The All India Consumer Products Distributors Federation (AICPDF) on Monday said that the imposition of MDR on UPI transactions will lead to an annual burden of ₹7,000 crore- ₹9,000 crore on the FMCG distribution and retail ecosystem. The industry body said this will be a significant burden for a sector, where distributors and retailers operate on relatively thin margins and where the ability to pass additional transaction costs on to consumers is extremely limited.
The Federation further stated that its distributor and retailer network, through respective trade associations and local markets, will participate in the 2 October observance to highlight concerns regarding the proposed Merchant Discount Rate (MDR) on specified UPI merchant transactions. It said it will support for the *“No UPI Day” call on 2 October.
AICPDF represents approximately 4,50,000 distributors and 1,30,00,000 retailers across India.
Stating that India’s general-trade network remains the backbone of mass grocery distribution, the industry body said that the economic impact of MDR therefore needs to be assessed not merely transaction by transaction, but across the entire FMCG supply chain.
It pointed out that the broad range of margins are to the tune of 3.5–6% for general FMCG, with actual margins varying substantially by category, brand and commercial terms.
Dhairyashil H. Patil, National President, AICPDF, said,”We are not against UPI or digital payments. UPI has become an important part of India’s business ecosystem, and our trade has embraced it extensively. Our concern is the cumulative economic impact of MDR on a distribution system that operates on very thin margins.”
“In FMCG, there can potentially be two points of impact. The consumer makes a payment to the retailer, and subsequently the retailer makes payment to the distributor. If both eligible transactions attract MDR, the same FMCG sales cycle can carry a payment cost at two levels. When this is multiplied across the enormous volume of FMCG transactions taking place every day, the cumulative impact becomes substantial,” he added
“For a retailer operating on a narrow gross margin, even a small payment-related charge can become an additional operating expense when multiplied across thousands of transactions ,” the industry body added.
Referring to B2B payments, AICPDF estimates that approximately 40–45 per cent of payments received by distributors from retailers could potentially fall within the relevant higher-value transaction category.
“Consequently, the Federation believes that the same FMCG sales cycle can potentially create an additional cost at both the retail payment stage and the distributor payment stage,” it added.
AICPDF has also raised concern about the tax component associated with payment-service charges.
“Where GST is applicable to the underlying payment service/MDR, the effective cost to the business can be higher than the headline MDR itself. The precise GST treatment and input-tax-credit position can vary depending on the nature of the service and the taxpayer’s circumstances; therefore, AICPDF is seeking clarity on the complete tax incidence associated with MDR,” it added.
Therefore, the Federation believes that the Government should examine the “combined economic cost of MDR plus applicable taxes and transaction-processing costs”rather than considering MDR in isolation.
AICPDF pointed out that FMCG distribution is fundamentally different from businesses where service charges can easily be added to the customer’s bill.
Stating that for packaged products, the *Maximum Retail Price (MRP) is printed on the product*, it added the ability of individual retailers and distributors to independently increase the consumer price to recover payment costs is therefore highly constrained.
AICPDF has argued that an additional transaction cost cannot simply be treated as a minor percentage charge.
“The FMCG trade operates on thin margins and under an MRP-based pricing structure. Retailers and distributors cannot simply increase the consumer price to recover every additional operating cost. Therefore, we believe that the impact of MDR on the actual earnings of the trade deserves serious consideration,”Patil said.
“Therefore, any additional payment-processing cost ultimately has the potential to reduce the *net earnings of the trade*, unless the commercial structure of the industry is changed,” he noted.
AICPDF has reiterated that it remains committed to constructive engagement with the Government, RBI, NPCI, banks, payment-system participants and other stakeholders.
Published on September 28, 2026
