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

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

  1. Instant Fund Transfer – Enables real-time transactions without requiring bank details.
  2. Interoperability – Works across multiple banks and payment platforms.
  3. Multiple Payment Modes – Supports peer-to-peer (P2P) and merchant transactions via mobile numbers, UPI IDs, or QR codes.
  4. No Merchant Fees – Unlike card transactions, merchants do not incur transaction charges, making it cost-effective.
  5. Secure and Convenient – Uses two-factor authentication (UPI PIN and mobile verification) to ensure safe transactions.
  6. Recurring Payments – Supports features like AutoPay for subscriptions, EMI payments, and bill payments.
  7. 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.

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