Killing The Golden Goose

It’s a startling plan. One that defies logic, even to those well-versed with policymaking in modern, nationalist, digital India.

- Prasanto K. Roy

In Finance Minister Nirmala Sitharaman’s maiden Budget, she announced that, to promote a less cash economy, all charges would be waived for ‘certain debit cards’ and other digital payments. The merchant discount rate (MDR) would become zero.

The MDR is what a merchant pays for accepting a card payment—a rupee or so for every Rs 100 received. That rupee compensates the players in the digital-payments chain. The merchant saves on cash handling, and gets customers who prefer digital payments and who spend more than cash users.

The new proposal is like telling all retail outlets: you will henceforth sell everything at the price that you buy. Margins are banished.

Even if only ‘certain debit cards’ are affected, such as the government-backed RuPay, this could be an existential blow to other cards. If one card is freed of all charges, why would merchants accept others? Even worse for competition would be if those ‘free cards’ were subsidised by the taxpayer. Today, sub-Rs 2,000 transactions get MDR reimbursed by the government.