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21 August 2024 at 10:20:16 am

Fee Signal

The government’s decision to create a legal framework for levying charges on UPI transactions has understandably triggered concern, even though it insists that ordinary users and small merchants will continue to enjoy free payments. The proposed amendment does not impose a fee on UPI today. But it removes the statutory barrier to one being imposed in the future, making the government’s reassurance less than the final word. The government argues that this is a measure for UPI’s long-term...

Fee Signal

The government’s decision to create a legal framework for levying charges on UPI transactions has understandably triggered concern, even though it insists that ordinary users and small merchants will continue to enjoy free payments. The proposed amendment does not impose a fee on UPI today. But it removes the statutory barrier to one being imposed in the future, making the government’s reassurance less than the final word. The government argues that this is a measure for UPI’s long-term sustainability. The world’s largest real-time payments system, which processed 2,366 crore transactions worth Rs. 29.9 lakh crore in July alone, cannot indefinitely depend on subsidies as transaction volumes, cybersecurity requirements and infrastructure costs rise. A nominal Merchant Discount Rate on larger merchant transactions, it says, would help create a more sustainable ecosystem without burdening ordinary users. That argument has merit. But so does the concern that a payment system which became a national habit precisely because it was cheap and frictionless should not slowly acquire a price tag. Once the legal machinery for charging exists, there is no guarantee that the boundary between large merchants and small ones, or between merchants and consumers, will remain permanently fixed. The Finance Minister has clarified that any Merchant Discount Rate will apply only to a limited set of merchant transactions above a threshold and will be nominal, well below card-payment rates. The details will eventually be decided by the UPI and Services Steering Committee headed by the National Payments Corporation of India. In other words, there is no charge on the table for the ordinary UPI user today. But there is now a legal mechanism for charges to be introduced tomorrow. That is precisely why any alarm, though exaggerated, cannot simply be dismissed. The government, through its clarification, has reassured that UPI’s free-to-consumer model remains intact. The important issue is whether its financing model can evolve without undermining the habits that made it revolutionary. UPI succeeded partly because it made digital payments cheaper and simpler than alternatives. There is also a larger principle at stake. UPI is not merely another commercial payments platform. It is the product of public investment, regulatory architecture and private innovation. The state should therefore be wary of treating its sustainability as an ordinary market problem. The sensible answer lies between free-for-all subsidies and indiscriminate fees: transparent thresholds, genuinely low MDRs, strong protection for small merchants and an absolute firewall around ordinary consumers. The government should publish the economic case for any future charge, including its effect on merchants and consumers. UPI was built on trust as much as technology. The government is right to protect its remarkable achievement. It should remember that keeping UPI free is not merely a political promise. It is part of the product.

AI Will Decide Which Small Businesses Survive

India’s economic future may not be decided by its billion-dollar technology companies alone. It may well be determined by the ability of millions of small and medium enterprises (SMEs) to embrace artificial intelligence. The recent World Economic Forum report, Transforming Small Businesses: An AI Playbook for India’s SMEs, serves as a timely reminder that the next industrial revolution will not be fought in corporate boardrooms alone but in thousands of workshops, factories, retail stores and service businesses across the country.


For decades, India’s MSME sector has been described as the backbone of the economy. More than 60 million enterprises contribute nearly one-third of India’s GDP, generate almost half of the country’s exports and provide employment to over 230 million people. If these businesses fail to remain globally competitive, India’s ambition of becoming a developed economy will remain incomplete.


Artificial intelligence is no longer a futuristic luxury reserved for multinational corporations. It has become an economic necessity. Businesses across the world are using AI to predict demand, optimise inventories, improve quality control, reduce waste, automate customer service, detect fraud and shorten production cycles. The question is no longer whether AI will transform industries; it is whether Indian SMEs will become participants or spectators in this transformation.


One of the most striking observations in the report is that AI adoption could potentially unlock hundreds of billions of dollars in additional economic value for India’s MSME sector. That value will not come from replacing human workers but from enabling them to become more productive, reducing operational costs and expanding financial inclusion through better credit assessment and faster loan processing.


Yet technology alone cannot guarantee success.


The greatest challenge before Indian SMEs is not software but preparedness. A large percentage of businesses still maintain manual records, depend upon fragmented accounting systems and operate with limited digital infrastructure. Many entrepreneurs continue to perceive AI as an expensive technology designed for large corporations. This misconception could prove extremely costly.


History repeatedly demonstrates that every industrial revolution rewards early adopters while punishing those who hesitate. Nations that ignored mechanisation lost manufacturing leadership. Businesses that ignored computers disappeared. Companies that underestimated the internet lost global markets. Artificial intelligence represents the next such turning point.


The World Economic Forum rightly argues that AI adoption cannot follow a one-size-fits-all model. India’s MSME ecosystem is remarkably diverse. A textile cluster in Surat has different technological needs from an automobile component manufacturer in Pune, a pharmaceutical unit in Hyderabad or a leather exporter in Kanpur. Similarly, a village repair shop cannot be expected to adopt AI in the same manner as a medium-sized engineering company.


This diversity demands cluster-based solutions, affordable cloud services and practical training rather than theoretical seminars.


Equally important is the need for digital maturity. AI cannot function effectively where reliable digital data does not exist. Before businesses can implement predictive analytics or intelligent automation, they must first digitise records, modernise accounting systems and establish disciplined data management.


Government initiatives such as IndiaAI provide an encouraging foundation. However, policy support alone will not create an AI-driven economy. Industry associations, banks, educational institutions, technology companies and start-ups must jointly build an ecosystem that makes AI affordable, understandable and trustworthy for small entrepreneurs.


Many entrepreneurs fear that AI will eliminate jobs. In reality, the larger risk lies elsewhere. Businesses that fail to adopt AI may lose competitiveness, leading to declining revenues, shrinking markets and eventually greater job losses. The future workforce will increasingly require digital literacy, analytical thinking and continuous learning.


Another overlooked opportunity lies in financial inclusion. Millions of small enterprises continue to struggle for formal credit because conventional lending depends heavily upon documentation and collateral. AI-driven credit assessment can analyse alternative business data, making financing faster, cheaper and more accessible.


Rapid AI adoption must be accompanied by responsible governance. Data privacy, cybersecurity, algorithmic transparency and ethical decision-making cannot become afterthoughts. Trust will become the currency of the AI economy.


The future will not belong to the biggest companies, nor necessarily to the oldest. It will belong to those enterprises—large or small—that learn faster, innovate continuously and embrace artificial intelligence as a partner rather than a threat.


(The writer is an advocate, legal, geopolitical and public policy analyst. Views personal.)

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