Abstract
The Union Cabinet’s approval of a ₹1,500 crore incentive scheme for the financial year 2024-25 aims to promote low-value BHIM-UPI transactions among small merchants, reinforcing India’s commitment to a cashless economy. This article provides a comprehensive analysis of the scheme, its operational framework, regulatory considerations, and its anticipated impact on the Indian economy. The discussion integrates relevant financial regulations, recent updates, and evaluates the scheme’s potential to enhance financial inclusion and economic growth.
Introduction
In a significant move to bolster digital payments, the Union Cabinet, chaired by Prime Minister Shri Narendra Modi, approved the ‘Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions (Person to Merchant – P2M)’ for the financial year 2024-25. This initiative aligns with the government’s vision of promoting digital transactions, encouraging small merchants to adopt Unified Payments Interface (UPI), and advancing financial inclusion across the nation.
Operational Framework of the Incentive Scheme
The scheme is designed to incentivize UPI transactions up to ₹2,000 made to small merchants. Key components include:
- Zero Merchant Discount Rate (MDR): To promote digital transactions, MDR has been made zero for RuPay Debit Card and BHIM-UPI transactions through amendments in Section 10A of the Payments and Settlement Systems Act, 2007, and Section 269SU of the Income-tax Act, 1961.
- Incentive Structure: For small merchants, UPI transactions up to ₹2,000 will attract zero MDR and will be eligible for an incentive of 0.15% of the transaction value. For transactions above ₹2,000, there will be zero MDR but no incentive. In the case of large merchants, all transactions—regardless of the amount—will have zero MDR and will not carry any incentive.
- Reimbursement Mechanism: The government will reimburse 80% of the admitted claim amount by the acquiring banks unconditionally each quarter. The remaining 20% will be disbursed based on performance criteria, ensuring accountability and efficiency in the implementation of the scheme.
Regulatory Framework and Compliance
The implementation of this incentive scheme operates within a robust regulatory framework:
- Payments and Settlement Systems Act, 2007: This Act provides the legal foundation for the regulation and supervision of payment systems in India. The amendment to Section 10A facilitates the zero MDR policy for specified digital transactions.
- Income-tax Act, 1961: Section 269SU mandates certain businesses to provide facilities for accepting payments through prescribed electronic modes, reinforcing the adoption of digital payment systems.
Compliance with these regulations ensures the scheme’s alignment with India’s broader financial and legal ecosystem, promoting transparency and trust among stakeholders.
Integration with Existing Digital Payment Infrastructure
The scheme aims to expand UPI infrastructure across rural and semi-urban areas through tools like UPI 123PAY, UPI Lite, and UPI LiteX. These initiatives are designed to enhance accessibility and convenience for users, particularly in regions with limited internet connectivity.
Economic Implications and Financial Analysis
From an economic perspective, the incentive scheme is poised to yield several benefits:
- Enhancement of Financial Inclusion: By incentivizing small-value transactions, the scheme encourages small merchants and consumers to embrace digital payments, integrating a larger segment of the population into the formal financial system.
- Reduction in Cash Dependency: Promoting digital transactions reduces reliance on cash, leading to decreased costs associated with cash handling and increased efficiency in the payment ecosystem.
- Stimulation of Economic Activity: Facilitating seamless digital payments can boost consumer spending and support small businesses, contributing to overall economic growth.
Challenges and Mitigation Strategies
While the scheme presents significant opportunities, certain challenges must be addressed:
- Technological Barriers: Ensuring robust digital infrastructure in rural and semi-urban areas is crucial. Investments in technology and internet connectivity are necessary to support the anticipated increase in digital transactions.
- Awareness and Literacy: Educating small merchants and consumers about the benefits and usage of digital payment systems is essential for widespread adoption. Targeted awareness campaigns can bridge knowledge gaps and build trust.
Conclusion
The ₹1,500 crore incentive scheme for low-value BHIM-UPI transactions represents a strategic initiative to advance India’s cashless economy. By fostering digital payment adoption among small merchants, the scheme not only enhances financial inclusion but also contributes to the modernization and efficiency of the Indian economy. Continued focus on infrastructure development, regulatory compliance, and stakeholder education will be pivotal in realizing the full potential of this initiative.
References
- Advancing Cashless India – PIB Press Release
- Payments and Settlement Systems Act, 2007
- Income-tax Act, 1961
Note: This article is based on information available as of March 24, 2025. Readers are advised to consult official sources for the latest updates.
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