MDR effect: Retailers, apparel makers warn of price hikes

New Delhi: There is a palpable consensus among retailers and clothing manufacturers that consumer prices are bound to increase with the 0.4% merchant discount rate (MDR) levy on high-value UPI deals ahead of festive season, despite the government's notification that clearly prevents retailers from directly passing on the MDR charges to consumers.

Executives said though the higher price tags would be not projected as a UPI surcharge, the hikes many retailers held back till the end of festive season, would now be implemented.

"Various retailers across categories may increase prices or lower festive discounts, since they are, as it is, dealing in an inflationary environment and higher costs of logistics this festive season because of disruptions linked to the West Asia war earlier in the year," said Kumar Rajagopalan, chief executive, Retailers Association of India (RAI).


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New Delhi announced the introduction of a 0.4% MDR on UPI transactions over ₹2,000 made to merchants on September 14 and 15. The levy will be effective October 15. The fee will be capped at ₹300 for deals of value of ₹75,000 and above. "We retail a wide assortment of products across price points and cater to a diverse set of consumers. The issue we see is that during festive shopping, people tend to buy in bulk and ticket sizes cross well above ₹2,000," said a retailer at a large department store chain. Therefore, he said, brands selling at chain have started to communicate intent to increase prices or lower discounts.

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"During the festive season in any case, a large share of transactions crosses ₹2,000," Rajagopalan said. Santosh Katariya, president of Clothing Manufacturers Association of India, said introducing MDR on UPI at start of festive season "could not have come at a more challenging time, as the period is critical for merchants, retailers and consumer-facing businesses, many of whom are already working hard to revive demand and improve margins."

Industry executives think that an MDR may add additional pressure on smaller retailers that operate on thin margins, and drive transactions to cash, rather than digital records.