Examine the trade-off between taxpayer-funded and user-pays models for sustaining India's Digital Public Infrastructure, with reference to UPI.

Since 1 January 2020, the Merchant Discount Rate (MDR) on BHIM-UPI and RuPay debit card payments has been zero, effected through Section 10A of the Payment and Settlement Systems (PSS) Act, 2007 and Section 269SU of the Income-tax Act, 1961 [2]. Sustaining this rail now poses a choice: who pays — the exchequer or the user?

The taxpayer-funded model: adoption at fiscal cost

• Scale achieved: zero-cost acceptance drove UPI to become the world's largest real-time payments platform, anchoring India's digital economy [5].
• Inclusion: nil transaction cost allowed small and informal merchants to onboard without eroding thin margins — a financial-inclusion gain.
• Recurring outgo: banks and payment service providers are compensated through Cabinet-approved incentive schemes, such as the ₹1,500 crore scheme for low-value BHIM-UPI person-to-merchant transactions [2], an annually negotiated subsidy competing with other budgetary priorities.
• Weak incentives: with revenue delinked from usage, investment in fraud control, grievance redress and network resilience depends on discretionary support rather than a business case.

The user-pays model: sustainability with exclusion risk

• The Taxation and Other Laws (Amendment) Bill, 2026 amends the PSS Act, 2007 to empower government to permit banks to levy charges on notified electronic payment modes [1][4], creating a self-financing route.
• It would place UPI closer to cards, where MDR ranges roughly 0.4–0.9% on debit and 1.5–2.2% on credit, sustaining infrastructure without subsidy.
• Risk of pass-through: merchants may transfer charges to consumers, pushing low-value users back to cash and reversing formalisation gains.
• Policy signalling: repeated Finance Ministry denials of any MDR plan [3], followed by enabling legislation, unsettles user expectations.

Neither model is costless: the taxpayer route buys adoption but risks fiscal fatigue, while the user route buys sustainability but risks exclusion. A calibrated middle path — free peer-to-peer and small-merchant transactions, with a nominal, threshold-based MDR on large merchants — would preserve UPI as a public good while funding it credibly, advancing the inclusive-growth objective of SDG 8 and 9.