00:00Okay, let's now then raise the big questions on this issue of great public interest.
00:04The UPI levy by the government, is it essential or avoidable?
00:08Will merchants shift to cash again?
00:10Will consumers end up paying this UPI levy?
00:14Free UPI, is it subsidizing private firms, as is being argued?
00:20Joining me now, Professor Krishnamurti Subramanyam,
00:24former Chief Economic Advisor to the government,
00:27Santosh Merotra, visiting professor at the Centre for Development, University of Bath.
00:31He's also been with the Centre for Labour at JNU.
00:35I've heard, I'm going to hear both of you,
00:38patiently, to give why one is for and one is against, presumably.
00:43But Santosh Merotra, you go first.
00:45There are those who are saying that this is something that was unavoidable,
00:50that at some stage or the other,
00:52the government would have to stop subsidizing the UPI payment system.
00:57And it is a very minimal merchant charge that they have levied.
01:00Your response, why are you so critical of it?
01:05Well, I'm not so seriously critical of it as you assumed, Rajdeep.
01:11First of all, I have been saying that what I am critical of is the fact that you rightly noted,
01:19that the government has so far been subsidizing the merchants up to the tune of rupees 2,000 crores per
01:27annum.
01:28That's the subsidy that's coming out of your and my taxpayer money.
01:33So we are paying in any case, Rajdeep, and I see no reason whatsoever why the government should be subsidizing
01:43up to 2,000 crores at all.
01:46Now, but someone has to pay the cost.
01:49And since the beneficiaries of this program, I mean, of the UPI, are not just the consumer, but also three
01:58other parties on the business side.
02:01The merchant, second is the platform, and the third is the bank.
02:07Now, is it possible, for instance, if I was in government, I could say to the government regulator,
02:17can it be possible to actually distribute that cost between the three beneficiaries?
02:27I mean, we remember, you and I know that banks are earning 4 lakh crores worth of profits every year.
02:35The big companies, which are all multinationals, which are platform owners.
02:40Merchants are the only small players.
02:43And so it's not entirely fair to, from my perspective, that they should be paying.
02:50Someone has to bear the cost, and I don't believe the government should be.
02:55So, that's broadly my position, Radhika.
03:01So, do you fear, though, that the merchants will pass on this burden to the consumers?
03:07Is that a genuine fear?
03:08Yeah, yeah, that's a risk.
03:09I'm sorry I didn't deal with that.
03:11You're asking a legitimate question.
03:13It may well be that slowly this will begin to be passed on.
03:17But, honestly, in the last analysis, the cost itself, 0.4, let's assume for a second that if all that
03:280.4 percent is borne by the merchant,
03:30which I don't believe it should be.
03:32That's what I said repeatedly.
03:34Suppose all of it was, you know, the cost is still quite small.
03:41And, therefore, it may well be that the merchant decides that he'll bear some of the cost or she will,
03:48and some of it will get passed on.
03:50So, of course, there's a legitimate fear that it will get passed on.
03:53You're asking the right question.
03:59My third question, Professor Merotra, you're seeing the opposition parties in particular,
04:04or at least the Congress party raising a red flag, saying this is being done under U.S. pressure
04:09to protect the Master Cards, the visas, the big credit card companies.
04:13Do you go along with that?
04:14Do you believe that's a legitimate argument that these decisions are being taken under pressure?
04:21Listen, this is not the first time, Rajdeep, that these people have put pressure on us.
04:30What was the interim trade deal?
04:32The interim trade deal was an outrage.
04:35I mean, thank God it is behind us.
04:38I'm just hoping that we are dragging out the negotiation for the trade deal,
04:45as long as, you know, these campaigns for the House of Representatives and the Senate are going on,
04:51because we know that Trump's position is going to become even weaker.
04:56Because please remember that even then, the fear now is that they're threatening us in any case,
05:04that the Graham bill, which is likely to go through very quickly, is going to make it legal,
05:12because so far the 50% tariffs and all that was happening last year was illegal and stated to be
05:23so,
05:24and therefore struck down by the Supreme Court.
05:26This is legal.
05:28So this can, ultimately, what Trump's attitude towards India might be,
05:33could very well determine, you know, whether that 100% or 50% or 25% extra tariff is imposed
05:41on us or not.
05:42And he's a rogue elephant.
05:44And in any case, you know, in behavior towards Iran, we've seen how he has misbehaved repeatedly,
05:52gone back on agreements struck with Iran.
05:55Right.
05:55And there is very little respect for India left any longer in the US administration.
06:02So we have to be extremely careful.
06:08So net-net what you're saying is that while you're saying that eventually at some stage,
06:15there was almost an inevitability of these merchant discount charges emerging that the government couldn't subsidize it forever,
06:23you do fear that over time, merchants could pass on the burden on to consumers.
06:30And therefore, that is something to be cautious about.
06:33And you're also saying somewhere that these decisions need to be taken with greater,
06:38I presume, that all the stakeholders will need to be taken into confidence.
06:43Am I broadly correct?
06:44Yes, but confidence is not all that is required, Rajiv.
06:51What is required is the government becomes the regulator it is supposed to be.
06:56And, you know, apportions the cost between the three beneficiary parties.
07:04That's the only way this is going to get resolved.
07:07I don't see how else this is going to result.
07:09I've heard you, Professor Merotra.
07:11Okay, let me now turn to you, Professor Subramaniam, former Chief Economic Advisor.
07:16Now, how do you respond to what the government has chosen to do with these 0.4% MDR,
07:23merchant discount rate that is chosen for UPI payments?
07:27Do you believe this was inevitable?
07:28It had to be done at some stage?
07:31You couldn't endlessly subsidize UPI?
07:33Or is there a fear that now you could actually, merchants will pass on the burden to consumers?
07:40That this is some kind of a tax, as Rahul Gandhi and others are calling it?
07:45Rajdeep, I'd like to frame this as, you know, what are we really trying to achieve with UPI?
07:53It's a spectacular success from the vantage point that I had at the International Monetary Fund.
07:58I've seen how many other countries are actually so appreciative of what we've accomplished.
08:03It was thought of as a public good that was created by the sovereign, and therefore access
08:09actually has been made universal.
08:11Now, to that question about what are we trying to achieve, I think the objective should be
08:17to use UPI really to enhance credit creation in the economy.
08:21That will generate the interest income for the banks that can be used to fund whatever
08:26necessary investments in technology, cybersecurity, et cetera, that can be made.
08:30I do not necessarily think that, you know, the transaction tax is certainly the most obvious
08:38way to go.
08:39Also, I think we have to understand here that the ad valorem or the percentage tax is certainly
08:46not consistent with the way the UPI works.
08:49You know, if, for instance, let's say I make a payment to you of two lakhs, or if I make
08:53a payment of two thousand, you know, from the perspective of UPI, it's basically the same
08:57cost, because all it does is a debit and a credit with the amount actually not mattering.
09:02You know, and so the ad valorem tax really is not consistent.
09:06But I think the important point I want to emphasize is that there is a phenomenal opportunity
09:10to use UPI as a win-win by focusing on credit creation.
09:15This is not necessarily the best way to put it to use.
09:22No, but the fact is that, you know, government is saying consumers will not be charged, that
09:2896% of transactions will remain unaffected.
09:32But the MDR is ultimately going to be borne by merchants.
09:36And therefore, merchants at some stage or the other could pass this on to consumers.
09:41Do you see this as that kind of a tax or not?
09:44Or do you believe that the opposition is, is the opposition justified in saying, look,
09:48we are worried about a tax that will be passed on to consumers in some kind of a tax form?
09:55Rajdeep, I want to focus on the economics because, you know, some of the arguments that you are
10:00putting across, you know, just a week back, you know, I remember how the bogus 2.6% claim
10:06on GDP, you know, the politicians had used.
10:08So, I don't want to get into that, you know, instead focus on the issue here.
10:12I think the point here that you're talking about, you know, merchants will respond to
10:18this.
10:19It's possible they may pass on the cost to the consumer or they may decide to switch
10:24to an alternative.
10:25And I think the alternative may be use of cash, which is certainly not what we want,
10:29because, you know, that is not one thing that will basically lead to more formalization.
10:34And so, the way this is being framed, which is a little bit of a cost of UPI versus free
10:40UPI, that's not the right way to frame it.
10:42It is actually about the alternative opportunity which merchants might choose to go with cash
10:46and I, you know, and cash itself has a significant opportunity cost.
10:50For instance, suppose I withdraw to 10,000 rupees, it's not as if, you know, there are
10:54no costs because the cost of putting cash into the ATM, you know, maintaining it, all of
10:59those are, you know, implicit costs as well.
11:01So, the opportunity cost has to be kept in mind here as well.
11:07So, Ned, Ned, you're not exactly a supporter of this MDR.
11:13You seem to be also believing that maybe this system, the existing system could have continued
11:23for longer because as you say, UPI is a mass phenomenon.
11:26And one of the reasons is it removed the cost and friction associated with digital transactions.
11:32So, would you have liked the system to continue for longer?
11:36Not just continue.
11:37Let me make it very clear.
11:39Utilize this for credit creation.
11:40And I think here I must point out some important facts.
11:44I've covered this in my book, India at 100.
11:48If you look at the ratio of private credit to GDP in India, it is 60% or thereabouts.
11:54So, global average is 150%.
11:56There's a lot of credit that still can be created.
11:58Dr. Subramaniam, appreciate you and Santosh Barotra joining me here on the news today.
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