Funds for promoting digital payments dry up in Budget 2024, incentive for UPI transactions drop

In May, UPI set another record as it processed more than 14 billion transactions worth Rs 20.45 lakh crore or Rs 20.45 trillion, according to data issued by the National Payments Corporation of India (NPCI).

Following years of euphoria, the Union Budget 2024 is muted on incentivising digital payments firms and banks for facilitating free UPI transactions and promoting overall digital payments in India.

In Budget 2024, around Rs 1,441 crore has been earmarked for incentivising fintech firms to facilitate small-value BHIM-UPI transactions (person-to-merchant) and RuPay debit cards.

However, the allocated funds are 42 percent lower than the Rs 2,485 crore allocated in the previous budget for 2023-24.

Additionally, no capital was set aside for promoting digital payments this time, compared to Rs 1,500 crore earmarked in the previous budget.

Even of the Rs 1,500 crore budgeted for the previous fiscal, the government revised the allocation downward to Rs 584 crore. This amount has been slashed to zero in the current budget.

Digital payment firms had hoped for continued or increased subsidies to support the facilitation of free UPI transactions.

In May, UPI set another record as it processed more than 14 billion transactions worth Rs 20.45 lakh crore or Rs 20.45 lakh crore, according to data issued by the National Payments Corporation of India (NPCI).

The payment method saw a 5 percent jump in volume and a 4 percent surge in value of transactions in May compared to April. This is a new high in terms of volume and value for UPI which began its operations in April 2016.

A PwC report had previously noted that stakeholders (including payer’s bank, beneficiary’s bank and UPI app provider, and NPCI) typically incur a cost of nearly 0.25 percent of transaction value for processing a UPI P2M transaction.

"This means that they incurred a cost of about Rs 12,000 crores for such transactions for FY23–24 (assuming a flat average MDR rate of 0.25%). However, due to zero MDR, they are not able to recover the costs, and the same needs to be reimbursed to them through such incentives," the report notes.

In comparison to the cost, the subsidy seemed inadequate.

Further, UPI transactions above Rs 2,000 (high value) do not come under the incentive scheme while their processing cost remains equally high.