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Correspondent

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.

From Mud to Money

The global carbon market is quietly undergoing a profound transformation. For years, companies eager to offset emissions favoured inexpensive carbon credits generated by projects that merely avoided future emissions. Increasingly, however, investors, regulators and corporate buyers are demanding something more tangible: carbon that is actually removed from the atmosphere and securely stored. That shift is elevating nature-based solutions, particularly agroforestry, from a niche environmental practice to a potentially valuable financial asset.


Yet one of the world’s greatest carbon sinks remains largely invisible to global finance. It is not found in vast corporate plantations but in the tiny farms that dominate much of Asia and Africa. These smallholders cultivate roughly two-thirds of the agricultural land in developing economies, but few are able to participate in the expanding market for carbon removals. The irony is striking. Those who could contribute most to climate mitigation are least able to access the capital that rewards it.


Structural Causes

The reasons are structural rather than ecological. Carbon markets are designed for scale, legal certainty and measurable outcomes. Smallholders, by contrast, operate fragmented plots, often no larger than two hectares, with limited access to finance, technology or regulatory expertise. The costs of measuring, verifying and certifying carbon sequestration frequently exceed the value of the credits produced by individual farms. As a result, institutional investors prefer large commercial projects, leaving millions of rural producers excluded from a market that is increasingly worth billions.


This need not remain the case. What is required is not another pilot project but an institutional architecture that allows small farms to function as one investable asset.


The first building block is aggregation. Individual farmers should not be expected to navigate global carbon registries on their own. Instead, they should be organised through Farmer Producer Organisations or cooperatives that combine thousands of small, scattered holdings into a single commercial entity. Such organisations would handle contracts, compliance and administration while dramatically reducing transaction costs. Carbon buyers, in turn, would gain access to large volumes of verified credits through a single institutional counterparty rather than negotiating with countless individual producers.


Aggregation alone is insufficient. Carbon markets have long been burdened by expensive measurement, reporting and verification procedures. Traditionally, projects relied on field inspections, manual tree counts and repeated site visits. Such methods are prohibitively costly for small farms.


Reaching out directly

Technology offers a more efficient alternative. Satellite imagery, remote-sensing drones and artificial intelligence can now estimate biomass growth with remarkable accuracy. Automated digital monitoring systems can reduce verification costs substantially while improving transparency and consistency. They ensure that a larger share of carbon revenues reaches farmers rather than intermediaries.


Finance presents an equally formidable challenge. Trees do not generate carbon credits overnight. They require years of growth before significant sequestration can be certified. Few smallholders can afford to wait five or ten years for an uncertain financial return while sacrificing immediate agricultural income.


The solution lies in treating future carbon revenues as a financial asset today. Development banks, rural lenders and climate-finance institutions should develop forward-payment mechanisms that allow farmers to borrow against expected carbon income.


Like many agricultural commodities, carbon credits often pass through layers of brokers, consultants and intermediaries before reaching international buyers. Each layer captures a share of the value, leaving farmers with only a modest fraction of the final price.


Digital payment systems and blockchain-enabled smart contracts could help correct this imbalance. Transparent payment mechanisms linking buyers directly to cooperatives or individual producers would reduce opportunities for value leakage.


Governments and international institutions also have an essential role. Carbon registries should establish standardised regional biomass baselines to eliminate the need for expensive project-specific studies. Digitised land records must be integrated with satellite monitoring systems to simplify verification and strengthen confidence in land tenure. Regulators should also recognise that agroforestry delivers benefits extending well beyond carbon storage. Biodiversity conservation, soil restoration and rural livelihoods deserve to command a premium over monoculture plantations that merely maximise carbon volumes.


Perhaps most importantly, market rules should require that the majority of carbon-credit revenues flow directly to producers. Climate finance cannot claim success if the principal beneficiaries are consultants and brokers rather than farmers.


The future of carbon markets will ultimately be decided not only by financial innovation but by institutional design. High-integrity carbon removals are becoming one of the world's most valuable environmental commodities. If properly organised, millions of smallholder farms can become suppliers of that commodity while simultaneously strengthening food security, restoring degraded landscapes and raising rural incomes.


(The writer is a member of Maharashtra Agriculture Price Commission. Views personal.)

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