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Kerala Textile Association Warns UPI Fees Could Raise Costs and Push Merchants Toward Cash

KTGA warns that a reported UPI merchant fee could pressure textile margins and influence payment choices. The Ministry’s framework includes exemptions, and price rises or a shift to cash had not been measured as of October 9, 2026.
From TheFinanceBase Team4 min to read
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The Kerala Textile and Garments Association (KTGA) warns that a reported UPI merchant fee could squeeze textile businesses and eventually add pressure to prices or encourage some merchants to prefer cash. That is a forecast, not an established outcome: as of October 9, 2026, the reported October 15 start date was still in the future, and the available reports did not measure price changes or a shift to cash.

What KTGA says the UPI fee could mean for textile businesses

NewsBytes reported on October 8, 2026, that KTGA state president Pattabhiraman TS objected to a reported 0.4% merchant discount rate (MDR). The report attributed to him the concern that a fee could cut into textile businesses’ thin net profit margins, described in the report as sometimes 1–5%. That range is an attributed warning, not an independently verified measure of margins across Kerala’s textile sector. NewsBytes’ report also said KTGA expects costs to travel from manufacturers through retailers and potentially affect shoppers, while making cash more attractive to some businesses.

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The association reportedly asked the government to support UPI’s annual operating costs, which it estimated at ₹20,000 crore to ₹25,000 crore, proposing that annual tax revenues be used. This is KTGA’s estimate and proposal, not a figure independently established by the sources reviewed.

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What the official MDR framework says

The Ministry of Finance described the statutory amendment announced on August 8, 2026, as an enabling provision: it allows a threshold-based MDR on a limited set of merchant transactions, with the rates to be decided by the NPCI-headed UPI and Services Steering Committee after the relevant legislative steps. The Ministry’s September 15 clarification set out the framework below. Read the Ministry’s clarification.

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Payment category Stated MDR treatment
Person-to-person (P2P) UPI payments Free, regardless of amount.
Person-to-merchant (P2M) payments up to ₹2,000 Free.
Qualifying small merchants in the P2PM category, including street vendors receiving up to ₹1 lakh per month through UPI QR codes Zero MDR.
Specified P2M transactions above ₹2,000 0.4% MDR, capped at ₹300 for transactions of ₹75,000 and above.
Transactions above ₹2,000 in named essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs Flat ₹5 MDR.
Specified capital-market payments 0.02% MDR, capped at ₹300. The Indian Express reported that certain recurring payments, including SIPs and autopay categories, are exempt.

The Ministry says the MDR is a charge within the merchant payment ecosystem, not a tax or a charge to customers. It says banks have been advised to ensure merchants do not pass it on, and UPI app providers may not add platform fees or hidden charges. The Ministry estimates that about 4% of merchant transactions are subject to MDR, leaving approximately 96% unaffected. These are the government’s policy descriptions and estimate, not an independent measurement of how fees will affect individual businesses. The Ministry’s August 8 statement described its rationale as supporting the payment ecosystem and continued investment in payment infrastructure while preserving free P2P and small-merchant transactions.

The Indian Express reported that rates would be reviewed every six months to one year and that 5% of MDR collections would go to a dedicated fund to support small-merchant UPI acceptance. These details are from its UPI charges explainer.

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Who pays formally, and who might bear indirect costs?

Under the Ministry’s framework, the MDR is formally a merchant-ecosystem charge, and the Ministry says customers should not be charged it directly. KTGA’s concern is different: if merchants have little room in their margins, they may try to recover costs indirectly through pricing or change which payment methods they encourage. Whether that happens depends on merchants’ costs, competition and choices; the policy statement does not establish that textile prices will rise.

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The positions differ in emphasis:

Question Government’s stated position Trade-group concern
Which transactions are affected? Specified merchant transactions, with P2P, payments up to ₹2,000 and qualifying small merchants exempt or free. KTGA objects to the reported 0.4% fee’s potential effect on textile merchants; the report does not establish how many textile transactions would qualify for it.
Who is formally charged? The merchant payment ecosystem, not the customer. KTGA warns merchants could face pressure on already-thin margins and that costs could move along the supply chain.
How broad is the impact expected to be? The Ministry estimates about 4% of merchant transactions are covered and 96% unaffected. KTGA and other retailer representatives warn that even a limited fee could affect merchant decisions. Their warnings do not quantify realized effects.
What is known about actual behavior? The stated effective date was October 15, 2026. The reports describe predictions and opposition, not measured price increases or merchant migration to cash after implementation.
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Why merchants are raising the possibility of cash

KTGA’s reported warning is part of a broader trade-group concern, but it is not proof that merchants have already switched payment methods. Mirror Now reported a Kochi protest involving approximately 500 textile merchants, organized by the Kerala Textiles and Garments Dealers Welfare Association. The report said participants argued that fees could discourage digital payments and harm small and medium textile businesses. Attendance and impacts are as reported, not independently measured. Mirror Now’s protest coverage describes the event.

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Retailers Association of India CEO Kumar Rajagopalan also warned of possible hesitation, telling Business Standard: “Small merchants will now think twice about whether to accept cash or UPI.” This is a prediction about merchants’ decisions, not evidence that a cash shift has occurred. Business Standard’s report covers that wider retailer response.

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What remains unresolved

  • Textile prices: No source reviewed measured UPI-related price increases or established that textile merchants passed MDR costs to shoppers.
  • Cash use: The cited coverage contains warnings about possible cash preference, not post-implementation evidence of merchants moving away from UPI.
  • Which textile payments qualify: The framework specifies rates and exemptions by transaction category and sector, but the available reporting does not establish what share of textile merchants’ UPI payments would face the 0.4% rate.
  • How the rules work in practice: The effective date reported in the coverage was October 15, 2026. As of October 9, it had not arrived, so these reports could not show outcomes after implementation.

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