Return to using cash.

It was almost a decade ago, on 8 November 2016, when PM Narendra Modi made a decision that would have a tremendous impact on the country's economy. In just one evening, he abruptly removed 86% of the currency in circulation in India, causing a major blow to the country's economic backbone. And even today, the consequences of this move are still being felt - with record levels of unemployment, closed factories (especially in the MSME category), a constantly declining rupee, and a rising cost of living.

At the time, the government's goal was to turn the country into a "cashless economy", where all financial transactions would be done through cards or the Unified Payments Interface (UPI) - an instant real-time payment system developed by the National Payments Corporation of India. To encourage the use of UPI, the government made transactions on the platform free of charge. However, despite these efforts, the Reserve Bank of India has repeatedly reported that the amount of cash in circulation remains at a record high.

Right before the demonetization in November 2016, there was approximately Rs 16.63 lakh crore in circulation. And in 2026, the RBI reported that the total amount of cash in circulation had more than doubled to Rs 42 lakh crore. This phenomenon has been labeled the "cash paradox" by the RBI.

It is common for citizens to use cash to avoid being taxed multiple times for the same transaction. And it's important to remember that cash is produced by the government and its use is not illegal or secretive. Now, with the government's announcement that a fee will be imposed on certain UPI transactions above Rs 2,000 starting 15 October, it seems that the vision of a digital or cashless economy has fallen through.

Under these new rules, a 0.4% Merchant Discount Rate (MDR) will apply to specific person-to-merchant UPI transactions above Rs 2,000. This is seen by many as a small step that will likely lead to more fees being imposed in the future. The government claims that the MDR charge will be paid by the merchant, not the customer.

However, it would be naive to assume that this will not eventually be passed on to consumers. All businesses in India will have no choice but to transfer their tax burdens onto consumers. The government has stated that they are working with payment aggregators and other platforms to ensure that the MDR is not passed on to consumers.

They have also advised banks to ensure that merchants do not transfer the cost. However, it is unclear how this will be monitored in such a vast country like India. This may explain why there have been reports of merchants in various parts of the country refusing to accept UPI payments above the Rs 2,000 threshold.

In Ghaziabad, Uttar Pradesh, traders have even put up signs outside their shops stating "UPI Payment Will Not Be Accepted" in response to the proposal. Similarly, fuel stations across Madhya Pradesh have announced that they will not accept digital payments above Rs 2,000, stating that the MDR would greatly impact their already small profit margins. All of this suggests that the fee on UPI will ultimately be paid by the consumer, despite what some may claim.

Many have also questioned the timing of this MDR move. Some critics have accused the Indian government of giving in to pressure from the United States, especially after signing an interim trade deal that is seen as unfavorable to India. The success of UPI in India has been seen as a barrier for American payment giants like Visa and Mastercard in the country's massive consumer market.

It has been suggested that the fee on UPI is an attempt to level the playing field for these global credit/debit card companies. A timeline of events over the past eight years seems to support this theory. Just two years after UPI was rolled out to the public, on 21 June 2018, Mastercard filed a complaint to the US Trade Representative stating that India was favoring RuPay and engaging in protectionist practices.

On 9 August 2021, Visa CEO Alfred Kelly met with USTR executives and expressed concerns that India's policies appeared to benefit NPCI. On 17 September 2025, USTR invited American companies to report any foreign trade barriers. And on 31 March 2026, USTR officially recorded their concerns, citing a "non-level playing field" in India.

Then, in August 2026, the New Taxation Bill 2026 was passed by the Indian Parliament, followed by the MDR announcement in September. It seems that these events were all orchestrated to please the big players in the industry. Ironically, even though the infrastructure for UPI was created by NPCI and banks, and the scale was created by Indian citizens, the UPI market in India is currently dominated by US-owned companies.

PhonePe, owned by Walmart, and GooglePay control approximately 78% of UPI volume in India. This once again highlights the fact that India is a massive consumer market that multinational corporations do not want to miss out on. But it also shows that India has become the latest economic battleground for large American companies looking to make huge profits.

Unfortunately, for the common citizens, the MDR on UPI will most likely result in cash becoming the preferred method of payment once again. This is yet another policy blunder by the government, following the demonetization, GST rollout, and unpopular ethanol blending in petrol program. No matter what the government's intentions may be, these policies only bring more difficulties and hardships to the lives of ordinary Indians.