UPI MDR charges, & How India is preparing for AI disruption | Bidishanomics Ep 25

Summary

In this episode of Bidishanomics, economics editor Dr Bidisha Bhattacharya answers viewers’ questions on UPI fees, India’s trade gap, a claim about US monetary policy, and government preparations for AI-related job disruption.

UPI merchant fees

The discussion says a 0.4% merchant discount rate (MDR) is due to apply from 15 October 2026 to specified UPI merchant payments above ₹2,000. About 95% of merchant transactions—typically small-value payments—will remain unaffected. The fee is also capped at ₹300 for transactions above ₹75,000, while merchants receiving up to ₹1 lakh a month through UPI are exempt.

Bhattacharya argues that UPI infrastructure has ongoing costs, including servers, fraud detection, and customer support, which have so far been covered partly by government incentives. She says the policy raises a legitimate question: should UPI depend indefinitely on public subsidies, or move toward a limited, sustainable fee?

She considers a broad return to cash unlikely, since handling cash also brings costs and risks for merchants. Compared with Indonesia’s QR-payment fees, she characterizes the proposed Indian rate as relatively modest. In her view, protecting low-value payments and preventing costs from being passed on to consumers will be important to preserving UPI’s accessibility and India’s reputation for low-cost digital public infrastructure.

Imports, exports, and the trade gap

The episode reports that India’s combined goods-and-services exports grew by about 4.2% in FY2026 to roughly $860 billion, while imports grew by 6.47%. The trade deficit consequently widened to about $119.3 billion, from roughly $95 billion. Bhattacharya notes that higher gold prices contributed to the import bill, so part of the increase reflects prices rather than a rise in the quantity imported.

She identifies several deeper constraints on export growth:

• Assembly rather than high-value production: Expanding sectors such as mobile manufacturing often rely on imported components. Low R&D spending—put at 0.65% of GDP—limits India’s ability to develop more domestic technology and manufacturing value.
• Underused trade agreements: India’s free-trade agreements are reportedly used by only 20–25% of eligible exporters, compared with 60–70% for partner countries. Complex and costly rules-of-origin paperwork can make the benefits impractical, especially for smaller firms.
• Industrial costs: Logistics costs have reportedly fallen to 7.97% of GDP, improving competitiveness, but expensive industrial electricity and delayed subsidy payments remain concerns.
• Limits of PLI schemes: The schemes have attracted investment and supported jobs and exports, but Bhattacharya says much of the activity remains focused on assembly, and actual incentive payouts have been low relative to allocations.

The government has approved an Export Promotion Mission, with a reported budget of about ₹25,000 crore, and a digital platform called Bharat Trade Net to help exporters navigate procedures. Bhattacharya argues that policy must also improve R&D, help smaller exporters use trade agreements, and move production toward higher-value manufacturing.

Ghalibaf’s argument about the Fed and supply shocks

The discussion examines Mohammad Bagher Ghalibaf’s use of the Taylor rule to argue that interest-rate policy may be poorly suited to inflation caused by supply disruptions. As presented, his argument is that disruptions around the Strait of Hormuz and Bab el-Mandeb can restrict oil supplies and raise prices independently of consumer demand. Raising interest rates cannot restore those supplies and could suppress investment and hiring, risking higher unemployment alongside inflation—a stagflationary outcome.

Bhattacharya says the underlying concern is valid, while noting that the Fed also considers inflation expectations. If households and businesses expect prices to stay high, wage and pricing decisions can reinforce inflation. The Fed’s stated rationale for its rate increase was persistent inflation above its 2% target, rather than the war alone.

Government planning for AI-related job disruption

Bhattacharya agrees that pressure on entry-level and IT hiring is real. The figures cited in the episode include:

• Fresher hiring in Indian IT falling from about 600,000 in FY2022 to 120,000 in FY2025, a reported 80% decline.
• A 44% year-on-year drop in entry-level openings by mid-2026.
• 12,000 job cuts at TCS in 2025.
• An IMF estimate that 26% of Indian workers are in occupations highly exposed to AI, with a portion facing replacement risk.

She describes existing government measures as primarily focused on building AI capacity and skills. These include the ₹10,372-crore India AI Mission, the Future Skills Prime programme, and broader skilling and apprenticeship initiatives. States are also taking steps: Telangana is emphasizing reskilling, Karnataka is assessing how AI can augment work, Tamil Nadu has launched an AI mission, and Andhra Pradesh has partnered with Google on AI skilling.

Bhattacharya points to a major remaining gap: there is not yet a sufficiently concrete response for workers who lose jobs because of AI. She notes a labour-code provision requiring employers to contribute the equivalent of 15 days’ wages for retrenched workers to a reskilling fund, but argues that skills programmes alone are not enough. Managing the transition and supporting displaced workers will be essential as AI reshapes employment.

Presenters and contributors

• Apoorva Mandhani — presenter and interviewer
• Dr Bidisha Bhattacharya — economics expert and commentator