India is advancing its central bank digital currency (CBDC) initiative by integrating it into welfare programs, a strategy designed to enhance adoption and address inefficiencies within its subsidy system. The Reserve Bank of India is conducting approximately ten pilot programs that utilize the e-rupee to distribute parts of the nation’s $80 billion welfare budget.
The pilots, located in states such as Maharashtra and Gujarat, aim to reduce leakage and corruption in subsidy distribution. For instance, in Maharashtra’s Phulenagar village, farmers are receiving programmable subsidies that cover up to 80% of drip-irrigation costs, which can only be spent at designated vendors. In Gujarat, the initiative targets all 7.5 million households eligible for subsidized food, with plans to onboard them by June.
Despite these efforts, the e-rupee’s adoption remains limited. The digital currency has increased its user base to around 10 million from 7 million earlier this year, but total transactions since its launch in December 2022 have only reached $3.6 billion. This figure pales in comparison to the Unified Payments Interface, which manages approximately $300 billion in transactions each month.
Initial adoption strategies have included incentivizing usage through banking practices. Reports indicate that major banks, including HDFC, Kotak Mahindra, and Axis Bank, credited employee salaries into CBDC wallets to boost daily transactions, achieving over 1 million in December 2023. However, this level of activity has not been sustained.
As India explores domestic applications of the e-rupee, there are broader geopolitical considerations at play. The Reserve Bank of India is advocating for a proposal to link CBDCs among BRICS nations—Brazil, Russia, India, China, and South Africa—at the upcoming 2026 summit. This initiative aims to facilitate cross-border trade and lessen dependence on the U.S. dollar.
However, this ambition carries significant political risks. Former President Donald Trump has previously threatened tariffs on BRICS nations that pursue alternatives to the dollar, and existing duties on Indian imports related to its acquisition of Russian crude further complicate the situation. The implications of a coordinated monetary strategy among these countries could heighten geopolitical tensions.
India is leveraging its central bank digital currency through welfare programs to enhance adoption and reduce subsidy inefficiencies. While the e-rupee's user base has grown, its transaction volume remains modest compared to existing payment systems, raising questions about its long-term viability.