The Kerala Textile & Garments Association (KTGA) has opposed the proposed imposition of Merchant Discount Rate (MDR) charges on Unified Payments Interface (UPI) transactions, warning that the move would increase costs for businesses and eventually burden consumers.
KTGA State president Pattabhiraman T.S. said UPI had evolved into essential public digital infrastructure and had generated significant benefits for governments, banks, payment platforms and the wider economy. Merchants, who had played a key role in driving the adoption of cashless payments, should not be made to bear the cost of maintaining the system, he said. “Merchants are the last-mile drivers of the country’s cashless economy. Charging them for every UPI transaction would penalise the very segment that has helped make digital payments a part of everyday commerce,” Mr. Pattabhiraman said.
Disproportionate impact
The association warned that even a 0.4% MDR could have a disproportionate impact on wholesalers and retailers, whose net profit margins are often only between 1% and 5%. Since the charge would be calculated on turnover, a substantial portion of a merchant’s profit could be wiped out, it said. The impact could also cascade through the supply chain and could eventually push up prices paid by consumers, it added.
The KTGA also cautioned that additional transaction costs could have the unintended consequence of encouraging traders to revert to cash payments. This, it said, would undermine the progress made in digital payments, financial transparency and economic formalisation. Instead of charging merchants, the association has proposed that the operational cost of UPI be shared by the institutional beneficiaries.
It has suggested that the estimated annual operating cost of ₹20,000 crore to ₹25,000 crore be funded jointly by the governments through mechanisms involving the GST Council and the Central Board of Direct Taxes, using a portion of annual tax revenues. The association has urged the Centre to reconsider any proposal to impose MDR on UPI transactions and explore a funding model that protects both digital payment adoption and the viability of small businesses.
Published – October 09, 2026 08:38 pm IST
