New Delhi (ABC Live): Today, India operates the world’s largest real-time retail payments ecosystem. Over the past decade, Unified Payments Interface (UPI) has moved far beyond being a convenience tool. Instead, it now functions as a daily economic backbone, powering roadside purchases, kirana store payments, online shopping, and government service delivery.

For a deeper background on how UPI reached this scale, readers may refer to ABC Live’s earlier explainer:
👉 https://abclive.in/2025/12/09/explained-how-upi-became-the-worlds-biggest-payment-system/

However, scale alone does not guarantee policy success. In fact, once a platform reaches maturity, the policy focus must shift.

Therefore, the central question is no longer whether Indians will use digital payments. Rather, the real question is whether the State should continue subsidising what markets already sustain.

This question sits at the heart of the Government of India’s Incentive Scheme for Promotion of RuPay Debit Card and Low-Value BHIM-UPI (P2M) Transactions.

Why the Incentive Scheme Was Introduced

Initially, the scheme was launched in FY 2021–22 with two clear objectives.

First, it sought to keep digital payments free for users and merchants.
Second, it aimed to compensate banks and payment providers for zero-MDR transactions.

At that time, adoption was uneven. Moreover, many small merchants hesitated to accept digital payments. Similarly, banks feared revenue loss. Consequently, the State stepped in to absorb these costs.

As a result, merchant acceptance expanded quickly. At the same time, QR codes multiplied. Moreover, UPI volumes surged.

Yet, four years later, India has entered a post-adoption phase. Today, most urban and semi-urban merchants already accept UPI. Likewise, consumers actively prefer it.

Hence, the policy calculus has changed.

What the Government’s Impact Evaluation Shows

To assess outcomes, the Department of Financial Services, in consultation with NPCI and based on a third-party study by Ipsos Research, surveyed 10,378 respondents across users, merchants, and service providers.

Overall, the key findings include:

• UPI preferred by 57% of users, compared to cash at 38%
• 65% of UPI users make multiple digital transactions daily
• 94% of merchants accept UPI
• Banks live on UPI increased from 216 (March 2021) to 572 (March 2024)
• UPI QR codes expanded from 9.24 crore to 34 crore

On the surface, these numbers indicate strong success.
However, deeper reading reveals structural imbalances.

How Robust Is the Government’s Impact Report?

At this stage, it is important to evaluate not only the scheme, but also the quality of the evaluation itself.

First, while the report presents extensive descriptive statistics, it functions more as a perception and adoption survey than as a true causal impact assessment.

Second, a rigorous impact evaluation should answer three questions:

1. What changed?
2. Why did it change?
3. Would it have changed without the policy?

The current report answers the first question reasonably well. However, it only partly addresses the second. More importantly, it does not answer the third.

Strong Coverage, Weak Counterfactual

On the positive side, the study covers more than 10,000 respondents across stakeholder groups. This ensures breadth.

However, there is:

• No control group
• No counterfactual analysis
• No difference-in-difference framework

Therefore, the report cannot establish whether growth is caused by incentives or merely coincides with digitalisation trends.

Heavy Reliance on Self-Reported Perceptions

Most findings are based on what respondents say they feel or prefer.

While useful, such responses:

• Do not measure behavioural permanence
• Do not show outcomes once incentives end

Hence, the report captures sentiment, not durable behavioural change.

No Cost–Benefit Framework

Despite large fiscal outlays, the report does not compute:

• Cost per new user
• Cost per incremental transaction
• Cost per merchant onboarded

As a result, it cannot guide budget prioritisation.

Selective Treatment of RuPay Decline

Although the report acknowledges falling RuPay usage, it does not examine whether:

• Cards are structurally losing relevance
• Continuing to subsidise RuPay is rational

Instead, it assumes decline must be reversed.

This reflects policy inertia.

Absence of Risk Analysis

The report does not meaningfully assess:

• Fraud growth
• System downtime
• Cybersecurity risks

Yet, these risks rise with scale.

Overall Verdict on the Report

Taken together, the DFS–NPCI document is a high-quality descriptive adoption survey, but a weak causal impact evaluation.

UPI Soars, RuPay Cards Slip

During FY 2023–24:

• UPI P2M transactions grew 57% in volume and 44% in value
• Meanwhile, RuPay debit card transactions declined 30.6% in volume and 18.8% in value, despite incentives

This divergence is critical.

On one hand, UPI relies on smartphones and QR codes. Therefore, it has near-zero hardware dependence.
On the other hand, cards depend on POS machines. Consequently, they involve higher costs and slower checkout.

Thus, applying a uniform incentive model ignores these differences.

Accordingly, the scheme increasingly behaves as a UPI-only subsidy, even though it is framed as technology-neutral.

Fiscal Outlay Under the Scheme

*Till November 2025

Interpretation

Notably, UPI incentives have more than tripled in three years.
In contrast, RuPay support is shrinking.

As a result, the scheme is evolving into a structural fiscal commitment.

Rising Cost, Missing Efficiency Metrics

Importantly, the evaluation does not calculate:

• Cost per new digital user
• Cost per incremental transaction
• Cost per rupee of cash displaced

Therefore, policymakers cannot judge value for money.

Consequently, rising allocations risk becoming entitlement-style subsidies.

Cost-Per-Transaction Scenario

Assumptions:

• Annual UPI P2M transactions: 150 billion
• Annual incentive spend: ₹3,500 crore

Interpretation

Effectively, the government pays ₹0.23 per UPI transaction.

Over time, marginal social benefit per transaction declines.

State-Wise Adoption Pattern (Indicative)

Interpretation

Broadly, UPI adoption tracks smartphone density and urbanisation.
Meanwhile, RuPay cards remain weak across most states.

Therefore, geo-targeted incentives would deliver higher marginal returns.

Inclusion: Progress, But Not Transformation

Data shows:

• NCCS A and B households ≈ 75% of UPI users
• 98% of UPI users own smartphones

Thus, primary beneficiaries are already digitally capable households.

Hence, inclusion is occurring, but largely at the margins.

Attribution Gap

UPI growth also coincides with:

• Cheap mobile data
• Smartphone saturation
• Pandemic-era digitisation
• Fintech competition

However, the evaluation does not isolate how much growth is caused by incentives.

Accordingly, findings show correlation, not causation.

Fiscal Projection till 2030 (Illustrative)

Cumulative (FY25–FY30): ~₹24,450 crore

Therefore, digital payment incentives are on track to become a permanent budget head.

DSLA Legal–Policy Commentary

Public Expenditure Efficiency

First, recurring subsidies must demonstrate:

• Clear public purpose
• Measurable outcomes
• Proportionality between cost and benefit

However, the present scheme lacks this framework.

Competition Neutrality

Second, exclusive incentivisation of NPCI-owned rails risks:

• State-backed platform dominance
• Long-term innovation distortion

Hence, while domestic promotion is legitimate, policy must preserve competitive neutrality.

Shift to Outcome-Linked Incentives

Third, future incentives should be tied to:

• Fraud reduction
• System uptime
• Grievance redressal timelines
• Rural onboarding

Thus, volume alone should not trigger subsidies.

Differentiated Policy Path

Finally:

• UPI: Gradual tapering of volume subsidies
• RuPay Cards: Targeted revival or phased withdrawal
• Rural Areas: Direct, geo-specific support

Uniform treatment is no longer efficient.

Bottom Line

In sum, India no longer needs subsidies to prove that people will use UPI.

Instead, India now needs policy tools that ensure digital payments are:

Reliable. Secure. Inclusive. Fiscally sustainable.

Ultimately, the challenge has shifted from driving adoption to governing success.

ABC Live Editor’s Note

Overall, India’s digital payments story is one of the great infrastructure successes of the last decade. However, the next decade must focus on quality, resilience, and fiscal discipline—so that today’s success does not become tomorrow’s subsidy trap.