The Retailers Association of India and Clothing Manufacturers Association of India have raised concerns over the reintroduction of a 0.4 per cent MDR on UPI person-to-merchant transactions above ₹2,000, particularly its impact on MSME retailers during the festive season.

The Retailers Association of India and the Clothing Manufacturers Association of India expressed concerns over the government’s decision to reintroduce a 0.4 per cent Merchant Discount Rate (MDR) on UPI just ahead of the festival season and its impact, especially on MSME players.

The MDR of 0.4 per cent is being imposed on UPI person-to-merchant transactions above ₹2,000, capped at ₹300 for transactions of ₹75,000 and above. RAI said it will also take up the matter with the National Payments Corporation of India and the Ministry of Finance and said that it is urging for a graded structure that separates debit-linked from credit-linked UPI transactions and pairs any merchant charge with incentives that keep small retailers inside the formal payment system rather than pushing them out of it.

Industry raises concerns ahead of festival season

Santosh Katariya, President, Clothing Manufacturers Association of India (CMAI) said, “Introducing MDR on UPI at the start of festival season could not have come at a more challenging time for the industry. This period is critical for merchants, retailers and consumer-facing businesses, many of whom are already working hard to revive demand and improve margins. Adding another cost to digital transactions at this juncture risks putting further pressure on an ecosystem that is still finding its footing. “

He added that UPI has been a powerful enabler of consumption and formalisation, and any move that increases the cost of acceptance needs to be carefully calibrated, particularly during the most important sales period of the year.

RAI warns of impact on small retailers

The Retailers Association of India (RAI) warned that the charge could undo years of progress in digital payment adoption among India’s smallest retailers, just as the festive season gets underway. The framework keeps consumers outside its ambit, but the burden still lands on merchants, it noted

The industry body said that for MSME retailers already running on thin margins, that burden creates a straightforward incentive to steer transactions back toward cash. “Small merchants will now think twice about whether to accept cash or UPI. During the festive season, a large share of transactions crosses the ₹2,000 mark, and the moment a fee attaches itself to digital payment, cash becomes the path of least resistance,” said Kumar Rajagopalan, CEO, Retailers Association of India.

RAI seeks incentives for UPI acceptance

RAI also said every transaction that slips off the UPI rail and back into cash disappears from the formal trail that feeds GST reporting, the opposite of what a decade of digitisation policy has tried to build. “UPI acceptance should be incentivised, not taxed. We don’t see the case for charging a bank-to-bank UPI payment the way you’d charge for credit. Where UPI is linked to a credit line, a fee is easier to defend, because the cost structure genuinely resembles a credit product. We urge that the government should bear the cost of normal UPI transactions since it repays the government with GST and traceable transactions instead of cash transactions,” he added.

“NPCI keeps UPI running for the entire country — RBI or the government should be underwriting that cost, not merchants. “The state gets a formal, traceable transaction it can tax out of every UPI payment. It should be paying for the enablement, not passing the bill down to the smallest retailer in the chain,” he added.

Published on September 16, 2026