Government cuts funding for RuPay and BHIM-UPI incentive scheme in Budget 2025
This comes at a time when Unified Payments Interface (UPI) has significantly expanded its share in the digital payments ecosystem, growing from 34% in 2019 to 83% in 2024.
The Indian government has significantly reduced its budget for promoting RuPay debit cards and low-value BHIM-UPI transactions.
According to official budget documents, allocations for this incentive scheme have been slashed from Rs 2,484.97 crore in FY 2023-24 to a projected Rs 437 crore in FY 2025-26, marking an 82% decline in funding over two years.
For FY 2024-25, the government initially allocated Rs 1,441 crore in incentives, later increasing it to Rs 2,000 crore in the revised estimates.
UPI incentives played a crucial role in enabling low-value transactions and ensuring a level playing field, preventing large players from dominating the market—especially in the absence of the Merchant Discount Rate (MDR).
MDR is a fee that merchants pay to banks or payment service providers for processing digital transactions. The government eliminated MDR charges on UPI in 2019 to promote digital payments, making UPI incentives a vital revenue source for smaller players to sustain themselves.
The cut in funding comes at a time when Unified Payments Interface (UPI) has significantly expanded its share in the digital payments ecosystem, growing from 34% in 2019 to 83% in 2024, as per the Reserve Bank of India's (RBI) payment system report.
Separately in November 2020, the National Payments Corporation of India (NPCI) introduced a regulation to limit any single third-party application provider (TPAP) to a maximum of 30% of the total transaction volume on the Unified Payments Interface (UPI).
This measure aimed to prevent market dominance and encourage a more balanced ecosystem. Initially, the deadline for compliance was set for December 31, 2024. However, recognising the potential disruption to the rapidly growing digital payments landscape, the NPCI extended this deadline by two years, now requiring adherence by December 31, 2026. This extension provides major players like PhonePe and Google Pay, which currently hold significant market shares, additional time to diversify the UPI market.