New Delhi, September 17: The government on Thursday rejected allegations that the introduction of Merchant Discount Rate (MDR) on select high-value UPI transactions was the result of external pressure.
In a statement, the Department of Financial Services (DFS), Ministry of Finance, termed the allegations “patently false and misleading” and referred to issues raised in the 2026 report of the US Trade Representative (USTR).
The government also released a copy of the USTR report cited in the allegations.
According to the Finance Ministry, the USTR report raised two separate concerns regarding India’s UPI ecosystem. The first relates to the participation of US electronic payment service providers in UPI, including credit transactions, on what the report describes as a level playing field with RuPay.
The government said an NPCI circular issued on September 15, 2026, allows credit transactions on UPI only through RuPay credit cards. It said the policy is intended to promote RuPay credit cards as a domestic alternative in India’s payments ecosystem.
MDR Linked to UPI Competition
The second issue highlighted by the USTR report concerns the 30% market-share limit for third-party application providers (TPAPs) in UPI.
NPCI introduced the 30% market-share requirement in November 2020, with enforcement scheduled for December 2026. However, the government said implementation had been difficult because smaller companies lacked a sustainable revenue model to compete effectively with established market leaders.
The Finance Ministry said the introduction of MDR on selected high-value transactions is intended to create a self-sustaining revenue model for smaller domestic companies, allowing them to expand their operations and compete for a larger share of the UPI market.
Government Defends Policy
The government maintained that the MDR decision was driven by domestic policy objectives rather than external influence.
“Contrary to misleading claims made that MDR has been introduced under external pressure,” the Finance Ministry said, the move would enable more domestic companies to participate in the UPI ecosystem and was aimed at strengthening India’s position in the electronic payments sector.
The government also highlighted its efforts to promote RuPay credit and debit cards as domestic alternatives. It said debit card transactions have been kept free of MDR to support the continued growth of RuPay debit cards.
The government’s clarification comes amid debate over the recent changes to UPI transaction charges and their potential impact on India’s digital payments ecosystem.
