The Crossbill News Desk
India’s growing reliance on digital payments is facing a potential setback as a proposed 0.4 per cent charge on business transactions through the Unified Payments Interface (UPI) threatens to push merchants back towards cash.
The fee, scheduled to take effect in November, has drawn resistance from small businesses already concerned about rising costs and increased scrutiny of digital transactions, despite UPI being one of the major successes of the Narendra Modi’s government, The Economic Times reported.
At Care Chemist pharmacy in Mumbai, around 80 per cent of purchases are made digitally. However, manager Mushtaq Ahmed expects cash payments to increase once the new charge comes into effect for transactions exceeding Rs 2,000 ($20).
“We can’t sell the medicines at more than the printed rates,” said Ahmed. “[We] will take anything, cash, card or even cheques,” he added, suggesting that the pharmacy might also split transactions into smaller amounts to avoid the 0.4 per cent surcharge.
Resistance to the proposed fee appears widespread. A recent survey of 32,000 businesses across India by polling agency Local Circles found that 83 per cent of merchants were unwilling to absorb the additional cost. The development threatens to undermine the zero-charge model that helped UPI become the world’s most widely adopted digital payments interface since its launch in 2016.
Despite the rapid expansion of digital payments, cash remains deeply entrenched in the Indian economy. Madan Sabnavis, chief economist at state-owned Bank of Baroda, said the persistence of cash was partly linked to the shadow economy, including bribery, illicit political expenditure, property transactions and evasion of goods and services tax.
Following the 2016 demonetisation exercise, which withdrew large-denomination currency notes worth about 90 per cent of the value of cash in circulation, there were expectations that the move would reduce both cash usage and black money.
“it was felt that cash in circulation would come down and the overall quantum of black money would come down”, Sabnavis said. However, cash has continued to accumulate despite the spread of digital payments.
“People have actually been accumulating more and more cash.”
UPI has nevertheless transformed everyday transactions, allowing consumers to pay vendors, buy groceries, settle restaurant bills and transfer money through a quick scan of a QR code.
The platform processed approximately 242 billion transactions in the latest financial year, representing a nearly 12,000-fold increase compared with its first full year of operation.
The expansion of digital payments, however, has not translated into a corresponding decline in the use of physical currency.
Anush Raghavan, chief business officer at CMS Info Systems, India’s largest cash management company, said the two forms of payment had expanded alongside each other.
“UPI has taken over a large share of small everyday payments, yet on the RBI’s own estimates, cash still funds more than half of consumer spending, and more households now also hold it as a reserve,” he said.
Reserve Bank of India data underline the scale of this trend. Cash in circulation stood at a record Rs 42.7 trillion ($448 billion) at the end of September 2026, around 2.3 times its level before demonetisation. India’s cash-to-GDP ratio has also returned to approximately 12 per cent, matching the level recorded a decade ago and remaining among the highest for major economies.
Concerns over taxation and regulatory scrutiny may further encourage businesses to rely on cash. A report published this year by the State Bank of India, the country’s largest lender, found that some small businesses and traders had switched to cash-only payments after tax authorities began examining thousands of UPI transactions.
The proposed fee could accelerate that shift. Although person-to-person transfers and small merchant payments will remain exempt, business transactions will attract the charge, potentially making digital payments less attractive to merchants operating on tight margins.
The National Payments Corporation of India (NPCI), which operates UPI and is collectively owned by dozens of banks, has argued that the fee would help meet the system’s annual operating costs of Rs 200 billion ($2.1 billion). The platform also receives government subsidies, amounting to Rs 20 billion in the current financial year.
Economic pressures are adding to the demand for cash. Electoral spending is another factor, with political parties frequently distributing large amounts of cash to attract voters ahead of elections. Uttar Pradesh, India’s most populous state, is scheduled to hold Assembly elections in February 2027.
The combination of the proposed UPI fee, tax-related concerns, inflation and election spending could reinforce the demand for physical currency, even as digital payments continue to dominate many routine transactions. As Arora put it, “Cash is making a comeback.”
The fee, scheduled to take effect in November, has drawn resistance from small businesses already concerned about rising costs and increased scrutiny of digital transactions, despite UPI being one of the major successes of the Narendra Modi’s government, The Economic Times reported.
At Care Chemist pharmacy in Mumbai, around 80 per cent of purchases are made digitally. However, manager Mushtaq Ahmed expects cash payments to increase once the new charge comes into effect for transactions exceeding Rs 2,000 ($20).
“We can’t sell the medicines at more than the printed rates,” said Ahmed. “[We] will take anything, cash, card or even cheques,” he added, suggesting that the pharmacy might also split transactions into smaller amounts to avoid the 0.4 per cent surcharge.
Resistance to the proposed fee appears widespread. A recent survey of 32,000 businesses across India by polling agency Local Circles found that 83 per cent of merchants were unwilling to absorb the additional cost. The development threatens to undermine the zero-charge model that helped UPI become the world’s most widely adopted digital payments interface since its launch in 2016.
Despite the rapid expansion of digital payments, cash remains deeply entrenched in the Indian economy. Madan Sabnavis, chief economist at state-owned Bank of Baroda, said the persistence of cash was partly linked to the shadow economy, including bribery, illicit political expenditure, property transactions and evasion of goods and services tax.
Following the 2016 demonetisation exercise, which withdrew large-denomination currency notes worth about 90 per cent of the value of cash in circulation, there were expectations that the move would reduce both cash usage and black money.
“it was felt that cash in circulation would come down and the overall quantum of black money would come down”, Sabnavis said. However, cash has continued to accumulate despite the spread of digital payments.
“People have actually been accumulating more and more cash.”
UPI has nevertheless transformed everyday transactions, allowing consumers to pay vendors, buy groceries, settle restaurant bills and transfer money through a quick scan of a QR code.
The platform processed approximately 242 billion transactions in the latest financial year, representing a nearly 12,000-fold increase compared with its first full year of operation.
The expansion of digital payments, however, has not translated into a corresponding decline in the use of physical currency.
Anush Raghavan, chief business officer at CMS Info Systems, India’s largest cash management company, said the two forms of payment had expanded alongside each other.
“UPI has taken over a large share of small everyday payments, yet on the RBI’s own estimates, cash still funds more than half of consumer spending, and more households now also hold it as a reserve,” he said.
Reserve Bank of India data underline the scale of this trend. Cash in circulation stood at a record Rs 42.7 trillion ($448 billion) at the end of September 2026, around 2.3 times its level before demonetisation. India’s cash-to-GDP ratio has also returned to approximately 12 per cent, matching the level recorded a decade ago and remaining among the highest for major economies.
Concerns over taxation and regulatory scrutiny may further encourage businesses to rely on cash. A report published this year by the State Bank of India, the country’s largest lender, found that some small businesses and traders had switched to cash-only payments after tax authorities began examining thousands of UPI transactions.
The proposed fee could accelerate that shift. Although person-to-person transfers and small merchant payments will remain exempt, business transactions will attract the charge, potentially making digital payments less attractive to merchants operating on tight margins.
The National Payments Corporation of India (NPCI), which operates UPI and is collectively owned by dozens of banks, has argued that the fee would help meet the system’s annual operating costs of Rs 200 billion ($2.1 billion). The platform also receives government subsidies, amounting to Rs 20 billion in the current financial year.
Economic pressures are adding to the demand for cash. Electoral spending is another factor, with political parties frequently distributing large amounts of cash to attract voters ahead of elections. Uttar Pradesh, India’s most populous state, is scheduled to hold Assembly elections in February 2027.
The combination of the proposed UPI fee, tax-related concerns, inflation and election spending could reinforce the demand for physical currency, even as digital payments continue to dominate many routine transactions. As Arora put it, “Cash is making a comeback.”
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