Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), recently noted that introducing merchant discount rate (MDR) fees on UPI payments above Rs 2,000 would increase costs across the Indian economy, weaken UPI’s competitive advantage, and benefit foreign payment companies.A day after his interview with Karan Thapar, the government deferred the date it would kick in from.As Srivastava’s points grow more pertinent by the day, The Wire has produced the full text of his chat with Thapar, transcribed by Sonak Bhatt, an editorial intern at The Wire. Small edits have been made to ensure ease of reading.§Karan Thapar: Hello and welcome to a special interview for The Wire. As things stand, the government’s controversial decision to impose a merchant discount rate on specified UPI payments above Rs 2,000 will take effect from Thursday the 15th of October [the government deferred this since]. Critics believe this is a serious mistake. First, it could increase costs across the board with an impact on the economy as a whole. They also believe it will benefit Visa and Mastercard, Google Pay and PhonePe at the cost of UPI. Third, they think it’s being done to please the United States trade representative.Joining me now to share his views is the founder of the Global Trade Research Initiative, Ajay Srivastava. Ajay Srivastava, the government has claimed that it’s imposing specified UPI payments above Rs 2,000 called the merchant discount rate because the fee is needed to run, secure, and expand the system.You dispute this for two specific reasons. Let me go through those reasons with you one by one. First, you say exempting payments below Rs 2,000 will not protect small purchases from higher prices. This is because shopkeepers may recover MDR paid on sales above Rs 2,000 by raising prices across their entire range of products. This means that even small purchases could cost more and even when paid for in cash. Am I right? And could you explain this point further if I am?Ajay Srivastava: Yes, Karan. Let me begin by saying that a small girl buying a Rs 5 biscuit pack will also pay more, even if she pays in cash, not through UPI. Let me illustrate this. You know, I go to a shop buying monthly groceries and my things include Rs 5 biscuits, Rs 10 shampoo sachets, a few kgs of wheat flour and so many other things. My bill exceeds Rs 2500, and the shopkeeper will have to pay the MDR, that is the UPI fee, because the bill exceeds Rs 2,000. Now he will recover. The government says that consumers are safe because they are charging the sellers not the consumer. That’s not the way any tax happens. Recall customs duties.Customs duties are paid by importers. But who pays the price? Consumers. Toll tax is paid by the transporter. Who pays the price? Ultimately, the consumers.Similarly, petrol. The government charges oil marketing companies. But who pays the tax? Consumer by the increased price. Similarly, in this case, what will happen is the moment you charge the shopkeeper on the purchases about Rs 2,000 he will estimate how much MDR I have paid through the month. Suppose the estimate is Rs 2 lakhs then how is he going to recover it? He will apportion it by increasing the price of all items in his shop. He cannot have two prices, for example somebody’s buying a Rs 500 shirt; somebody’s buying five shirts for Rs 2500. He is going to charge the same price. He cannot charge more from others. So what he’s going to do, he is going to increase the price of all items in his shop. So even a biscuit pack costing Rs 5 will cost more. Maybe Rs 5.05 or something like that. The wheat flour will cost more. So everybody will have to pay more through this. Karan Thapar: Very simply, what the shopkeeper will do is try and recover the MDR he’s paying by increasing prices of all other products, all the way across his shop floor.Ajay Srivastava: Karan, that’s how business happens. We have seen this through the examples of customs duties, toll tax and petrol taxes. Karan Thapar: Now there’s a second reason why you believe prices could rise. You say prices could rise because fees could build up along an entire supply chain.For instance, a packet of biscuits or a bag of flour passes through several businesses before reaching the shop where the consumer buys it. Your fear is that if each stage attracts MDR, it will add to the product’s cost. So even someone buying for example, a kilo of flour, a matchbox costing Rs 2 or a biscuit packet costing Rs 10 in cash could still end up paying more. Can you explain this point to the audience?Ajay Srivastava: Karan, let’s take an example of a pack of biscuits. So it starts with farmers selling wheat in the mandi. A Trader buys it. The trader then sells it to a biscuit company, and there the biscuit is made. Then it goes to the distributor. Then it goes to the retailer. Ten more transactions happen in between which we need not elaborate on. In each case since most of the payments are made through UPI and it’s a bulk purchase they will exceed Rs 2,000. So in each case MDR or UPI fee has to be paid. So the seller will include this MDR or UPI fee in its cost and recover it from The Wire, and this will happen across the supply chain. So, it will be like tax on transactions 10 times, 20 times, 30 times depending on the complexity of the supply chain. For example, the biscuit supply chain is simpler. For industrial products, there may be hundreds of transactions before the product reaches the supply chain. So I say even before the biscuit pack of Rs 5 reaches the small shop its price has already increased because of the MDR paid at 10 previous supply chain stagesKaran Thapar: So because MDR could be paid at multiple stages. It suggests to me that the price increase could be fairly substantial.Ajay Srivastava: Yes. Karan Thapar: Now the third reason why prices could go up is the impact of GST at 18% on UPI fees. If that happens, unregistered businesses will not be able to reclaim the GST and, in all likelihood, they would seek to pass it on to the consumer, won’t they?Ajay Srivastava: That’s correct. So if I pay the MDR of Rs 100, I have to pay GST at the rate of 18%. So regular GST traders can get the input tax credit, but composition traders, which is most of the MSMEs, or unregistered traders, never get the return. So they have to build it into the cost. So GST also on MDR will build in the cost. So if we have to sum up, we say cost is being built up at three stages. One is at the retail stage, second at the supply chain stage and third because of GST and everywhere it’s compounding several times. Karan Thapar: again once you’re suggesting that the increase in price could be substantial.Ajay Srivastava: Yes, that’s the way business operates.Karan Thapar: And these are by the way pretty obvious points you’re making. They are not things that require rocket science to work out.Ajay Srivastava: Very commonsensical point and that’s the way businesses happen across the world.Karan Thapar: Now you make one further point which most people haven’t thought of. You say a low threshold for applying MDR could bring many small businesses into the MDR net. And you take the example of a vendor earning just 20,000 a month which you say is barely sufficient for food, rent, electricity, school fees and other family expenses. Even this vendor could be affected. Could you explain this point for an audience that isn’t aware of it?Ajay Srivastava: Karan, here the government is confusing sales with take-home profits. So let me explain this. What happens is, how much a daily wager earns? about Rs 700. So monthly, he earns about Rs 20,000-21,000. And a viable business must earn at least this much to barely survive, to feed his family and children and all those things. So how much sales do I need to get this Rs 21,000 for my family?If I consider 20% generous profits, my sales have to be at least Rs 1,05,000. If I have to earn Rs 21,000, that exceeds Rs 1,00,000 threshold.The threshold is Rs 1 lakh sales, not the take-home. So that means all the street vendors, vegetable vendors, bangle sellers, everybody will be covered in this.Karan Thapar: This means again it is very bad news for small vendors. They aren’t protected.Ajay Srivastava: Yes, the smallest vendors will also be covered. From the Smallest to the largest businesses, everybody will be covered and will be contributing to the price rise and distress. Karan Thapar: Now, you have an interesting corollary to this. This is your argument that business receipts in personal accounts may also attract fees. It all depends on how banks and payment platforms regard such accounts. Could you explain this point further? Ajay Srivastava: So the government is saying that P2P (person-to-person) transaction payments are exempted, but if you look at the details, no, they are not exempted. In three-four categories for example you know many of the vegetable vendors, cab drivers receive business payments in their individual accounts. Doctors also sometimes do that. There is nothing illegal about that. They are allowed to do that. Now, they are P2P. How are banks and payment companies going to identify these things? What they will do is continuously scan the payments received by all of us, and they will see if one person is receiving money from multiple accounts.They will immediately turn it from P2P (person-to-person) to person to merchant account P2PM account and if the receipts increase Rs 1 lakh for three continuous months then they will start charging MDR on the sales of about Rs 2,000. So any person who is receiving using his personal accounts will be subject to MDR. That’s point number one. Second, you know festive sales: many times, farmers don’t sell all the time, just for 2-3 months then their sale increase, and that spike will be caught. That they are getting money from many places and because of festive spikes or harvest spikes, they will be under MDR net. And third, you know, just looking at the payments, It’s not possible to differentiate their genuine P2P (person-to person) or person-to-business accounts. So they will make a lot of miscalculations and misclassifications. Suppose my daughter goes for a picnic and she’s collecting money from her classmates,100 classmates. Now that UPI doesn’t know about the picnic and all those things they don’t have the details so they may misclassify her as a P2PM account and she may be subject to MDR. After some time, there are hundreds of such examples where genuine P2P accounts may be subject to MDR and there is nothing written about how the government is going to solve this problem.Karan Thapar: You’re suggesting, once again, that innocent transactions could be mistaken for business transactions and clobbered with MDR.Ajay Srivastava: Yes, I am suggesting that and worse, you know, 55 crore Indians are using UPI nowadays. All those accounts will be continuously monitored by these payment apps, mostly American apps and banks. Whatever we are doing we are under monitoring all the time.Karan Thapar: Finally, in terms of the impact of rising costs, there is the wider economic impact on as a whole. You say, and I’m quoting you, the proposed fees could affect the economy far beyond the transaction directly charged. Higher prices would leave households with less money for other purchases and that would affect their consumption, which, in turn, you believe would impact the economy. Have I understood your point correctly?Ajay Srivastava: Absolutely, Karan. So we have seen that almost all the vendors will be subject to MDR. We have seen even if I am buying a Rs 5 biscuit, I have to pay the MDR. So almost everybody is covered. When I pay more I have less income. So demand in the economy will go down. When demand goes down then macroeconomic factors may take over. For example, if demand is less, then production will be less. Production is less, then job layoffs will be there.So that vicious cycle may start. If we don’t take care of this,Karan Thapar: It could have a cascading effect.Ajay Srivastava: Yes. Karan Thapar: Now, this would also, and most people forget this, affect exporters.Either they will earn less or they could even, worse still, lose orders.Ajay Srivastava: Yes. So exporters get the refund of all the taxes paid but not of the MDR since MDR will be built in the cost. Their cost will increase and they are competing internationally. If somebody is supplying at cheaper cost they may get outpriced they may lose some of the orders.Karan Thapar: Which is bad news for them?Ajay Srivastava: Yes, which is bad news in the current atmosphere where exports are under stress. Karan Thapar: Let’s come to the second concern you have about the government’s decision to impose specified UPI payments above Rs 2,000. You believe it would benefit Visa and Mastercard. You say, and I’m quoting you, free UPI lets merchants receive the full payment. A merchant fee reduces that benefit and makes cards more competitive. Could you explain this point more fully, please?Ajay Srivastava: So the way Visa and Mastercard operate is that they charge 1.5% to 3% commission from the merchants or the sellers and at the moment UPI doesn’t charge anything from the merchants.So, if the buyer is paying Rs.100, if the customer is paying Rs 100, merchants receive all the Rs 100 in UPI. In the case of Visa and Mastercard they have to shell out Rs 1.5 to 3 to them. So because of this single reason most of the small merchant or midsize merchants have moved away from cards to UPI. It’s a clear cost distinction. So UPI for Visa and Mastercard they want UPI to be weakened deliberately through MDR fee and that will help them Karan Thapar: And when UPI starts charging, even if it’s just as little as 0.4%. It will diminish the advantage UPI has over Visa and Mastercard.Ajay Srivastava: It will diminish the advantage over Visa and Mastercard. That’s correct. And we should know that parliament has approved the fee taken by the government. Now the government need not go to parliament by increasing 0.4% (audio said 4) to any higher number. It can do it on its own without going to the parliament.Karan Thapar: And the higher that number becomes, the more the advantage diminishes. Ajay Srivastava: I think this is the first instalment only.Karan Thapar: The other gainer you point out would be PhonePe and Google pay. At the moment, together, PhonePe and Google pay handle 80% of UPI transactions I believe. Now do you believe their earnings will go up or their share of transactions will go up or could both go up? Ajay Srivastava: So we are the only country in the world which has allowed foreign payment apps to have such a large share, more than 80%, right now. And by charging MDR these companies, PhonePe and Google pay which have more than 80% share, will be benefiting on two counts. You know, already they have the data of 55 crore. Transaction rate of 55 crore Indians and they can use that data for selling secondary services like loan services. They can sell and use this data for developing AI applications. For example, you know open AI receives 40% more data from India than from America so all these things are already benefiting them. When we impose MDR, these companies PhonePe Google pay they get a share of that so they will get direct earnings from this Karan Thapar: So they will get multiple advantages.Ajay Srivastava: Yes.Karan Thapar: Finally, you also suspect that the decision to impose specified UPI payments above Rs 2,000 from the 15th of October is happening under pressure from the United States trade representative. What brings you to that conclusion? Ajay Srivastava: So, Karan, there is a USTR report, United States Trade Representative Report. It’s called the National Trade Estimates Report 2026. It lists grievances against countries for India. It has a long list of grievances. One of the prime grievances is the dissatisfaction with India’s instant payment system. So they say that the Indian government prefers Indian companies and doesn’t provide a level playing field to American companies and it lists many such grievances and these grievances are the ones which we just discussed in terms of Visa and Mastercard and Google Pay and PhonePe. All those things discussed. So it’s clearly American pressure. We’ll never know for sure. The government says there is no American pressure, but as we discuss further, we’ll come to know there is no other logic for imposing MDR fee. Karan Thapar: So the reason you believe that this is happening under pressure from the USTR is because as you said a moment ago there is no other logic for imposing UPI MDR fees.Ajay Srivastava: Yes, I’m saying that let me elaborate on this. So, three agencies are concerned about UPI. First is banks and then payment apps like Google pay, PhonePe and the government. You know these banks, they earned four lakh crores profit, 2 lakh crores earned by public sector banks and 2 lakh crores by private banks. They forgo 2 lakh crores every year on bad loans. So they can afford these few thousand crore rupees payment apps. We have discussed how they are going to earn a lot through this UPI. The government, the RBI, gave about Rs 300,000 crore to the government from the surplus account. So every participant can afford the UPI fee. But if the government does this or banks and payment companies share this cost. What will happen is that UPI will remain free. If UPI remains free it will not help the American company. It will not help Visa and Mastercard. It will not help Google pay and PhonePe. So UPI has to be weakened. That weakening can be done only by charging MDR. There is no other way.Karan Thapar: And the solution is contained in the answer you’ve just given me. You believe what India should do is rather than start charging MDR, banks, payment apps and the government should share the cost with those unwilling to participate free to opt out. That is what you believe should be the solution to running the expenses of UPI.Ajay Srivastava: Yes that’s what I suggested and the costs are peanuts compared to the size of operations banks have, payment companies have or the government have, they can easily afford it. Suppose I say I don’t want to afford it, the government doesn’t want to afford it. Then you can charge a $100 million fee from any payment app who has more than 30% share, and they can happily pay it. They are gaining a lot from this. For example, PhonePe’s valuation is more than $10 billion Indian valuation just because of this.Karan Thapar: Tell me do we have any sense of the overall cost of UPI? Ajay Srivastava: Of this MDR? Karan Thapar: That’s right.Ajay Srivastava: No, sorry Karan, I tried to calculate it but I could not reach a number. It was a very wildly high number so I’ll just refrain myself from quoting that number. Karan Thapar: What is the cost of running UPI and expanding the system that the government, the banks and payment apps you suggest should bear? Sometimes it’s been estimated by industry as roughly 20,000 crore. How accurate is that Rs 20,000 crore figure?Ajay Srivastava: So Rs 20,000 crore has no legs, no basis. It has been introduced just to provide a distraction. So NPCI FAQ mentioned industry estimates which are not mentioned. Who is spending what? What are banks spending? What banks are running our accounts. They are already spending on that infrastructure. UPI is over and above that. So I say we should know the clear first clear cost how much is needed that means how much banks are spending on maintaining UPI how much payment apps are increasing once that account is there then we know how to distribute it right now 20,000 crore number has been thrown in the air without any basis Karan Thapar: And you believe that that’s a gross overestimate…Ajay Srivastava: That’s a gross estimation. one of my friends who was associated closely with the development of UPI. We have been in touch all along. The number is far less than this.Karan Thapar: Far less than Rs 20,000 crore.Finally, and you’ve mentioned this figure many times in the interview that we’ve just done. India has something like 55 crore UPI users. That is 550 million Indians use it. And if the cost is far less than just 20,000 crore, what you’re going to do if you start charging MDR is put that 55 crore at a huge disadvantage and even put at a disadvantage the rest of the country that pays in cash because everyone will face increased higher costs.Ajay Srivastava: As I say, even a poor girl buying a five rupee biscuit will have to pay an increased cost. So cost will spread across the economy to the poorest of the people.Karan Thapar: And that is one good reason why the government should rethink this idea.Ajay Srivastava: Yes, that’s the one good reason.The government should stop coming under pressure from the US. It can afford the cost. Banks can afford the cost. We can bear the cost. But that will not help US companies. That’s why we have done this.Karan Thapar: There is some talk, because the festive season is upon us that in fact charging of MDR could be postponed. not cancelled but postponed till January. Do you think it should be cancelled instead?Ajay Srivastava: Yeah, postponing doesn’t help. Whatever we are discussing right now will start taking effect whenever the government starts it. The effects will be as bad as we have discussed.Karan Thapar: So it needs to be canceled.Ajay Srivastava: It needs to be canceled altogether.Karan Thapar: Ajay Srivastava, thank you very much for the time you’ve given me. Thank you very much for explaining this subject which affects practically every Indian in the country whether he or she uses UPI or whether he or she does not and yet it’s a subject that hasn’t got the attention it deserves. I’m deeply grateful. Take care. Stay safe.Ajay Srivastava: Thanks Karan. Thanks for inviting me.