The Reserve Bank of India's Deputy Governor Shirish Chandra Murmu has pushed back against the idea that a merchant discount rate, or MDR, on higher-value UPI transactions will revive cash usage in any meaningful way. Speaking in the context of the October 15 rollout of the fee on payments above Rs 2,000, Murmu said the relationship between digital adoption and cash circulation is more complex than a simple either-or narrative.
Cash And Digital Coexist
Murmu's remarks are significant because they arrive at a moment when India's digital payments ecosystem is under fresh scrutiny. UPI has become the country's dominant retail payment rail, powering everything from daily purchases to mobility and automotive-related transactions such as fuel, servicing, tolls, parking and EV charging. The return of MDR on certain transactions has prompted questions about whether merchants, and eventually consumers, will shift away from digital payments to avoid fees.
The deputy governor argued that such a shift is not inevitable. In his view, cash and digital payments do not move in opposite directions in a neat, linear fashion. India has repeatedly seen digital transaction volumes rise even as currency in circulation also expands. That pattern, he suggested, reflects the fact that cash continues to serve two functions at once: as a medium of exchange and as a store of value.
That distinction matters for the current policy debate. Critics of MDR fear that any additional cost on merchants could be passed on to customers or create incentives to prefer cash for larger purchases. Murmu's comments indicate that the RBI does not see the fee as a direct trigger for a broad reversal in payment behaviour. Instead, the central bank appears to view cash demand as shaped by multiple factors, including precautionary savings, informal economic activity, and consumer preference, rather than by a single pricing change in the digital payments system.
October 15 Policy Shift
The October 15 implementation date marks an important inflection point for India's payments landscape. UPI has long been promoted as a low-friction, low-cost public digital infrastructure, and the reintroduction of MDR on transactions above Rs 2,000 will test how merchants respond when the economics of acceptance change. For sectors such as automotive retail, EV charging networks, ride-hailing, logistics and mobility services, where ticket sizes can quickly exceed the threshold, the policy could influence payment acceptance strategies.
At the heart of the debate is the question of who bears the cost. MDR is typically charged to merchants by payment service providers for processing card or digital transactions. In a UPI environment built on near-zero-cost consumer adoption, even a modest fee can become politically sensitive if it is seen as undermining the convenience that helped drive mass usage. Yet the RBI's position, as reflected in Murmu's comments, suggests that the central bank is not convinced that a merchant fee alone will materially alter the broader cash-digital balance.
The policy also arrives against the backdrop of India's unusual monetary pattern: rising digital usage alongside persistent growth in cash outstanding. That coexistence has often puzzled observers who expected digital payments to steadily displace physical currency. Murmu's explanation reinforces a more nuanced interpretation. Cash, especially in a large and diverse economy, remains useful not only for transactions but also as a liquid asset held for security, convenience and informal needs.
Mobility Sector Watches Closely
For the automotive and mobility ecosystem, the implications are practical rather than theoretical. Dealers, charging operators, fleet managers and service providers increasingly rely on digital payments to reduce reconciliation costs and improve customer experience. If MDR is passed through or absorbed unevenly, it could affect pricing, settlement behaviour and the economics of high-frequency, low-margin transactions.
Still, the RBI's message appears calibrated to reassure markets that the fee will not destabilise India's digital momentum. The central bank is effectively signalling that payment behaviour is driven by convenience, trust, infrastructure and habit, not only by transaction cost. That may prove especially true in urban and semi-urban markets where UPI has become embedded in everyday commerce.
The broader policy challenge is to preserve the scale and efficiency of digital payments while allowing a sustainable commercial model for the institutions that support them. Murmu's comments suggest the RBI believes that balance can be achieved without assuming that any fee on digital transactions will automatically send users back to cash. For now, the central bank is betting that India's digital payment habit is durable enough to withstand a limited MDR regime, even as cash remains firmly in circulation.