Even as government considers MDR charge on UPI, data shows cash usage quickening in economy

Published 2026-08-17 · Updated 2026-08-17 · 2 min · 407 words

UPSC CSE Context

Why in News

Government considering MDR charge on UPI while data shows cash usage growth quickening.

Syllabus Connection

Indian Economy: digital payments, monetary policy, inflation measurement.

Exam Relevance

Relevant for questions on digital economy, financial inclusion, and inflation trends in UPSC CSE.

Core Issue

UPI growth slowing, cash usage rising amid MDR proposal.

Key Development

Cash with public growth accelerated to 13% in 2026-27 while UPI value growth slowed to 18.7%.

Stakeholders

• Government of India
• Reserve Bank of India
• National Payments Corporation of India
• Merchants
• Consumers
• Opposition parties

Static Knowledge

High-Value Background

• UPI and RuPay debit card transactions are currently free, like cash transactions.
• Cash with the public is total cash in circulation minus cash held by banks.

Exam Linkage

• Useful for questions on digital payment trends and monetary aggregates.

Concepts in Context

• Inflation undercounting can occur when transaction growth outpaces official price indices.

Dynamic Analysis

Economy

• Simultaneous growth in cash and UPI suggests robust economic activity but also possible inflationary pressures.
• Slowing UPI growth may indicate market saturation or shift in consumer preferences.
• MDR levy could alter merchant acceptance and consumer behavior, potentially reversing digital gains.
• Higher cash usage may reflect informal sector expansion or distress-driven transactions.

Governance

• Balancing revenue generation with digital payment promotion is a key policy challenge.

Society

• Increased cash usage may indicate lack of digital infrastructure or trust in certain regions.
• Youth unemployment could drive cash-based informal transactions, as suggested by experts.
• Digital divide may widen if MDR leads to reduced acceptance among small vendors.

Mains Value Addition

Arguments

• Rising cash usage despite digital growth indicates persistent informal economy and possible inflation underreporting.
• Policy must balance revenue needs with the goal of a less-cash economy.

Examples

• UPI value growth slowed from 105% in 2021-22 to 18.7% in 2026-27.
• Cash with public growth rose from 4% in 2023-24 to 13% in 2026-27.

Data Points

• UPI value growth: 20.3% in 2025-26, 18.7% in 2026-27 (April-August).
• Cash with public: ₹41.8 lakh crore as of July 31, 2026, 13% YoY growth.

Counterpoints

• MDR may be necessary to sustain payment infrastructure and incentivize innovation.
• Cash growth could reflect higher economic activity rather than distress, as argued by some experts.

Way Forward

• Strengthen digital payment infrastructure in rural and underserved areas.
• Monitor inflation data collection methods to capture informal sector transactions.
• Conduct impact assessment of MDR on merchant adoption and consumer behavior.
• Promote financial literacy to sustain digital payment usage.

Primary/reference source: Economy