Why Proposed UPI Levy Could Be India's Quiet Concession To US' Trade Demands, Pg19

Key Highlights:

• The Finance Ministry introduced the Taxation and other Laws (Amendment) Bill, 2026 in Parliament.
• This bill proposes to allow banks and payment system providers to charge fees on UPI and RuPay debit card payments.
• The move is seen as a potential concession to US trade demands, particularly concerning digital payment policies.
• The USTR had classified India’s digital payment policies, which favor domestic players, as a foreign trade barrier in March 2026.
• NPCI had previously set a 30% market share limitation for third-party app providers on UPI, deferred to December 2026.

Detailed Insights:

• The proposed changes would amend the Payment and Settlement systems Act, 2007, impacting the current zero-transaction-cost model of UPI.
• US payment intermediaries like Visa and Mastercard have faced business losses due to the widespread adoption of free UPI payments in India.
• The USTR expressed concerns regarding the inability of US electronic payment service suppliers to participate in the UPI ecosystem on a level playing field with RuPay.
• As of December 31, 2025, two US-owned EPA suppliers collectively processed over 80% of all UPI transactions, highlighting their significant market presence despite the cap.
• India had previously abolished the 6% 'Google tax' in response to US tariff pressure, indicating a pattern of addressing US demands.
• The Global Trade Initiative (GTRI) noted that UPI's zero Merchant Discount Rate (MDR) model limits revenue for traditional card networks like Visa and Mastercard.
• Finance Minister Nirmala Sitharaman clarified that MDR applies to merchants, not end-users, and aims to support infrastructure investment by banks and fintechs.
• The USTR has also raised objections to similar domestic payment gateway policies, such as Indonesia's National Payment Gateway.

Key Concepts Involved:

• UPI (Unified Payments Interface): A real-time payment system developed by NPCI facilitating inter-bank transactions.
• RuPay: An Indian multinational financial services and payment network, conceived by the NPCI.
• Section 301 (Trade Act of 1974): A provision in US trade law allowing the President to take action against foreign countries that engage in unfair trade practices.
• USTR (United States Trade Representative): A US government agency responsible for developing and coordinating US international trade policy.
• MDR (Merchant Discount Rate): The percentage of a transaction that a merchant pays to their bank for processing a debit or credit card payment.