The central government has reduced the budgetary outlay for incentives on Unified Payments Interface (UPI) and RuPay transactions by nearly 10 per cent for the next financial year, even as transaction volumes on both platforms continue to rise.
The incentive allocation announced in the Union Budget on Sunday stands at Rs 2,000 crore for FY27, compared with Rs 2,196 crore in FY26 (revised estimate). The initial budgeted outlay for FY26 was Rs 437 crore.
What The Incentive Scheme Covers
Under the scheme, the government subsidises transactions to promote RuPay debit cards and low-value BHIM-UPI person-to-merchant (P2M) payments. In FY25, the government subsidised such transactions to the tune of Rs 1,923 crore.
The higher revised outlay for FY26 and the similar allocation for FY27 mark what Bernstein Research described as a “U turn” in the government’s support for India’s digital payments ecosystem, Mint reported.
“This signals a reversal from last year’s moderation in incentives, which had raised concerns around a potential withdrawal of support for UPI payments,” the brokerage was cited in the report.
Context: PIDF Scheme And Platform Revenues
The incentive move comes against the backdrop of the Reserve Bank of India not extending the Payments Infrastructure Development Fund (PIDF) scheme beyond December 31, 2025. The PIDF incentivised the installation of payment devices in tier-III to tier-VI centres and underserved regions, including the Northeast, Jammu & Kashmir and Ladakh.
For the six months ended September 30, 2025, listed UPI platform Paytm recognised Rs 128 crore in incentive revenue under the scheme.
Third-party application providers (TPAPs) such as PhonePe, Google Pay, Paytm and NPCI-backed BHIM are authorised by the National Payments Corporation of India (NPCI) to provide UPI payment services, acting as intermediaries between banks and users.
Renewed Push For Tiered MDR
The budget announcement has revived debate around introducing a tiered MDR for large merchants on UPI.
According to RBI definitions, around 60 million merchants accept digital payments in India, of which 90 per cent are small merchants with turnover below Rs 20 lakh. About 5 million are categorised as large enterprises.
