 countries under the "India Stack Global" initiative, covering digital identity, payments, and service-delivery platforms
- These linkages are bilateral technical integrations (e.g., connecting UPI with Singapore's domestic PayNow system) initiated and negotiated by Indian institutions (RBI, NPCI, Ministry of External Affairs), not instances of a foreign entity dictating India's domestic fee structure
The government's rebuttal draws on this distinction — UPI's outward-facing international linkages reflect India exporting its payments architecture on its own terms, which is the opposite of the inward "foreign influence" allegation being addressed.
- NPCI incorporated: December 2008, as a Section 8 (not-for-profit) company promoted by the RBI and the Indian Banks' Association
- Governing statute: Payment and Settlement Systems Act, 2007; RBI is the designated regulator for payment and settlement systems in India
- UPI launched: 2016 by NPCI; live or linked in at least 9 countries as of 2026 (Singapore, UAE, Bhutan, Nepal, Sri Lanka, France, Mauritius, Qatar, Cambodia)
- India has DPI cooperation agreements/MoUs with 23 countries via India Stack Global
- RBI's Payments Vision framework rests on five pillars: Integrity, Inclusion, Innovation, Institutionalisation, Internationalisation
- MDR change: 0.4% on P2M UPI transactions above ₹2,000, effective October 15, 2026; over 95% of UPI merchant transaction volume remains free