UPI: Crowned by IMF as a model, resisted by traders in Bangalore

Kolkata: Imagine coal not being accepted in Newcastle, alphonso mangoes losing currency in Ratnagiri or tea not being accepted in Darjeeling. A similar situation is developing in India's tech capital of Bangalore, where small traders are up in arms against UPI, perhaps the most scintillating product of Indian digital technology so far. Ironically, the resistance to UPI among the small traders and businessmen in Bangalore came just a few days after the International Monetary Fund (IMF) highlighted it as a model for nations who try to move away from cash transactions.

The resistance in Bangalore was not confined to mere slogans. They even called a bandh on July 25 to protest against GST demands that followed increasing use of UPI in day-to-day transactions. The bandh was called off only after the Commercial Taxes Department assured the traders and vendors that the GST notices that they received would be withdrawn. The resistance simmered for days with black bands and ribbons over their foreheads and arms after they got the tax notices pertaining to as far back as FY22.

Stung by the GST demands, traders and vendors in Indian tech capital have gone back to the "stone age" by writing "No UPI, Only Cash" at the counters. But it is creating a strong disconnect as almost all customers are accustomed to not carrying cash. Lost business and frayed tempers are replacing booming business and convenience of transactions.

The GST demands were apparently triggered by the income of these businesses which were oblivious to the fact that they have to pay GST after their income exceeded Rs 40 lakh a year for products and Rs 20 lakh a year for service. Though the authorities clarified that the GST notices were not final tax demands and the recipients could revert with appropriate documents to counter them, the traders realised that the bank account statements, where the UPI amounts were credited, would be almost impossible to challenge. And the resistance grew.

Significantly, the notices went to those who did not register for GST but whose income exceeded the threshold limits for which one has to pay GST. The GST authorities collected the payment data from UPI between FY22 and FY25 and then shot off the notices.

Did the Bangalore traders/vendors discover that UPI is too convenient but too transparent? The experience creates a peculiar situation for the policymakers. How do they tackle a situation where the public find a payment system extremely convenient but the trader/vendors/small businessmen resist the tax demands that would arise out of the income? It seems that the authorities need to undertake a drive for educating the small businessmen/traders/vendors, if possible help in getting them register for GST and then handle the demands in a way that does not trigger resistance.

The first lesson from the example in Bangalore is, it is not a problem with UPI. UPI is easily the best example of Indian digital infrastructure innovation so far that has already made a mark beyond the borders of the country. It is an issue in handling GST intelligently. From one perspective, improved tax revenue is a collateral benefit of the UPI revolution. If cash transactions gradually go down and money flows directly into bank accounts, it is one of the happiest developments of a revenue-hungry exchequer.

Don't be surprised if the galloping UPI numbers indicate a gradual movement towards that direction. Just consider the numbers. UPI was introduced on April 11, 2016. In just more than nine years, UPI is recording 18.39 billion transactions involving a value of Rs 24.03 trillion (June 2025 figure). By the way, the rise was 32% compared to the same month a year ago. This works out to more than Rs 9.27 crore transacted per second on an average in June 2025.

We all know that UPI is lightning fast and convenient and helps to dispense with cash. UPI is also gradually finding acceptance in some countries such as Bhutan, Nepal, Singapore, Sri Lanka, Mauritius, France, UAE and Trinidad & Tobago. The next phase will come with NPCI International signing deals with Qatar, Thailand, Malaysia, Maldives, Oman and Cyprus.

Significantly, whether by design or by happenstance, the proliferation of UPI with its irresistible mix of speed and convenience is going to confront a the Goliats of the global payments ecosystem such as Visa, Mastercard, Western Union (all based in the US) and the Chinese upstarts such as Alipay and WeChat Pay from China. UPI has already stolen a march over Visa and Mastercard. UPI now hosts about half of all global real time payments and, in the process, it has surpassed the volume of Visa.

Herein lies the real twist. Could UPI grow on to catalyse a financial architecture that reduces dependence on the greenback and push the acceptance of the Indian rupee? Vivek Mandhata, MD and partner at Boston Consulting Group, has an interesting observation. "Once you are able to establish corridors where UPI acceptance is there, it will also help the rupee acceptability outside of India. So, if you are able to achieve capital account convertibility using rupee outside of India, one way to do that is to get UPI accepted in many places. Then you can start actually doing rupee-to-rupee transactions even cross-border instead of dollar-to-dollar transactions cross-border.”

That there is resentment with the US Dollar as the reserve currency is not unknown to US President Donald Trump, who has already warned BRICS member countries of punitive actions -- economic, so far -- to any move that even hints at curbing the status of the Dollar. BIRCS nations are reportedly working on a cross-border payment system known which can facilitate trade and transactions in local currencies. It is known as BRICS Pay. The membership of BRICS has gone far beyond Brazil, Russia, India, China and South Africa to include countries such as Egypt, UAE, Ethiopia, Indonesia and Iran.