FMCG trade warns UPI charge could hit thin margins

Bengaluru: FMCG distributors and retailers have sought a rethink of the new merchant charge on certain UPI payments, warning that even a 0.4% levy could significantly dent earnings in businesses operating on thin margins.The All India Consumer Products Distributors Federation (AICPDF) has written to Prime Minister Narendra Modi seeking continuation of zero-MDR UPI for merchants. It has also sent its representation to the finance and commerce ministries.Under the new framework, a 0.4% merchant discount rate (MDR) will apply to specified person-to-merchant UPI transactions above Rs 2,000 from October 15. Payments up to Rs 2,000 and qualifying payments received by small merchants will remain exempt. Govt estimates that around 96% of merchant transactions will remain unaffected.“UPI is a service used by the entire economy, not by traders alone,” AICPDF national president Dhairyashil H Patil said. “If there is a requirement to recover a portion of the cost of maintaining this enormous digital infrastructure, the government should examine a broad-based mechanism rather than making the merchant the sole payer.”The federation said the impact should be assessed against merchants’ actual margins rather than merely the transaction value. FMCG distributors bear costs ranging from transportation and working capital to rent, manpower, expiry, damage and credit risk, it said.Sumit Aggarwal, director at Sampoorn Marketing, which distributes products for around 25 major FMCG brands including ITC, Dabur and Castrol, said FMCG distributors operate on gross margins of around 4.5 to 5%.“In an efficiently run distribution business, this charge could still erode as much as 30% of the net profit,” Aggarwal told TOI, pointing to costs such as last-mile delivery, rent, electricity and financing.Distributors also questioned the differential treatment being proposed for low-margin sectors.“What is particularly concerning is that the Government has recognised the vulnerability of certain low-margin sectors such as fuel, telecom and agricultural inputs by prescribing a flat Rs 5 MDR. FMCG distribution operates on similarly thin margins and high transaction volumes, yet general trade appears to have been left out. The policy needs to recognise the economics of the merchant rather than treating all businesses uniformly through a percentage charge,” Aggarwal added.AICPDF has also sought a complete MDR exemption for retailer-to-distributor and distributor-to-company UPI payments, saying these are B2B settlements and charges at multiple stages could raise costs across the same supply chain.Patil also questioned why FMCG businesses had not received treatment similar to specified low-margin sectors. “The trader should not be penalised simply because he accepts digital payments,” he said.The federation has additionally sought clarity on the Rs 1 lakh monthly threshold for small merchants and raised concerns over MDR being calculated on tax-inclusive payments.Get the latest Business News and Live updates. Download the TOI app.