UPSC CURRENT AFFAIRS – 20 March 2025

Home UPSC Current Affairs Cabinet approves UPI incentive of ₹1,500 crore to banks

Cabinet approves UPI incentive of ₹1,500 crore to banks

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The Election Commission of India (ECI) is actively engaged in discussions regarding reforms to enhance the integrity and transparency of the electoral process.

Introduction

The Union Cabinet has approved an incentive scheme for Unified Payments Interface (UPI) transactions below ₹2,000 for the financial year 2024–25, with an outlay of ₹1,500 crore.
The scheme aims to promote digital transactions among small merchants and enhance the adoption of UPI as a preferred mode of payment.

Key Features of the UPI Incentive Scheme (2024–25)

Applicable to transactions below ₹2,000: The government will provide an incentive of 0.15% to banks for small-value UPI transactions.
Performance-based payout: One-fifth of the incentive is linked to the banks’ infrastructure performance, ensuring a robust and efficient digital payment system.
No incentive for transactions above ₹2,000: The focus remains on encouraging micro-transactions, particularly benefiting small merchants.
Support for small merchants: Unlike debit and credit card transactions, UPI does not charge merchant fees, making it a cost-effective digital payment mode.

Rationale Behind the Initiative

Promoting digital transactions: The scheme is part of the government’s ongoing efforts to boost financial inclusion and encourage digital payments in rural and semi-urban areas.
Reducing financial burden: The government has gradually reduced the outlay for UPI incentives, balancing growth with fiscal responsibility.
Strengthening UPI infrastructure: Banks are incentivized to maintain efficient payment processing systems, ensuring seamless transaction experiences.

UPI Growth and Government’s Target for FY 2024–25

₹3,631 crore incentive was disbursed in FY 2023–24, surpassing the combined amount from the previous two years.
The government targets 20,000 crore in UPI transactions for FY 2024–25, reflecting the rapid expansion of digital payments in India.
The incentive scheme also includes support for RuPay debit card transactions, strengthening India’s domestic payment ecosystem and reducing reliance on global networks like Visa and Mastercard.

What is UPI?

Unified Payments Interface (UPI) is a real-time payment system developed by the National Payments Corporation of India (NPCI) that allows users to link multiple bank accounts in a single mobile application and conduct seamless transactions.
It enables instant money transfers 24/7 using a mobile number, UPI ID, or QR code, eliminating the need for traditional bank details like account numbers and IFSC codes.

Key Features of UPI

Instant Fund Transfer – Enables real-time transactions without requiring bank details.
Interoperability – Works across multiple banks and payment platforms.
Multiple Payment Modes – Supports peer-to-peer (P2P) and merchant transactions via mobile numbers, UPI IDs, or QR codes.
No Merchant Fees – Unlike card transactions, merchants do not incur transaction charges, making it cost-effective.
Secure and Convenient – Uses two-factor authentication (UPI PIN and mobile verification) to ensure safe transactions.
Recurring Payments – Supports features like AutoPay for subscriptions, EMI payments, and bill payments.
UPI Lite & UPI 123Pay – UPI Lite allows small transactions without a PIN, while UPI 123Pay enables payments without an internet connection.

Growth and Adoption of UPI

Introduced in 2016, UPI has grown exponentially, becoming the most widely used digital payment method in India.
In February 2024, UPI processed over 12 billion transactions, reinforcing India’s position as a global leader in digital payments.
International Expansion: UPI has been adopted in countries like UAE, Singapore, France, Nepal, Bhutan, and Sri Lanka for cross-border payments.

Government Initiatives to Boost UPI

UPI Incentive Scheme (2024-25) – ₹1,500 crore allocated to encourage UPI transactions below ₹2,000.
Linking UPI with RuPay Credit Cards – Enables direct UPI payments via credit card accounts.
Global UPI Expansion – NPCI is collaborating with other nations to integrate UPI with their financial systems.
UPI for Feature Phones (UPI 123Pay) – Aims to extend digital payments to rural users without smartphones.

Conclusion

The ₹1,500 crore UPI incentive scheme underscores the government’s commitment to promoting cashless transactions, supporting small businesses, and enhancing India’s digital economy.
By reducing transaction costs for merchants and strengthening banking infrastructure, the initiative is expected to accelerate UPI adoption, ensuring seamless and inclusive financial transactions across the country.