Cabinet clears ₹1500-crore incentive for UPI, new fertilizer plant, highway, and revised dairy schemes

The union cabinet chaired by prime minister Narendra Modi on Wednesday cleared projects worth ₹22,791 crore for the continuation of the Centre's UPI incentive, building a new urea plant in Assam as well as a new highway to boost port connectivity in Maharashtra, and development of dairy farming.

Union minister of information and broadcasting Ashwini Vaishnaw announced a ₹1500-crore Digital India Incentive for the Unified Payments Interface.

This would provide a 0.15% incentive to industry participants for UPI transactions of less than ₹2,000 from customers to small merchants for FY25.

"The incentive scheme for promotion of low-value BHIM-UPI transactions (P2M) will be implemented at an estimated outlay of 1,500 crore, from 01.04.2024 to 31.03.2025," a Cabinet statement said. P2M refers to person-to-merchant transactions.

That means banks and app service providers facilitating UPI payments under ₹2,000 for small merchants will continue to receive incentives to facilitate the homegrown digital payments mechanism.

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"The incentive is paid by the government to the acquiring bank (merchant's bank) and thereafter shared among other stakeholders: issuer bank (customer's bank), payment service provider bank (which facilitates onboarding of customer on UPI app/API integrations) and app providers," the Cabinet statement added.

A merchant discount rate (MDR) was supposed to help the digital payments industry -- banks as well as app service providers -- reduce the cost of enabling digital payments. As per the Reserve Bank of India (RBI), MDR of upto 0.90% of transaction value is applicable for all debit cards. As per the National Payments Corporation of India (NPCI), MDR upto 0.30% of transaction value is applicable for UPI P2M transactions.

But the government had, since January 2020, done away with the MDR on UPI payments as well as RuPay debit card payments.

MDR is the charge paid by the merchant to the bank, card network and the point-of-sale provider for offline transactions and to the payment gateways for online purchases.

Now, banks can claim this incentive wherein 80% of the claim will be sanctioned immediately and 10% after verifying whether the ‘technical decline’ of the acquiring bank will be less than 0.75%. The remaining 10% of the claim will be disbursed when the system uptime of the acquiring bank is greater than 99.5%, according to the Cabinet press statement.

There are two kinds of transaction declines under the unified payments interface (UPI): technical decline and business decline. Technical declines occur due to network or other system issues, while business declines are those that happen when customers enter a wrong pin or incorrect beneficiary account, among others.

Small merchants are defined as merchants whose intake of digital payments is under ₹50,000 per month, as per a June 2019 NPCI notification waiving MDR for new small merchants. As per the NPCI notification, new small merchants, after a cooling period of three months, would be categorized under the P2M category.

Expressing reservations

However, the payments industry expressed reservations.

“Zero MDR of UPI and the government allocating a paltry ₹1,500 crore for processing transactions of ₹246.82 trillion in 2024 to the entire ecosystem are just not going to be enough,” said Vishwas Patel, joint managing director of Infibeam Avenues and the chairman of the Payments Council Of India (PCI).

“It will choke the entire ecosystem for funds for scaling and growth.”

Patel said the industry was expecting the government incentive to be above ₹5,000 crore, a little higher than last year's incentive of ₹3,500 crore, and that the ₹1,500 crore incentive is a “grave injustice”.

“We don’t want to survive on government incentives and the only solution is for the government to allow us to charge a low controlled MDR of 25 basis points (bps) on UPI P2M transactions only for merchants with more than ₹40 lakh revenue,” he said.

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"The incentives can continue for smaller merchants by offering them Zero MDR. UPI P2P can continue to have zero charges. Why should the government incentivize us with taxpayers' money for processing transactions for large merchants? UPI dominates as India’s most favourite payment option and every merchant will continue to offer UPI even by paying a mere 25 BPS as processing charges as they are anyways paying 2% for credit cards and other options.”

Over the last three fiscals from FY22 to FY24, the government has disbursed ₹6,027 crore to incentivize UPI payments, the Cabinet statement showed.

Urea plant proposed

Vaishnaw in his briefing also said that a new brownfield urea plant will be set up in Namrup, Assam, as part of the Centre's 'Act East' policy. The cost of the plant will be ₹10,601 crore, and it will be constructed in 48 months, he said.

The new plant will be the Namrup-IV Ammonia-Urea complex, with the goal of harnessing the export potential of fertilizers to south-east Asian countries such as Myanmar and Bhutan. It will also meet the growing demand of Urea fertilizers in the North-east, Bihar, West Bengal, eastern Uttar Pradesh and Jharkhand.

The new plant, to be set up within the existing premises of Brahmaputra Valley Fertilizer Corporation Ltd (BVFCL) in Namrup, will be a joint venture between the government of Assam, BVFCL, Hindustan Urvarak & Rasayan Ltd, National Fertilizers Ltd, and Oil India Ltd. The government of Assam will have a 40% stake.

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To enhance hinterland connectivity with the Jawaharlal Nehru Port Trust (JNPT) in Maharashtra, the cabinet cleared a proposal for a ₹4,500-crore six-lane highway from Chowk to Pagote. The proposed national highway will be 30 km long, with a right of way of 60m to faciliate six-lanes on each side, Vaishnaw said. The purpose of the highway is to reduce the overall cost of logistics in the country, as JNPT is the largest port logistics facility in India, Vaishnaw added. The project will be developed on a Build, Operate and Transfer (BOT) mode.

"Development of road connecting infrastructure to major and minor ports in India is one of the main focus areas of integrated infrastructure planning under PM Gatishakti National Master Plan principles. With increasing container volume in JNPA port and the development of the Navi Mumbai International Airport, a need was identified for augmenting National highway connectivity in the region," the government statement said.

Better milk procurement

The cabinet also approved funding worth ₹2,970 for a revised National Programme for Dairy Development (NPDD), focusing on modernizing and expanding dairy infrastructure. The revised NPDD has been enhanced with an additional ₹1,000 crore, bringing the total budget to Rs.2790 crore for the period of the 15th Finance Commission cycle (2021-22 to 2025-26), a cabinet statement said.

The NPDD will create better milk procurement systems via new dairy co-operative societies in the North-east region, hilly regions, and union territories. It will also form two Milk Producer Companies (MPCs) with dedicated grant support.

"The Revised NPDD is expected to establish 10,000 new Dairy Cooperative Societies," and "generate an additional 3.2 lakh direct and indirect employment opportunities, particularly benefiting women, which constitute 70% of the dairy workforce".

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Another initiative for the dairy sector, announced by Vaishnaw was the revised Rashtriya Gokul Mission. The cabinet revised the allocation towards the mission to ₹3,400 crore, an infusion of ₹1,000 crore. The scheme, focusing on enhancement of milk production using artificial insemination and in-vitro fertilization for dairy animals, will provide one-time assistance of 35% of the capital cost for establishment of Heifer Rearing Centres to implementing agencies for creation of 30 housing facilities having a total 15,000 heifers.

The scheme will continue to provide to provide other services which were originally included such as strengthening of semen stations, Artificial Insemination network, implementation of bull production programme, accelerated breed improvement programme using sex sorted semen, among others, as per a cabinet statement.