The Reserve Bank of India's Deputy Governor Shirish Chandra Murmu has sought to calm concerns that the reintroduction of a Merchant Discount Rate, or MDR, on higher-value UPI transactions could reverse India's digital payments momentum and drive consumers back toward cash. Speaking in a recent statement, Murmu said the presence of a fee on merchant payments above Rs 2,000 should not be assumed to trigger a broad shift in payment behaviour, arguing that cash and digital instruments often expand in parallel for different reasons.
The clarification arrives at a sensitive moment for India's payments industry. From October 15, merchants accepting UPI payments above the threshold will face a fee structure that has revived long-running questions about who should bear the cost of instant digital transactions. UPI has become the backbone of retail payments in India, processing billions of transactions each month and reshaping how consumers pay for everything from groceries to vehicle servicing, EV charging and mobility-related purchases. Any change to its pricing architecture is being watched closely by merchants, fintech firms, banks and policymakers.
Cash and digital coexist
Murmu's central point was that cash usage does not move in a simple one-way relationship with digital adoption. India has repeatedly shown that digital transaction volumes can rise even as currency in circulation also increases. That pattern, he suggested, reflects the dual role of cash: it is not only a medium of exchange but also a store of value and a liquidity preference for households and businesses.
This distinction matters for interpreting the likely impact of MDR. A fee on merchant UPI payments may alter the economics of acceptance for some businesses, especially smaller merchants operating on thin margins. But that does not necessarily mean consumers will abandon digital payments in favour of cash. In many cases, payment choice is shaped by convenience, habit, acceptance infrastructure and transaction size rather than by a single pricing change.
For the automotive and mobility ecosystem, the issue is especially relevant. Dealerships, service centres, spare-parts retailers, EV charging operators and ride-hailing-linked merchants increasingly depend on digital collections. Even modest friction in payment acceptance can matter in high-volume, low-margin environments. Yet industry participants also recognise that UPI's convenience has become deeply embedded in customer behaviour, making a wholesale return to cash unlikely.
Merchant economics under review
The reintroduction of MDR is likely to reopen debate over how India should fund the infrastructure that supports instant payments. UPI's rapid growth was built on a near-zero-cost user experience, but the system still depends on banks, payment service providers and technology rails that require maintenance, compliance and settlement support. The question now is whether merchants, consumers, the government or financial institutions should absorb more of those costs.
Supporters of a fee argue that a sustainable payments ecosystem cannot rely indefinitely on free acceptance, particularly as transaction values rise. Critics warn that even a limited MDR could discourage digital acceptance among small businesses, especially if they believe customers may resist surcharges or if margins are already under pressure. Murmu's comments suggest the RBI does not see a direct causal link between MDR and a surge in cash usage, but the policy's practical effect will depend on how merchants respond.
The broader economic context also complicates the picture. India's cash circulation has remained resilient despite the country's aggressive push toward digital payments. That resilience is not necessarily a sign of digital weakness; rather, it reflects the continued role of cash in informal commerce, emergency liquidity and household savings behaviour. Murmu's remarks appear aimed at separating these structural realities from alarmist assumptions about the October 15 change.
October 15 test ahead
The coming rollout will serve as an important test of how far India's digital payments revolution can absorb pricing adjustments without losing momentum. For consumers, the immediate effect may be limited if merchants continue to accept UPI without passing on costs. For merchants, however, the decision could influence payment mix, pricing strategies and the economics of accepting high-value digital transactions.
The RBI's message is that payment behaviour is more complex than a simple cash-versus-digital binary. In a market as large and diverse as India, cash may remain present even as digital usage deepens, and digital payments may continue to grow even when they are no longer entirely free at the merchant end. The real question is not whether cash will return in force, but whether the new fee structure can be introduced without denting the trust and convenience that made UPI the country's dominant retail payment rail.
For now, policymakers appear confident that the system can absorb the change. The market, merchants and consumers will soon determine whether that confidence is justified.