Digital India at 11: Time to move from scale to sustainability

As we mark the 11th anniversary of the Digital India programme this July 2026, a comprehensive review of this ambitious initiative is not just timely—it is an economic imperative.

While we celebrate the rare perfect alignment between policy, business, tech and society, two focus areas await the next big idea. The first is about the urgent need to build a viable business case around UPI given the volume and velocity of transactions. Second, the need to bridge the growing deficit between demand and supply in the financial inclusion landscape. While the supply side is well served, the demand is yet a laggard.

Rethinking the Zero-MDR Policy

The Zero-Merchant Discount Rate (MDR) policy was a brilliant strategy for behavioural change, enabling the shift to digital overnight. However, as the network scales, bringing in a tiered, Business to Business (B2B) or large-ticket merchant fee is the most logical step to ensure the long-term viability of the ecosystem.

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But securing the financial viability of UPI is only half the battle; how we use that sustained infrastructure is the other. Imagine if the revenue generated from fractional fees on large commercial transactions was ring-fenced to solve Digital India’s second, more stubborn challenge: the yawning gap between the supply of financial tools and actual consumer demand.

To understand this deficit, we must first acknowledge the scale of what has already been built. UPI is a defining export from India that builds global influence. But admit that a world-class, high-velocity infrastructure is operating on a fundamentally subsidised business model. At over 13 billion transactions a month, the sheer operational cost of maintaining server capacities, dispute resolution, and security is immense.

There are obvious political sensitivities, and the moment you talk of a charge, there is going to be a furore. And with the citizen at the heart of the unique service, any talk of a business model around UPI has to be done with utmost responsibility to avoid any panic.

A Tiered Approach: Protecting the Consumer

Let us reimagine the business case without hurting the everyday consumer. The core philosophy of a tiered system is that inclusion remains free, but commercial velocity pays its way. The layering has to be fundamentally based on transaction size and type. Accordingly, keep micro and mini transactions free. Transactions under ₹500 or ₹1,000 constitute the vast majority of UPI volume (buying tea and groceries and paying for autos), and when kept free, protect financial inclusion and ensure daily consumer utility.

For large purchases (e.g., buying a ₹50,000 television or booking flights), a nominal merchant fee could be applied. The consumer doesn't pay a fee directly; rather, the merchant absorbs a fraction of a percent for the convenience and instant settlement, much like they already do with credit cards.

Lessons from Global Parallels

When looking for global learnings, Brazil's Pix (managed by the Central Bank of Brazil) is the most successful parallel to UPI. The learning is as follows: Transfers between individuals are completely free, driving massive consumer adoption. But merchants pay a transparent fee.

Unlike India’s zero-MDR mandate, Pix allows banks to charge merchants and businesses for receiving payments (P2B and B2B). Merchant fees on Pix are not standardised by the government; banks compete to offer the best rates to merchants. However, the fees are dramatically lower than traditional card networks (often around 0.22 per cent to 0.33 per cent, compared to 1-2 per cent for credit cards). So, Pix gets an incentive while card payments get discouraged.

The Inclusion Deficit: High Supply, Stagnant Demand

Now, the other big area of improvement: bridging the deficit between the supply side and demand side in the financial inclusion ecosystem. The government and the private sector have aggressively pushed the boundaries of access. We have successfully democratised the entry point to finance. We have laid millions of kilometres of optical fibre and facilitated widespread smartphone access, creating an unprecedented ecosystem of digital supply.

However, possessing a zero-balance bank account or having a biometric identity is merely the architecture of inclusion; it is not inclusion itself. We have effectively built the highways, but the traffic of discretionary spending, credit uptake, and micro-investment, especially by women, remains troublingly light.

The demand piece is inextricably linked to harsh macroeconomic realities. Demand for financial products is a direct function of information, awareness, and crucially, disposable income. Globally, discretionary spending is under severe pressure.

A price rise is a politically sensitive issue given the explicit hurt it causes to ordinary citizens. While headline numbers remain soft, food and essential commodity inflation traditionally squeezes household budgets, leaving the financially vulnerable. This brings financial savings into peril. To leverage digital access achieved through the decade, a commensurate rise in real incomes and purchasing power is mandatory.

From Volume to Value Creation

Now what happens to the supposedly excess supply? As an enterprise, the idea of this build-up is welcome. But the chain here is as strong or as weak as the demand side. While inclusion is a stated goal and diverse stakeholders have made a commitment, there is a need to relook at the metrics of success. The number of downloads or accounts opened, rather than the velocity of money moving through those accounts to create wealth, should be the medium to long-term objective.

A review is accordingly in order. We must pivot from celebrating sheer volume to proactively auditing the quality of financial engagement. India needs a non-siloed multi-stakeholder consortium comprising the Reserve Bank of India (RBI), NITI Aayog, grassroots civil society organisations, and fintech innovators. A breakthrough here is possible when we make the strategic shift from generic financial literacy to targeted capability, while integrating livelihood generation directly with digital tools.

Funding Hyper-Local Solutions

Pure play banking is passé. The savings push has to have a solid incentive on offer. Market linkage with sufficient safeguards is welcome. Finally, regulatory push has to enable and encourage fintechs to design hyper-local, vernacular products that address the specific anxieties digital citizens have in non-urban geographies regarding digital fraud, privacy, and complex user interfaces.

As for the government, it could use MDR tax revenues to fund the hyper-local vernacular financial products. For the banking and fintech ecosystem, it is time to go beyond yield to championing a mass movement around small saving instruments: A 50 to 100 rupees SIP?

Eleven years in, Digital India is a monumental infrastructural triumph. It has proven beyond doubt that the state can deliver technology at a population scale. However, the next decade cannot be solely about laying more pipes; it must be about what flows through them.

(Rakesh Khar is a seasoned editor. He writes at the intersection of politics, business, technology and society. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)