Former Tamil Nadu BJP president K Annamalai has urged the Union government to exempt small retailers from Merchant Discount Rate (MDR) charges on Unified Payments Interface (UPI) transactions, arguing that additional costs could hurt local businesses and undermine the growth of digital payments.
Speaking at a state-level retailers’ convention organised by the All India Mobile Retailers Association (AIMRA) at Town Hall in Udupi’s Ajjarkad on October 24, Annamalai called on the Centre to reconsider its approach to UPI charges and prioritise the interests of small traders.
“UPI is like a hen that lays a golden egg every day. If you kill it expecting to get a hundred eggs at once, you will end up with nothing,” he said, warning that introducing transaction charges could weaken a digital payment system that has become central to everyday commerce.
The Centre has maintained that customers will not be affected and that around 96% of merchant transactions will remain untouched under the revised framework. Small merchants covered by the existing zero-MDR provisions will continue to be exempt.
Annamalai’s intervention comes amid a wider debate over the cost of maintaining India’s digital payment infrastructure and the potential impact of transaction fees on retailers operating with narrow profit margins.
Annamalai’s Return to Udupi and His New Political Platform
Annamalai’s remarks have drawn attention partly because of his longstanding connection with Udupi, where he previously served as a police officer and earned a reputation for his firm approach to law enforcement.
He began his police career as Assistant Superintendent of Police in Karkala in September 2013 and took charge as Udupi district Superintendent of Police on January 1, 2015. He remained in the district until his transfer to Chikkamagaluru in July 2016.
After serving in Chikkamagaluru and Bengaluru, Annamalai resigned from the Indian Police Service in 2019 and joined the BJP on August 25, 2020. He became the party’s Tamil Nadu president in July 2021 and held the position until April 2025, when Nainar Nagenthran succeeded him.
Annamalai has since launched a political platform called We The Leaders. His criticism of the proposed UPI charges marks another intervention on a policy associated with the BJP-led Union government.
Udupi, part of coastal Karnataka, has traditionally been a strong region for the BJP. Annamalai’s earlier association with the area gives his comments on the Centre’s policy an added local dimension.
Why Annamalai Opposes UPI MDR Charges
At the centre of Annamalai’s argument is the potential burden that transaction fees could place on small retailers and businesses that rely heavily on digital payments.
Under the revised framework described at the convention, an MDR of 0.4% applies to eligible merchant transactions above Rs 2,000, subject to prescribed caps and exemptions. The National Payments Corporation of India (NPCI) deferred the introduction of the charges until after Diwali, according to the account of the policy.
Annamalai argued that the revenue expected from the charges would be relatively small compared with the Union government’s overall budget.
“The government says that money is spent from the public exchequer to facilitate UPI transactions. But why can’t the government consider this an investment in improving the country’s economy?” he asked.
He also credited the widespread adoption of UPI to the decision to keep transactions free, arguing that the system had helped make digital payments accessible to people across urban and rural India.
According to Annamalai, the government should treat investment in digital payment infrastructure as a means of supporting economic activity rather than seeking to recover its costs through charges that could affect merchants.
He called on the Union Finance and Commerce ministries to work together on measures that would protect small retailers and ensure that the digital payment ecosystem remained accessible.
Small Retailers at the Centre of the Debate
Annamalai’s objections extend beyond payment charges to the broader economic role of local businesses.
He argued that small retailers support employment, sustain local supply chains and help keep money circulating within communities. Additional transaction costs, he said, could place pressure on businesses that already operate on limited margins.
He also raised concerns about the competitive position of domestic retailers compared with large corporations and multinational companies, calling for policies that support Indian businesses and strengthen domestic manufacturing.
Referring to the Centre’s Make in India initiative, Annamalai advocated a greater focus on “Make for India”, with domestic production geared towards the needs of Indian consumers.
He urged local Members of Parliament to raise retailers’ concerns in Parliament and press the Finance Ministry to reconsider the proposed charges and their potential implications for smaller businesses.
Annamalai’s Message on Karnataka’s Development
The Udupi convention also provided Annamalai with an opportunity to comment on Karnataka’s broader development priorities.
He called for more balanced regional growth, arguing that development should extend beyond Bengaluru to other parts of the state.
Annamalai also urged political parties to compete on governance, infrastructure and public service delivery rather than relying primarily on welfare promises or publicity campaigns.
Criticising what he described as “poster culture”, he said political communication should focus on explaining governments’ achievements rather than merely publicising visits by chief ministers and other leaders.
His remarks linked the concerns of local retailers with broader questions about economic policy, employment and the responsibilities of governments towards domestic businesses.
A Wider Debate Over the Future of Digital Payments
Annamalai’s intervention highlights a policy challenge facing India’s digital payments ecosystem: how to fund the infrastructure supporting UPI while preserving the affordability and convenience that have encouraged its widespread adoption.
The Centre has maintained that most merchant transactions will remain unaffected by the revised framework, with exemptions continuing for eligible small merchants. Annamalai, however, has called for additional protection for retailers and questioned whether transaction charges are the appropriate way to support the system.
The debate is likely to remain important for small businesses, payment service providers and policymakers as digital transactions become an increasingly integral part of India’s economy.
For Annamalai, his appearance in Udupi has also offered a platform to expand his political engagement beyond Tamil Nadu, using the concerns of local traders to raise questions about the Union government’s economic priorities.