Fintech companies and payment firms are increasingly concerned as the government is yet to disburse the Rs 2,000 crore UPI subsidy for FY 26, with only a short time left before the financial year ends.
Industry executives say that no payments have been released so far, raising fears that the allocated funds may lapse if not disbursed in time. “This is a big setback, as not even a single rupee has been paid out so far. There is a risk that the FY 26 allocation will lapse if the disbursement is not done before the end of the financial year,” said a payments firm executive.
The delay has impacted banks, fintechs, and payment service providers that rely on these subsidies to offset investments in expanding UPI infrastructure.
In previous years, subsidy payouts were made in 2 phases—around February for the first 3 quarters and later in April-May after full-year data. Last year, the government announced Rs 1,500 crore on March 19, 2025, for FY 25.
According to budget estimates, the government expects to spend Rs 2,196 crore on UPI subsidies in FY 26 and has earmarked Rs 2,000 crore for FY 27.
However, payouts have been declining. While Rs 3,600 crore was disbursed in FY 24 and Rs 2,200 crore in FY 23, the FY 25 payout dropped to Rs 1,500 crore, with actual disbursement estimated at Rs 1,050 crore despite a Rs 2,000 crore budget promise. Industry demand for FY 25 stood at Rs 6,000 crore.
The uncertainty is further compounded by geopolitical factors, with some executives indicating that the West Asia conflict could shift government spending priorities.
UPI remains India’s dominant digital payment system, accounting for around 85% of all online transactions and processing over 21 billion transactions monthly, valued at more than Rs 28 lakh crore.
Currently, UPI transactions are free for users after the government waived the merchant discount rate (MDR) in 2020. To compensate ecosystem players, the government provides subsidies for small-value transactions below Rs 2,000 at a rate of 0.15%.
These incentives are shared among acquiring banks, issuer banks, payment service provider banks, and third-party app providers such as PhonePe, Google Pay, and Paytm.
Amid rising costs and slowing subsidies, the industry has urged the government to consider reintroducing a 30 basis point MDR on large merchants with turnover above Rs 40 lakh.
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