Decline in UPI Usage as Cash Transactions Increase in India

An analysis has revealed that while the growth rate for Unified Payments Interface (UPI) transactions in India has decreased to 18.7% as of August, it still exceeds the 13% growth seen in cash transactions during the same period. This trend follows the recent passing of the Taxation and Other Laws (Amendment) Bill, 2026, which enables the imposition of a Merchant Discount Rate (MDR) on UPI transactions, a step that has raised concerns among consumers and merchants alike. Data from the Reserve Bank of India (RBI) shows that the growth of cash in circulation witnessed a significant surge during the 2020-21 fiscal year, reaching around 17% amid the Covid-19 pandemic. However, this rate fell to approximately 4% until 2023-2024 but has since shown signs of recovery. As reported by The Hindu, cash growth is projected to rise to 6.5% in 2024-25 and further to 12% in 2025-26. By July 31, 2026, cash held by the public is anticipated to amount to ₹41.8 lakh crore, marking a nearly 13% increase from the previous year. In contrast, UPI transactions, which had earlier exhibited explosive growth, have seen a notable decline. In 2020-21, UPI transaction growth had slowed to about 95%, in stark contrast to the 133% increase recorded in 2019-20. Following the pandemic, the rate spiked again to 105%, but it has since continued to decline, with growth reaching only 20.3% in 2025-26. The report indicates that this decline persisted through 2026-27, with UPI growth hitting 18.7% as of August, still outpacing cash transaction growth. Pronab Sen, the former Chief Statistician of India, provided insight on the implications of these figures, suggesting that the growth rates of both cash and UPI transactions should correlate with higher inflation rates. He noted, "This would imply that we are undercounting inflation, because that’s where this should show up." Union Finance Minister Nirmala Sitharaman addressed the concerns around MDR, clarifying that the fee would only apply to merchants and not to end users. Nonetheless, opposition members have expressed apprehension that these fees may ultimately burden consumers. Earlier this month, Sanjay Malhotra, Governor of the Reserve Bank of India, stated that discussions surrounding MDR on digital payments were "premature," while also highlighting the importance of investments in public infrastructure. As the Indian government contemplates the introduction of transaction fees on UPI, the broader economic ramifications, particularly for small merchants and rural areas, remain a topic of significant scrutiny.