Government Approves INR 1,500 Cr Incentive Scheme to Boost Small Merchant UPI Transactions This initiative aims to drive digital adoption and strengthen the country's cashless economy.

The Indian government has approved an INR 1,500 crore incentive scheme for the financial year 2024-25 to encourage low-value BHIM-UPI transactions among small merchants. This initiative aims to drive digital adoption and strengthen the country's cashless economy.

Under the scheme, small merchants will receive a 0.15% reimbursement per transaction for payments up to INR 2,000. However, larger merchants are not eligible for this benefit. The government anticipates this move will push UPI transaction volumes to INR 20,000 crore for the fiscal year.

To ensure smooth execution, the scheme will reimburse 80% of the admitted claims upfront to acquiring banks. The remaining 20% will be linked to technical performance benchmarks, such as maintaining system uptime above 99.5% and keeping technical decline rates below 0.75%. The scheme will be effective from April 1, 2024, to March 31, 2025.

This initiative follows a significant reduction in government allocations for promoting RuPay debit cards and low-value UPI transactions—from INR 2,484.97 crore in FY 2023-24 to a projected INR 437 crore in FY 2025-26, marking an 82% funding cut over two years. Despite an initial INR 1,441 crore allocation for FY 2024-25, the government later increased incentives to INR 2,000 crore in revised estimates.

By ensuring "zero MDR" (merchant discount rate), the scheme supports small vendors who often operate on thin margins. The removal of MDR on UPI transactions in 2019 made government incentives a critical revenue source for sustaining digital payment ecosystems, especially for smaller players.

This move is expected to accelerate financial inclusion, reduce dependence on cash, and create a level playing field for merchants, reinforcing India's digital economy ambitions.