The Union Cabinet has approved the extension of the incentive program for small digital payments via UPI, which will receive Rs 1,500 crore in the financial year 2024-25. The program will encourage small traders to accept digital payments by offering an incentive of 0.15 per cent on transactions up to Rs 2,000. Although the move is expected to drive digital uptake, its effectiveness in actually reaching small businesses is yet to be seen.
Simplifying Digital Acceptance for Small Businesses
The program is aimed at micro and small traders who make low-value transactions. By giving an incentive on payments of up to Rs 2,000, the government wants to reduce the cost of payments for such firms, which are often plagued by digital payment acceptance because of chargeback charges and settlement delays.
For shop owners, street vendors, and small businesses, saved rupees on transaction fees matter. The 0.15 per cent government incentive can also cover the charges otherwise paid by them and their customers, which makes UPI a better option. With an increasing number of transactions going cashless, small traders can also expect increased convenience, security, and even a boost in customer base.
How Customers Benefit from Increased UPI Use
For the consumers, this reward can translate to more extensive usage of UPI, particularly by local merchants who might have been slow to go digital. Customers will find themselves less often required to pay in cash, making the transaction experience easier and less reliant on ATMs.
While UPI already stands as one of the significant means of digital payments in India, additional small business participation will also help guarantee that cashless transactions become yet more convenient. Furthermore, incentives to merchants in a roundabout manner could even lead to an increase in payment platforms' promotion offers, benefitting heavy users.
Is the Incentive Sufficient Enough for Small Merchants?
Even with the 0.15 per cent incentive giving some relief, its actual benefit depends on the volume of transactions. For instance, a trader who handles Rs 1,00,000 worth of transactions in a month would receive merely Rs 150 as an incentives. With increasing competition among digital payments providers, there are some who believe that more relief in terms of reduced processing fees or faster settlements may be required to enable long-term benefits.
A Delhi shopkeeper, who has been utilising UPI for over a year now, said that even though the scheme is good, it may not be enough to pay for all associated costs. "All of us still have to pay for some payment services' transaction charges. If the government wants more of us small merchants to adopt UPI, they should reduce such charges," he said.
Effect on India's Digital Economy
The government of India has been continually striving towards a cashless economy, with UPI at the centre. The scheme of incentives comes in sync with overall attempts towards developing the digital payment infrastructure as well as supporting financial inclusion.
Over the past few years, expansion in digital transactions has resulted in heightened transparency within the economy. With small traders now being more incentivised to use UPI, the scheme can potentially reduce unaccounted cash transactions even further. In addition, the move is also a support for India's initiative of expanding fintech adoption, which itself has seen remarkable growth over the past few years.
Challenges in Implementation
Though there are positives, successful implementation of the scheme is yet to be achieved. There has to be awareness among small traders—clearly, a large number of sellers, especially in rural and semi-urban areas, may not be sufficiently aware of how the incentive would work for them. Timely and smooth release of funds will be critical if the program is to succeed.
Moreover, whether these incentives will be long-term in nature is a question. In the event that the government plans to make this subsidy long-term in nature, it must evaluate its cost-effectiveness and its role in the digital payments ecosystem.
The extension of the Rs 1,500 crore UPI incentive scheme is another move towards strengthening India's digital payment ecosystem. While it provides a short-term boost to small merchants, its long-term success will depend on awareness, seamless implementation, and other support measures.
Small businesses and consumers can look forward to a smoother payment system online currently, as an adjunct to India's journey to a cashless economy. Only time and transaction data can tell if this scheme brings lasting benefits to small merchants.
