'This is not how successful industrial policy is run': ISB professor on new UPI charges

Prasanna Tantri, Associate Professor of Finance at the Indian School of Business, has criticised the government's new UPI charges. He said the move amounts to withdrawing support from a "world-class Indian innovation" and is not how successful industrial policy works.

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"Effective industrial policy has a legitimate place for subsidising activities that generate exceptionally large positive spillovers for the wider economy," Tantri wrote on X. "Unfortunately, we appear to use the term "industrial policy" without understanding what made successful versions work."

The finance professor compared the new UPI charges with India's earlier exchange-rate policy. He said the country had kept the rupee overvalued a few years ago, weakening exports despite export discipline being central to East Asia's success. "Now we are partly withdrawing support from UPI by introducing MDR charges," he said.

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Tantri described UPI as a "world-class Indian innovation" that lowers transaction costs, formalises commerce, and creates benefits far beyond its direct users.

"Any coherent industrial policy would continue supporting an infrastructure with such an extraordinary benefit-to-cost ratio," he wrote. "This is not how successful industrial policy is run."

The government on Tuesday introduced a 0.4 per cent MDR on UPI payments above ₹2,000 to merchants, with the fee capped at ₹300 for payments of ₹75,000 and above.

The move ends the zero-MDR regime in place since January 2020. The regime was introduced to drive digital payments adoption, but had long been criticised by banks and fintechs as unsustainable.

Essential sectors such as railways, telecom, and fuel will attract a flat ₹5 fee per transaction, while capital markets will have a lower rate of 0.02 per cent.

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The Finance Ministry said the new framework will have no impact on person-to-person transactions. UPI will remain completely free for P2P payments, regardless of the amount transferred.

Merchant payments up to ₹2,000, along with transactions covered under the zero-MDR framework for small merchants, will also remain free.

The ministry said approximately 96 per cent of all P2M transactions will remain unaffected. MDR will apply only to specified merchant transactions above ₹2,000.