The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved a ₹1,500 crore incentive scheme aimed at promoting low-value BHIM-UPI transactions in the financial year 2024-25. The initiative seeks to encourage small merchants to adopt digital payments while reducing financial burdens on both businesses and consumers.

Incentives for Small Merchants

Under the scheme, incentives will be provided for UPI transactions up to ₹2,000, particularly benefiting small merchants. The objective is to increase digital payment penetration across the country, including rural and semi-urban areas. The scheme offers a 0.15% incentive per transaction for UPI payments up to ₹2,000 made to small merchants. Additionally, the government has maintained a zero Merchant Discount Rate (MDR) for all categories, ensuring cost-free digital transactions for businesses.

Performance-Based Disbursement

The scheme includes a structured disbursement mechanism for acquiring banks. Eighty percent of the admitted claims will be disbursed each quarter without conditions. The remaining twenty percent will be released only if the acquiring banks maintain a technical decline rate below 0.75% and ensure system uptime above 99.5%.

Key Objectives and Benefits

The newly approved scheme aligns with the government's long-term vision of a less-cash economy and financial inclusion. The main objectives include encouraging small businesses to adopt UPI by eliminating additional transaction costs, expanding digital payment adoption in Tier-3 to Tier-6 cities and rural regions, enhancing digital infrastructure by maintaining high system uptime and efficiency, and boosting financial transparency and accountability while strengthening India’s fintech ecosystem. With a transaction volume target of ₹20,000 crore for FY25, the initiative builds upon previous government efforts to incentivise digital payments. Since January 2020, the government has also implemented zero MDR policies on RuPay debit cards and BHIM-UPI payments.

Government’s Commitment to Digital Payments

The Indian government has consistently increased its financial support for digital payment incentives over the last three years. In FY 2021-22, it allocated ₹1,389 crore for digital transactions. The amount was increased to ₹2,210 crore in FY 2022-23, and further to ₹3,631 crore in FY 2023-24. These incentives are distributed to acquiring banks, which then allocate them among other stakeholders, including issuer banks, payment service providers, and app developers.

The Cabinet’s approval of the ₹1,500 crore scheme reinforces the government’s commitment to expanding digital payments across India. By incentivising low-value UPI transactions, the initiative aims to create a seamless, efficient and inclusive digital payment ecosystem, ultimately supporting India’s transformation into a less-cash economy.