India’s UPI ecosystem is at a crossroads. As transactions volume and value reach record levels, the government is gently pushing UPI players towards self-reliance. The clearest signal is that the central government’s incentive outlay towards UPI and RuPay in FY27 has shrunk to INR 2,000 Cr, even as the ecosystem has grown to new heights.

UPI transactions recorded a 32.5% YOY growth in volume terms in 2025 at 228 Bn transactions as against 46.2% YOY spike in 2024 at 172 Bn transactions. With growing international presence, it’s not just the Indian market that has benefitted from this wave. So the fact that the central government is continuing to support this growth through public spending is great, right?

It’s not as simple as that.

As per Union Budget 2026 documents, the government spent INR 2,196 Cr for incentives for FY26, so at first glance the allocation for the forthcoming year seems more or less on par. But in the previous year’s budget, the central government had initially allocated INR 437 Cr for incentives. Effectively, it ended up spending 5X this figure in FY26.

Despite knowing the gap in the allocation and actual spending in the previous year, the government is holding back on opening up the budget for UPI players. The government is unwilling to introduce fees on UPI transactions for fear of consumers abandoning the platform and at the same time, it is sending a signal that perhaps UPI apps have to turn to their own businesses to sustain themselves rather than relying on sops.

“Zero MDR on UPI and the government allocating a mere INR 2,000 Cr for processing more than 30 Cr transactions every day for free will choke the entire UPI ecosystem. The incentives are used for scaling and growth. We were expecting the government to allocate more than INR 10,000 Cr,” lamented Vishwas Patel, managing director of AvenuesAI (formerly Infibeam) and chairman of the Payments Council Of India.

In fact, 2025 was something of a shock year for UPI. There was a temporary dip in UPI volumes following regulatory action against online gaming platforms, which led to some slowdown.

Fintech startups, banks and the Payments Council of India have sent their feedback to the NPCI and RBI over the past year with regards to monetisation for UPI and the implementation of MDR on large ticket size MDR transactions from consumers to merchants.

So the UPI ecosystem was expecting a bit of a helping hand this year. But no changes have been made in this regard yet, and none were announced at the budget either. At least not in the positive direction if you ask those in the ecosystem.

The Incentives Gap

The Indian tech industry is no stranger to incentives. Key........

© Inc42