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23 August 2024 at 9:59:04 pm

Hidden Economics

The reassuring part of the new Unified Payments Interface (UPI) framework is that customers will apparently not be charged for using UPI. The more interesting part is who, then, pays for keeping one of the world’s most widely used digital-payment systems running. From October 15, a Merchant Discount Rate (MDR) of 0.4 percent will apply to specified person-to-merchant transactions above Rs. 2,000, with a ceiling of Rs. 300 on transactions of Rs. 75,000 or more. Person-to-person payments remain...

Hidden Economics

The reassuring part of the new Unified Payments Interface (UPI) framework is that customers will apparently not be charged for using UPI. The more interesting part is who, then, pays for keeping one of the world’s most widely used digital-payment systems running. From October 15, a Merchant Discount Rate (MDR) of 0.4 percent will apply to specified person-to-merchant transactions above Rs. 2,000, with a ceiling of Rs. 300 on transactions of Rs. 75,000 or more. Person-to-person payments remain free irrespective of the amount, while merchant payments up to Rs. 2,000 remain free. Small merchants receiving up to Rs. 1 lakh a month through UPI QR codes will also continue to enjoy zero MDR. The government says roughly 96 percent of merchant transactions will remain unaffected. So, technically, the customer is exempt. MDR is not a tax collected by the government or NPCI. It is a charge within the payments ecosystem, to be shared among banks, payment-service providers and UPI application providers. But that does not make the economics irrelevant to customers. A merchant who previously accepted a large UPI payment at no direct payment cost will now have to absorb a fee. The government has advised banks to ensure that merchants do not pass the MDR on to customers. The economic reality is less tidy. Businesses ultimately recover costs through their overall pricing. Whether the new charge appears as a visible surcharge, a change in discounts or simply becomes part of the cost of doing business will depend on the merchant and the market. That is why the real beneficiaries of the new framework are not necessarily the customers alone. Payment companies, banks and other participants in the UPI ecosystem acquire a new revenue stream from transactions that were previously free. Paytm, for instance, has said the new MDR will generate additional revenue from merchant transactions that earlier carried no such charge. The money is therefore being redistributed within the payments ecosystem. Small businesses are deliberately insulated, an important distinction in an economy where street vendors and neighbourhood shops have adopted QR payments because they are cheap and frictionless. There is also a larger question. UPI became ubiquitous partly because its basic proposition was brutally simple: instant payments without a visible charge. Introducing MDR for a slice of transactions changes that economic model. The government’s argument is that UPI needs a sustainable financial architecture as its scale grows. But sustainability should not be confused with costlessness. Someone has to finance the infrastructure, security and technology behind a system processing billions of transactions. For now, the customer remains protected. The real test will be whether merchants absorb the cost without quietly transferring it through prices and whether the revenue flowing to banks and fintech companies translates into a stronger, more resilient UPI ecosystem rather than simply a new source of income for its intermediaries.

The Student Who Became India’s Engineer

On this Engineers’ Day, we remember M. Visvesvaraya’s enduring bond with Pune, where the student became an engineer and began to see engineering as a means of nation-building.

M. Visvesvaraya’s enduring association with Pune began as a student at the College of Science in 1881 and continued through his engineering career, including his pioneering work at Khadakwasla. The institution is today COEP Technological University.
M. Visvesvaraya’s enduring association with Pune began as a student at the College of Science in 1881 and continued through his engineering career, including his pioneering work at Khadakwasla. The institution is today COEP Technological University.

In 1881, a young man from Mysore arrived in Poona, now known as Pune, to study engineering. He entered the institution then known as the College of Science, which over time evolved into COEP Technological University. He came as a student and left as an engineer. Over the decades that followed, his concerns would expand from water and irrigation to industry, education, finance and public administration, until the engineer became one of India’s foremost nation-builders.


His name was Mokshagundam Visvesvaraya. He would later become Sir M. Visvesvaraya and be awarded the Bharat Ratna, India’s highest civilian honour.


Every September 15, India celebrates his birthday as Engineers’ Day. For COEP and Pune, however, there is a more intimate story to tell. It is not simply that Visvesvaraya studied here. The more interesting question is what this institution and this city contributed to the making of the man.


Visvesvaraya’s association with Pune did not end with his engineering education. During his service with the Bombay Government, he returned to the city in important professional assignments. By the late 1890s, he was Assistant Superintending Engineer in Pune and subsequently Executive Engineer for Irrigation. Pune was therefore both his place of education and an important setting for his professional development.


It was also an extraordinary city in which to spend one’s formative years. Late nineteenth-century Pune was alive with debates about education, economic development, industrialization, social reform and India’s future. Justice Mahadev Govind Ranade was among the influential thinkers of the period. The Sarvajanik Sabha was an important forum for public affairs, while Gopal Krishna Gokhale was emerging as a major public figure. An engineer living in this environment could hardly have been unaware of the larger questions occupying the city.


One episode from Visvesvaraya’s Pune years is particularly revealing. In 1891, while working here as an engineer, Visvesvaraya and Chintaman Rao Bhat approached Justice Ranade with the idea of establishing a club where people could meet and discuss matters of common interest. The Deccan Club was inaugurated later that year at Hira Baug. Visvesvaraya himself recalled the episode in his memoirs. There is something striking about an engineer helping to create a forum for conversation. Before becoming famous for physical infrastructure, he was already interested in what might be called the infrastructure of ideas.


It would be an exaggeration to attribute Visvesvaraya’s later philosophy to Pune or its luminaries alone. Yet the setting matters. The man who would later become deeply concerned with industrialization, education and institution-building spent important years in a city where precisely these questions were being debated. The college taught him engineering. Pune may have enlarged his idea of what an engineer could do.


Engineering Laboratory

The relationship between Visvesvaraya and Pune was not only intellectual. At Khadakwasla, he faced a practical question: how could more water be stored without simply raising the height of the existing dam? His answer was an ingenious system of automatic weir floodgates. He designed and patented the system, and the gates were installed at Khadakwasla reservoir in 1903. The idea was subsequently applied elsewhere.


The story completes an unusual circle. Pune educated the engineer. The engineer returned to solve a Pune problem. An innovation demonstrated here then travelled beyond Pune. It also tells us something important about his approach. We often associate great engineering with great structures. Visvesvaraya showed that engineering can also mean looking carefully at what already exists and asking how it can work better. More than a century later, that remains a powerful idea.


Visvesvaraya’s later career is often presented as a catalogue of achievements. There is a more revealing way to read it. The scale of the problems that interested him kept expanding. His concerns increasingly connected water with irrigation and agriculture, power with industry, industry with skills, and skills with education. Development also required finance, institutions and capable administration.


His later work reveals how wide this canvas became. His interests extended across irrigation, reservoirs, water supply, power, bridges, universities, technical education, town planning, manufacturing, banking and commerce. The civil engineer had become a systems thinker and institution-builder.


This is why describing Visvesvaraya simply as a great civil engineer does not fully capture his significance. He did not leave engineering behind when he entered administration, education or economic development. He enlarged its canvas. Problems had to be understood, solutions found and institutions created to sustain them. In his hands, engineering moved from building structures to building capacity, and ultimately to nation-building.


COEP’s Inheritance

The institution Visvesvaraya entered in 1881 has travelled a remarkable distance of its own. With origins going back to 1854, COEP is among India’s oldest engineering institutions. But age alone does not create reputation. That reputation has been renewed by successive generations of teachers and students, and by what its alumni have contributed to engineering, industry, technology and public life.


COEP has now entered another important phase. The College of Engineering, Pune has become COEP Technological University. Its engineering tradition gives it strong foundations, while its new status allows it to ask a larger question: what should a great technological university contribute to India in the decades ahead? Legacy gives an institution confidence, but it cannot determine its future. Each generation has to add something to it.


There is something particularly appropriate about remembering Visvesvaraya at this stage of COEP’s journey. His life was marked by a continuous enlargement of purpose. The student became an engineer, the engineer became an innovator, and the innovator became an institution-builder and national thinker. COEP too now has the opportunity to enlarge its purpose without losing the engineering rigour on which its reputation was built.


COEP also has the advantage of its location in Pune. The city that Visvesvaraya encountered during his formative years has grown into a major centre of engineering, manufacturing, information technology, research, higher education and entrepreneurship. For COEP Technological University, this rich ecosystem can become an extension of the campus, connecting education with industry, research and real problems that need solutions.


For Visvesvaraya, Pune was not merely the city in which his college happened to be located. The Deccan Club connected him with a larger world of ideas, while his professional responsibilities exposed him to real public problems. At Khadakwasla, one such problem produced an innovation that travelled beyond Pune. The city helped shape the engineer, and the engineer gave something back to the city. That relationship between COEP and Pune remains relevant today.


On Engineers’ Day, COEP can rightly take pride in that inheritance. But the most meaningful way for a great institution to honour its past is not merely to celebrate it. Each generation must add something of its own. COEP has more than 170 years of history behind it and, as a technological university, an exciting new chapter ahead.

 

(Dr. Paknikar is the ANRF Prime Minister Professor, COEP Technological University, Pune and former Director of the Agharkar Research Institute, Pune; Dr. Bhirud is the Vice-Chancellor, COEP Technological University, Pune. Views personal.)

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