India's digital currency push targets its leaky welfare system
The Central Bank Digital Currency (CBDC) — India's digital rupee (e₹) — is being piloted for welfare and subsidy payments to improve efficiency and reduce leakages in government benefit delivery.
A CBDC-based digital food subsidy pilot was launched in February 2026 in Puducherry, integrating the digital rupee with the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) framework for direct benefit transfers.
The digital tokens are programmable — they can be used only at authorised Fair Price Shops for purchasing foodgrains, eliminating diversion of benefits.
Farmers in select districts are receiving irrigation and farm equipment subsidies via the e-rupee, with nearly 1,400 farmers enrolled in one pilot district.
Expansion is planned to Chandigarh and Dadra and Nagar Haveli before broader national rollout.
Central Bank Digital Currency (CBDC) — Architecture and Basics
A CBDC is a digital form of sovereign currency issued and regulated by the central bank. India's e₹ is issued by the Reserve Bank of India and represents legal tender, unlike cryptocurrencies which have no sovereign backing. The RBI launched the retail CBDC pilot (e₹-R) on December 1, 2022.
Key Details
- The retail pilot initially covered five cities — Mumbai, New Delhi, Bengaluru, Bhubaneswar and Chandigarh — with eight banks participating, including SBI, ICICI Bank, HDFC Bank, and Kotak Mahindra Bank.
- As of March 2025, over 60 lakh (6 million) users were enrolled, with 17 banks participating in the expanded pilot.
- CBDC operates as a digital token representing legal tender; it can function offline (via NFC) and supports programmability — a key difference from conventional bank accounts.
- Programmable CBDC allows the issuer to restrict the use of transferred funds to specific purposes, geographies, or time windows.
The programmability feature of CBDC is the core advantage in welfare delivery — subsidy tokens cannot be misused, diverted, or encashed for unintended purposes, directly addressing the "leaky pipeline" problem in government transfers.
Direct Benefit Transfer (DBT) — Framework and Aadhaar Integration
The DBT architecture, rolled out from January 2013, routes government subsidies and welfare payments directly into beneficiaries' bank accounts or wallets using Aadhaar-linked identification, bypassing intermediaries.
Key Details
- DBT is enabled by the JAM trinity: Jan Dhan accounts + Aadhaar biometric identity + Mobile connectivity.
- As of recent estimates, DBT has transferred over ₹40 lakh crore across more than 300 schemes since inception, saving the government significant sums through elimination of ghost beneficiaries.
- PMGKAY (Pradhan Mantri Garib Kalyan Anna Yojana) provides free foodgrains to beneficiaries under the National Food Security Act, 2013.
- Integrating CBDC with DBT adds a programmability layer on top of the existing direct transfer framework.
The CBDC welfare pilot is an evolution of the DBT model — instead of cash transfers that can be spent freely, digital tokens are purpose-restricted, targeting the residual leakage in subsidy programmes.
Financial Inclusion and Welfare Leakages
India's welfare system has historically suffered from leakages estimated at up to 30–40% in some programmes due to ghost beneficiaries, diversion at Fair Price Shops, and intermediary corruption. Digital technology has progressively reduced these gaps.
Key Details
- The Odisha Subhadra Yojana (2024) became the first government scheme to use CBDC for direct transfers, distributing ₹10,000 annually to women beneficiaries in digital rupees.
- Kerala's Kudumbashree pilot (2025) used programmable CBDC to pay waste management workers additional income.
- PFMS (Public Financial Management System) is being explored as a vehicle for channelling CBDC-based DBT across central government schemes.
- Concerns about CBDC include financial privacy, exclusion of unbanked populations, and surveillance risks.
The Puducherry food subsidy pilot represents the most comprehensive CBDC-welfare integration attempted, and its outcome will likely determine the pace of national rollout.
- e₹ (Digital Rupee) Retail Pilot: Launched December 1, 2022 by the Reserve Bank of India.
- Banks in pilot: Initially 8; expanded to 17 by March 2025.
- Users as of March 2025: Over 60 lakh (6 million).
- Puducherry CBDC food subsidy pilot: Launched February 26, 2026 under PMGKAY framework.
- Expansion planned: Chandigarh and Dadra and Nagar Haveli.
- Odisha Subhadra Yojana: First government scheme using CBDC (2024); ₹10,000/year to women beneficiaries.
- PMGKAY: Provides free foodgrains to beneficiaries under the National Food Security Act, 2013.
- JAM Trinity: Jan Dhan + Aadhaar + Mobile — foundational infrastructure for DBT and CBDC integration.
- DBT cumulative transfers: Over ₹40 lakh crore across 300+ schemes since 2013.