Kerala Textile & Garments Association warns UPI charges could fuel inflation and push traders back to cash

The Kerala Textile & Garments Association (KTGA) has opposed the proposed imposition of Merchant Discount Rate (MDR) charges on Unified Payments Interface (UPI) transactions, warning that the move will increase costs for businesses and ultimately burden consumers.

KTGA State President Pattabhiraman TS said that UPI has evolved into an essential public digital infrastructure and has created significant benefits for governments, banks, payment platforms and the wider economy. Merchants, who played a key role in the introduction of cashless payments, should not bear the cost of maintaining the system, he said. “Merchants are the driving force behind the country’s cashless economy. Charging them for every UPI transaction would penalize the very segment that has helped make digital payments a part of everyday commerce,” Mr. Pattabhiraman said.

Disproportionate impact

The association warned that even a 0.4% MDR could have a disproportionate impact on wholesalers and retailers, whose net profit margins are often only between 1% and 5%. Since the fee would be calculated on turnover, a substantial part of the merchant’s profit could be wiped out, he said. The impact could also flow through the supply chain and ultimately increase prices paid by consumers, he added.

KTGA also warned that additional transaction costs could have the unintended consequence of encouraging merchants to return to cash payments. This, he said, would undermine the progress made in digital payments, financial transparency and economic formalization. Instead of charging merchants, the association proposed that UPI’s operating costs be shared by institutional beneficiaries.

It proposed that the estimated annual operating cost of ₹20,000-25,000 crore be funded jointly by the governments through mechanisms involving the GST Council and the Central Board of Direct Taxes using a portion of the annual tax revenue. The association urged the Center to review any proposal to introduce MDR on UPI transactions and explore a funding model that protects both the adoption of digital payments and the viability of small businesses.

Published – 9 Oct 2026 20:38 IST