India Expands Digital Currency Use Through Social Welfare Programs

To boost the adoption of its central bank digital currency, India is leveraging its vast welfare system, comprising around $80 billion in payments. Approximately 10 pilot programs have been initiated by the Reserve Bank of India, channeling a portion of these welfare funds through the e-rupee. This move aims to minimize corruption and leakage in subsidy distribution while providing a clearer use case for the CBDC after its slow initial rollout. In one such pilot in Maharashtra's Phulenagar village, farmers are receiving subsidies to cover up to 80% of their drip-irrigation costs, which can only be spent at approved vendors. Another pilot in Gujarat seeks to onboard all 7.5 million households eligible for subsidized food by June, utilizing targeted transfers to drive adoption. This push highlights the core challenge faced by central bank digital currencies worldwide: encouraging usage. Despite growing to about 10 million users from 7 million earlier in the year, the e-rupee has only facilitated cumulative transactions of $3.6 billion since its introduction in December 2022, a figure dwarfed by India's Unified Payments Interface, which processes around $300 billion monthly. Efforts to stimulate early adoption have sometimes been artificially inflated. For instance, in 2024, it was reported that several major banks, including HDFC, Kotak Mahindra, and Axis Bank, credited their employees' salaries into CBDC wallets, helping the system temporarily surpass 1 million daily transactions in December 2023. As India experiments with its digital currency domestically, policymakers are also exploring its potential role in geopolitics. The Reserve Bank of India has proposed linking CBDCs across the economies of Brazil, Russia, India, China, and South Africa by the 2026 summit, aiming to simplify cross-border trade and reduce dependence on the US dollar. However, this ambition comes with political risks, as President Donald Trump has threatened tariffs on BRICS countries pursuing dollar alternatives and has already imposed duties on Indian imports, partly due to its purchases of Russian crude, thereby raising the stakes for any coordinated monetary effort.