Policy Watch: 'Forward' Trade Pacts To UPI Fees

Trade Initiatives, Sensex, and The Rupee

Indian negotiators, officials affirm, are preparing to include a rare "forward most-favoured-nation" clause in the trade deal they are proposing with the United States. This clause would ensure that the US automatically receives any more favourable terms offered to any future trade partners. 

In exchange, India is seeking reciprocal tariff benefits for its labour-intensive exports and long-term preferential access for sectors such as pharmaceuticals, electronics, textiles, and engineering products. 

Discussions have progressed, with 19 out of 24 product categories identified for fast-tracking. US Treasury Secretary Scott Bessent has hinted that a deal could be finalised soon, though Indian negotiators say a “deal will take several months”.

With the whispers of a successful trade deal with the US swirling through financial circles, global investors have come sprinting back to Indian shores. Over US$ 1 billion in foreign funds roared into Indian equities in April alone, powering markets to fresh highs and steamrolling concerns over flaring tensions with Pakistan. After dipping to a month’s low of 73,137 points on April 7, the Sensex rose to over 80,000 points on Friday, as this column went online.

But the real showstopper has been the much-maligned Indian Rupee. On Friday, it flexed its muscles, surging to a seven-month peak and managing to rank among Asia’s top-performing currencies this week. After falling to a low of Rs 86.44 to a dollar on April 8, it improved in value and was trading on Friday for Rs 84.44 to the greenback.

More Rate Cuts? What Happens To Your Loans?

Your loans may just get cheaper. Reserve Bank of India’s Monetary Policy Committee (MPC) member Saugata Bhattacharya’s comment this week that falling inflation has created room for rate cuts has come as a relief to industry as well as consumers. The central bank, in a bid to support growth, especially amid the geoeconomic uncertainties, is expected to continue with an accommodative stance.

However, Bhattacharya, who has been a coloumnist for The Secretariat, also underlined the need to be cautious while easing interest rates to ensure that there is no pressure on inflation.

"Going forward, continuing policy easing — both rate cuts and liquidity infusions — could eventually alter the growth-inflation balance, especially as growth recovery begins to approach potential levels, thereby increasing inflationary pressures," Bhattacharya said in a recent interview to a media outlet.

The RBI has reduced the repo rate — the rate at which banks borrow from the central bank — twice this year — by 25 basis points each time, once in February and then in April. Besides, the RBI has also injected liquidity worth Rs 6.21 trillion (approximately US$ 73 billion) in 2025.

At present, the repo rate stands at 6 per cent.

Global financial services firm Emkay said in a note that with RBI’s aggressive easing, lending activity could pick up from next quarter on, followed by a consequent rise in consumption.

The RBI in its MPC meeting noted that the recent trade tariff-related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation. However, the forecast of a normal monsoon this year will ease much of the pressure and will help in controlling prices.

Game-Changer Fee On UPI Transactions?

The trio of the country’s payments authority, central bank, and industry giants is making a coordinated push for applying a game-changing fee on UPI transactions on large merchants.

India’s digital payments horizon is about to get disrupted.

The UPI payments segment is in dire need to revive sagging growth and attract new investments. Reliable sources reveal that this charge, known as the Merchant Discount Rate (MDR), may provide the required boost.

The MDR is proposed at a modest 0.2 per cent to 0.3 per cent per transaction, and this proposed rate would still undercut much steeper fees charged on credit and debit card payments.

The point to be underlined here is: Large merchants, not the customers, will pay slightly more, keeping digital payments as smooth for the average Indian as it is at present.

Vishwas Patel, chairman of the Payments Council of India, sounds alarm bells: “It will be very difficult to get the next set of Indians on the digital payments bandwagon without this fee."

The signs of nearing the plateau after UPI’s (Unified Payments Interface) stupendous rise in recent years are quite evident. Monthly UPI transaction numbers went from 1.6 billion to over 17 billion in the last five years. However, the growth slowed down to around 25 per cent in 2025 from 35 per cent in 2024.

In March 2025, UPI-using Indians transacted an astonishing total amount of Rs 24.7 trillion, with over a quarter of that flowing to merchants. Yet, transactions are zero-cost.

As infrastructure costs go up and government subsidies dwindle, payment firms say that the zero-fee model is unsustainable.

Industry giants, including the Walmart-backed PhonePe and Google Pay, have long lobbied for MDR’s return. 

The final decision will come from the Prime Minister's Office. The Ministry of Finance reportedly supports the proposal. With the government’s cashless drive in full swing, this can well be the next big leap in India’s payments revolution.

(Contributed by Jayanta Roy Chowdhury, Mahua Venkatesh & Abhijit Mukhopadhyay; curated by Bodhisattwa Maity)