As govt weighs UPI MDR, cash usage growth accelerates in India

UPI transaction growth in India has been slowing for the past five years even as cash held by the public has begun rising at a faster pace, an analysis of Reserve Bank of India and National Payments Corporation of India data shows.

The trend comes as the government moves to create a framework that could allow Merchant Discount Rate (MDR) charges on UPI and RuPay debit card transactions. While UPI and RuPay transactions are currently free, the Taxation and Other Laws (Amendment) Bill, 2026, passed during Parliament’s Monsoon session, enables the government to permit such charges.

Cash growth picks up

RBI data shows that growth in cash with the public — currency in circulation minus cash held by banks — surged to around 17% during the COVID-19 pandemic year of 2020-21.

The growth rate then declined steadily, reaching about 4% in 2023-24. Since then, however, cash growth has accelerated, rising to 6.5% in 2024-25 and 12% in 2025-26.

As of July 31, 2026, cash with the public stood at ₹41.8 lakh crore, nearly 13% higher than the corresponding period last year.

Finance Minister Nirmala Sitharaman and the Payments Corporation of India have said ordinary users will not have to pay MDR on UPI transactions. The proposed charge, they said, would apply only to certain high-value merchants and transactions.

The Opposition has argued that merchants facing the additional cost could pass it on to consumers through higher prices, potentially encouraging some people to return to cash payments.

UPI growth remains strong but is slowing

NPCI data shows that the value of UPI transactions grew 133% in 2019-20. Growth slowed to 95% in 2020-21 before accelerating to 105% in 2021-22 as the economy reopened and consumers increasingly adopted digital payments.

Since then, however, the growth rate has steadily moderated. UPI transaction value growth fell to 20.3% in 2025-26 and further to 18.7% in 2026-27 as of August, compared with the April-August period a year earlier.

Despite the slowdown, UPI growth remains ahead of cash growth. UPI transaction value rose 18.7% compared with a nearly 13% increase in cash with the public over the comparable period.

Does the trend point to higher inflation?

Economists say the simultaneous increase in digital transactions and cash circulation could indicate stronger economic activity, but may also raise questions about whether official inflation figures fully capture price pressures.

Pronab Sen, former Chief Statistician of India and former chairman of the Standing Committee on Statistics, said the increase in money being transacted through both cash and digital channels should eventually be reflected in prices.

“If there is more money being transacted, both digitally and in cash, then that should show up in inflation,” Sen said.

D.K. Srivastava, chief policy adviser at EY India, said the rise in both forms of payment was primarily a sign of increased economic activity. He pointed to India’s real growth rate of more than 7% in the post-pandemic years as a key factor behind the increase.

Sen, however, cautioned that rising cash usage could also reflect economic distress, particularly if high unemployment is pushing people towards greater reliance on cash.

The latest official retail inflation rate was 4.45% in July 2026, while wholesale inflation stood at 9.8% during the month.