There are moments when a government policy ceases to be economics and becomes morality. The proposed imposition of 0.4% MDR – Merchant Discount Rate – on all UPI payments above Rs. 2,000 from October 15 is one such moment. It is not a fee. It is daylight robbery by the Government of India against its own citizens and against the poor people of the country.
This is not a technical adjustment. It is a betrayal of a national promise.
The Govt that preached cashless is now taxing cashless
For the last ten years, the incumbent Government of the day has emphatically, eloquently and aggressively emphasized the importance of digital banking, digital transactions and internet transactions. The Prime Minister himself declared that a cashless economy is the right way for India in the 21st century. Demonetization was justified in the name of digital India. UPI was celebrated as India’s gift to the world.
The poor vegetable vendor, the small shopkeeper, the auto driver, the Naga farmer in Ukhrul who sells his produce – all were told, “Scan and Pay. Go digital. Be part of New India.”
The people believed. India believed. Today, India has the highest volume of UPI transactions in the world precisely because it was free, instant and trustworthy. Small payments stay free, they say. But what is small in India? Rs. 2,000 is not a luxury payment. Rs. 2,000 is a month’s medicine for a mother. It is school fees for two children. It is the weekly purchase of a small kirana shop. It is the bus fare and food for a migrant worker.
To declare that any digital payment above Rs. 2,000 will now attract 0.4% MDR is to punish the very people who obeyed the government’s call.
It is ironic and it is hypocrisy big-time. You cannot on one hand preach digital India and on the other hand, tax digital India. You cannot on one hand say “Don’t use cash” and on the other hand say “If you don’t use cash, we will charge you for not using cash.”
This is policy schizophrenia.
Who really pays? The myth of “MDR paid by merchant”
The chart cleverly says “MDR paid by merchant.” This is the greatest economic lie.
In India, the merchant is not Ambani or Adani. The merchant is the small shopkeeper with 5% margin. If he sells goods worth Rs. 10,000 on UPI, he must pay Rs. 40 as MDR. If he sells Rs. 50,000, he pays Rs. 200. If he sells Rs. 75,000 and above, he pays a fixed cap of Rs. 300 per transaction.
Who will ultimately pay this Rs. 300? Not the merchant. The poor citizen will pay.
He will pay in two ways:
First, Direct Transfer: The shopkeeper will say, “UPI above Rs. 2,000 will cost extra.” The cashless payment will become costlier than cash.
Second, Indirect Inflation: The shopkeeper will add the MDR cost to the price of essential goods. The Rs. 40 that he paid for a Rs. 10,000 UPI payment will be recovered by increasing the price of dal, oil, soap and medicine.
Thus, this is not a tax on merchants. It is a tax on the poor consumer, collected through the merchant. It is a consumption tax on digital survival.
India is already one of the highest and most taxed countries in the world right now, with GST on everything from pencil to medicine, with petrol, diesel and cooking oil skyrocketing, this additional digital tax is the final straw of immense hardship.
The Bible calls this unjust weight. Proverbs 11:1 says, “A false balance is abomination to the Lord: but a just weight is his delight.” A government that weighs the poor with one more invisible tax while preaching inclusion is using a false balance.
Killing small merchant and tribal economy
Critically, seriously and empathetically, we must see who will be destroyed.
The big corporate retail chains will absorb 0.4% MDR. They have margins. They have accountants. But the small indigenous merchant, the Naga woman who runs a small shop in Senapati, the Tangkhul youth who has just started a small enterprise – he cannot.
He will be forced to do three things, all of which are socially disastrous:
1. Refuse UPI above Rs. 2,000 – He will put up a board: “UPI only up to Rs. 2,000.” This reverses ten years of digital progress overnight.
2. Return to Cash – And when he returns to cash, he will be harassed again in the name of cash hoarding. The government will punish him for using cash and punish him for not using cash.
3. Die Slowly – Many small merchants will simply close, because they cannot compete with cash-rich informal transactions.
For the Nagas of Manipur and other hill people, UPI was a blessing. It allowed a farmer in Kamjong to receive payment instantly without carrying cash through risky highways. Now, if his produce is sold for Rs. 5,000, Rs. 20 will be deducted as MDR. In a year, that is thousands of rupees stolen from the poorest.
Is this Digital India or Daylight Robbery India?
Why tax your own success?
Politically, this policy is brilliantly self-destructive.
UPI is the only world-class, world-recognized Indian innovation in the last decade. The world admires it. Why would a government tax its own success story? Why would it kill the goose that laid the golden eggs of financial inclusion?
The answer is painfully simple: Because the Government has run out of ways to tax without appearing to tax. Direct income tax cannot be increased. GST is already at its peak. So now, create a new invisible tax – a digital transaction tax in the name of MDR.
This is fiscal desperation presented as reform.
Morally, it violates the sacred principle of statecraft. The duty of the state is to make essential transactions cheaper, not costlier. Road, water, electricity and digital payment are public utilities. You do not tax a public utility that you yourself made mandatory. That is not governance; that is extortion.
The Government says small payments stay free. This is like saying we will not tax you for breathing, but we will tax you for eating. Rs. 2,000 is not a large payment in India in 2026. It is survival payment.
What must be done
Let this be powerfully, vehemently, assertively and officially declared:
This 0.4% MDR must be withdrawn immediately and unconditionally.
If the Government needs to compensate banks and payment service providers for UPI infrastructure, let it do so from the Consolidated Fund of India, from the huge GST collections, from the profits of Digital India – not from the pockets of the poor merchant and the poor citizen.
Digital India cannot be built on the backs of those who made Digital India successful.
We call upon the Government of India to be prudent, not predatory; to be wise, not cunning; to be just, not hypocritical. You cannot preach cashless economy on Monday and tax cashless economy on Tuesday.
India is already reeling under the highest taxation, skyrocketing essential goods and immense hardship. Do not add digital hardship to physical hardship.
If UPI, which was free, becomes taxed, then the promise of 21st century India becomes a lie. And a government that lies to its poorest about the cost of their own money commits daylight robbery – not in the night, but in broad daylight, in the name of reform.
Let UPI remain free. Let the poor remain free. Let Digital India remain truly Indian – inclusive, free and just.
***
Michael Meiphami Shaiza is Co-incharge of BJP Manipur State Political Programmes and Meetings and President of Ukhrul-based NGO Ecological Rehabilitators’ Association (ERA).
(Views expressed are writers’ own and do not, in whatsoever manner, reflect that of Ukhrul Now)
