The digital revolution caught in a corporate trap
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On February 2, 2026, following a telephone conversation with Prime Minister Narendra Modi, US President Donald Trump unilaterally announced a trade agreement with India. Initially, Commerce Minister Piyush Goyal refused to disclose its details, but a few days later, they were released as part of a joint India-US statement. One of the key points in the statement was the assurance by both countries that they would " address discriminatory or burdensome practices and other barriers to digital trade and to set a clear pathway to achieve robust, ambitious, and mutually beneficial digital trade rules" as part of the agreement. In a report published by the Office of the US Trade Representative on April 1, the US alleged that India’s official and unofficial electronic payment policies favoured Indian companies and denied US firms a level playing field. It demanded that these policies be rectified. At the heart of the US argument was the claim that India’s legal safeguards for cashless payments and its zero Merchant Discount Rate (MDR) were limiting the growth of American foreign card networks. Although UPI is a public digital infrastructure developed by the National Payments Corporation of India (NPCI), banks, payment service providers and apps have complained for the past decade that zero MDR prevents them from earning direct revenue from each transaction. If such a change is introduced, the major beneficiaries would include Google Pay and Walmart-owned PhonePe, which together account for around 80 per cent of UPI transactions.
The Union government, yielding to the interests of American corporations, introduced the Taxation and Other Laws (Amendment) Bill, 2026 in Parliament on August 4, with Finance Minister Nirmala Sitharaman moving the legislation while democratic processes and parliamentary scrutiny were effectively sidelined. Passed by both the Lok Sabha and Rajya Sabha within a few days without any major debate amid noisy proceedings, the amendment received Presidential assent on August 17. As a result, charge-free digital transactions ceased to be a public right and became a concession dependent on notification by the Union government. Earlier, under Section 269SU of the Income Tax Act, charges could not be imposed, either directly or indirectly, on the payer or recipient for payments made through prescribed electronic modes. Following the amendment, this protection has been restricted only to transactions specifically notified by the government. The amendment is therefore more than a mere technical correction. It represents a legislative change that under foreign pressure, removes the protection that citizens had previously enjoyed over their financial transactions.
How quickly is the future of India’s much-prided digital payment system being reshaped to suit foreign interests? With effect from October 15, a 0.4 per cent Merchant Discount Rate (MDR), along with 18 per cent GST on the MDR, has been imposed on merchant UPI transactions above Rs 2,000. For transactions of Rs 75,000 and above, the charge is capped at Rs 300. Individuals making payments to one another and small traders conducting transactions up to Rs 1 lakh per month are currently exempt from this charge. However, the government can easily bring these exempted transactions under the ambit of the charge through a central order at any time in the future. This hasty policy change is likely to hit the country’s small traders and ordinary consumers the hardest. If taxes and charges have to be paid on merchant transactions above Rs 2,000, the financial stability of ordinary traders operating on small profit margins could be seriously affected. The only justification offered for demonetisation, which crippled the country’s economy, was that it would promote digitalisation. Now, the government is turning the digital payment system into another means of economic exploitation. At that stage, street vendors as well as large traders embraced UPI because it was simple, convenient and free of charge. As the cost of transactions increases, merchants may begin refusing digital payments and asking customers to pay in cash again. Alternatively, they may raise the prices of goods and services, with the additional burden ultimately being passed on to ordinary people in the form of an indirect tax. The indigenous payment networks developed through the Digital Public Infrastructure were something India presented to the world with pride and which even developed countries viewed with wonderment. Undermining this public system, created with the aim of promoting financial transparency and digital progress among citizens, under corporate pressure would put the country’s very digital future at stake.
