00:00The Modi government's Gazette notification that legally guarantees now that all UPI and RUPEI debit card transactions up to Rs.
00:082000 will remain completely free of any direct or indirect taxes.
00:11However, those above Rs. 2000, the new rules suggest a 0.4% tax effective payment will have to be
00:21made by merchants and that this merchant discount rate on large business transactions has led the opposition, including Rahul Gandhi,
00:30to claim the government is quietly preparing to tax the digital economy.
00:37They point out that while these high value payments make up only 5% of UPI's volume, they account for
00:4365% of its total monetary value.
00:46The opposition argues that even if the government claims consumers won't be charged directly, shopkeepers will raise the prices of
00:53goods, passing the final bill on to the public.
00:57The government says, or the BJP says, this is an example of the opposition behaving like naras, foofas.
01:03But forget what the government and opposition players say, what do experts say.
01:07Rajneesh Kumar, chairman of MasterCard India, former chairman of State Bank of India, joining me.
01:11Vishwajit Bhattacharya is former ASG and senior advocate Supreme Court.
01:15Rajneesh Kumar, to you first.
01:17How do you see this transaction, 0.4%?
01:21Is this something that was inevitable, something the industry wanted?
01:25Or are we going to eventually tax the digital economy now?
01:29No, it is not a tax.
01:31That's not the right word to use.
01:33This is a fee which is payable by the merchant for the convenience.
01:38You see, there are two options.
01:40Either you use digital or you use cash.
01:43Even for cash handling, there is a cost.
01:45And for the digital system, the system has to incur huge cost by investment in technology, in cyber security, in
01:54data, in fraud prevention.
01:56So, huge amount of money gets spent on the system.
02:01And for long, it cannot be cross-subsidized.
02:05So, it's a fair ask.
02:07Another thing is, the word uses not exceeding 0.40%.
02:12That's important.
02:13So, the rate, although it is a cap which has been fixed by NPCI, but this would be determined by
02:21the market.
02:22And there is enough competition in the market, be it on the supply side.
02:29Because the fear is that this could be passed on to consumers, that merchants will now pass this additional transaction
02:380.4% onto consumers.
02:43And that's why prices will rise.
02:45No, it will not rise.
02:48One is that already Visa and MasterCard, the two large networks, they were exempted and they were not part of
02:56this regime.
02:57It is all applicable only to UPI and rupee debit card.
03:02So, when people were paying for the use of MasterCard and Visa card, nobody raised the price or passed it
03:13on to the consumer.
03:14There is enough competition in the market for everybody that merchants also would not like to use.
03:21And on the whole, they still save money, I'm telling you.
03:25The cash handling cost is much higher.
03:28It is much more inconvenient.
03:30MDR was earlier also there.
03:32But government wanted to promote UPI in a big way, have successfully done it.
03:37We are very proud of it as a banker or as someone who is associated with the payment system.
03:44But for long, the industry overall cannot continue to lose 10,000 to 12,000 crore rupees.
03:52It stifles innovation and it stifles fresh investment.
03:58We need to invest in technology continuously.
04:01And I think this is not a very big deal, although it has been way out to be a big
04:07deal.
04:07Now, everything gets so much social media attention and everything that even a small thing becomes big.
04:13But in my view, this is very fair and competition and market dynamics will ensure that nobody, at least consumer,
04:24doesn't suffer.
04:25And for merchants, I don't think that they have a complaint to make.
04:30They are already accustomed to paying MDR on credit card transactions.
04:36But now, of course, what was on credit card now comes with UPI, which is used by many more people
04:42in a way, by the common public.
04:45Bishwajit Bhattacharya, appreciate Rajneesh Ji you joining.
04:48Bishwajit Bhattacharya, you heard Rajneesh Ji saying it's not a big deal.
04:51He said it's not a big deal.
04:52You've been a critic of it.
04:54Why are you criticizing it?
04:55You see, I thank you for inviting me.
05:01This is a big deal because this UPI system payment has been one of the landmarks introduced by this government.
05:14And I fully support it.
05:17Instead of subsidizing it to, you know, whatever name you say, fees or tax, ultimately it will degenerate into a
05:27destination-based consumption tax.
05:31Because these middle-level merchants, they are not going to bear the cost.
05:37They will quietly raise the price.
05:40And the ultimate hit will be the consumers.
05:45But it happens across the world.
05:47I think the point that Rajneesh Ji is making, it happens across the world.
05:50It's not as many as unusual in this regard.
05:52Now the UPI system has been stabilized.
05:55Now you need to, in a way, create some kind of a level playing field between credit card holders, UPI
06:00payments.
06:01You see, it is a massive, massive structure, number one.
06:08Compliance issues, there is a question of paying GST also.
06:14And overridingly, may I say, if there is a competition, UPI today has definitely marched ahead of other systems of
06:28payment like Visa card or MasterCard or MX card.
06:32It is a much better and user-friendly, slightly off the record, slightly off the mark, may I just say,
06:41why is the government fighting, shy to subsidize it?
06:46In the recently $127 billion of FCNRB deposit, annual cost of swap will be $4 billion provided to non-resident
06:58Indians.
06:58So why such a small amount of subsidy cannot be given, cannot be given to those who are using this
07:08user-friendly instrument?
07:11In fact, I know today majority of the people are shifting from credit card, MasterCard, Visa card, American Express card
07:20to UPI.
07:21So this government, I think it is a policy decision, but before taking such a massive policy decision, I think
07:30government should think it is spending 53 trillion rupees per year.
07:38And even a fraction of a trillion rupees, can't it subsidize?
07:43You made that point. You're saying they should have subsidized. I take your point. Let Rajneesh Kumar have a quick
07:48final word.
07:48Mr. Kumar, there are those who are doubters that at a time when UPI is, as Vishwajit Bhattacharya says, India's
07:56big success, digital payments, why at all?
07:59Why do you need it? Why do you need it? Why at all? What's the need?
08:02We always had it. Rajneesh Kumar, we always had it. It was only five or six years ago when the
08:08government amended the income tax ad.
08:11Because there was a specific objective that we are launching UPI, we want to make it a success, we want
08:18to promote digital, that's fine.
08:20But MDR was always there. It's not that it was not there. It was only six years ago or seven
08:27years ago.
08:27You can subsidize it. He said, continue with it. Continue the subsidy. Why should the MasterCard and the Visa card?
08:34No, no. You can subsidize everything in this country. So, everybody wants a subsidy on everything. So, that's a different
08:43argument. I'm not going into that.
08:45My limited point is that there's a huge cost of maintaining the system. There's compliance requirement, there's a cybersecurity threat,
08:52there are frauds happening.
08:53So, there's a cost and somebody has to bear the cost and the merchants are paying for the convenience.
09:01It's not that in return they're not getting anything. And I don't agree at all with this argument that there
09:07will be any burden passed on to the consumer.
09:10It was never the case earlier and it won't be the case. I'm very clear about it.
09:14Okay. Rajneesh Kumar, Viswajit Bhattacharya, two views on that UPI controversy. Appreciate both of you joining me here on the
09:22news today.
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