Boosting Digital India: ₹1,500 Cr UPI Incentive Scheme

Context:

This analysis is drawn from a Press Information Bureau (PIB) document released by the Government of India on March 24, 2025, titled "Advancing Cashless India: ₹1,500 Cr Incentive Scheme for Low-Value BHIM-UPI Transactions." Approved by the Union Cabinet, the scheme allocates ₹1,500 crore for FY 2024-25 to promote low-value BHIM-UPI transactions (P2M) up to ₹2,000, targeting small merchants. It underscores India’s leadership in digital payments and efforts toward financial inclusion, providing key insights into economic policy and technological innovation as of March 24, 2025.

1. Scheme Approval: The Union Cabinet, led by PM Narendra Modi, approved a ₹1,500 crore incentive scheme for FY 2024-25 (April 1, 2024–March 31, 2025) to promote low-value BHIM-UPI (Person to Merchant - P2M) transactions.
2. Objective: Aims to boost digital payments, encourage small merchants to adopt UPI, and enhance financial inclusion, particularly in rural and semi-urban areas.
3. Incentive Details: Offers a 0.15% incentive on transactions up to ₹2,000 with zero Merchant Discount Rate (MDR), ensuring no cost to customers or small merchants; no incentives for larger transactions or big merchants.
4. UPI Growth: UPI transaction value soared from ₹21.3 lakh crore in FY2019-20 to ₹213.8 lakh crore by January 2025, with P2M transactions at ₹59.3 lakh crore, reflecting widespread adoption.
5. Global Leadership: Per the ACI Worldwide Report 2024, India accounted for 49% of global real-time transactions in 2023, solidifying its position as a digital payment pioneer.
6. Rural Expansion: Targets tier 3-6 cities and remote areas using UPI 123PAY (for feature phones), UPI Lite, and LiteX (offline payments), enhancing accessibility for users with limited internet.
7. Reimbursement Mechanism: 80% of claims disbursed quarterly to acquiring banks; remaining 20% tied to performance—10% for technical decline rate below 0.75%, 10% for system uptime above 99.5%.
8. Stakeholder Benefits: Incentives shared among acquiring banks, issuer banks, payment service providers, and third-party app providers (TPAPs), supporting the payment ecosystem.
9. BHIM-UPI Features: Offers instant transfers, single-click 2FA, QR code payments, and virtual addresses, enabling seamless, secure transactions 24/7 across multiple bank accounts.
10. Global Reach: UPI operates in seven countries (UAE, Singapore, Bhutan, Nepal, Sri Lanka, France, Mauritius), with France marking its European entry, boosting remittances and inclusion within BRICS.

Key Terms:

• BHIM-UPI: Unified Payments Interface app for instant digital transactions.
• P2M Transactions: Person-to-Merchant payments, focus of the incentive scheme.
• Merchant Discount Rate (MDR): Fee merchants pay for digital transactions, set to zero for small UPI payments.
• UPI 123PAY: Payment system for feature phone users via IVR, missed calls, or sound-based methods.
• UPI LiteX: Offline payment solution for low-value transactions in remote areas.
• Financial Inclusion: Expanding access to financial services for underserved populations.
• Third-Party App Providers (TPAPs): Entities like apps facilitating UPI transactions.