India Accelerates Digital Currency Adoption Through Welfare Programs

India is leveraging its welfare payment system to promote the use of its central bank-issued digital currency, the e-rupee, as the country prepares for the upcoming BRICS summit. The Reserve Bank of India has initiated approximately 10 pilot programs, channeling a portion of the country's $80 billion welfare funds through the e-rupee. This effort seeks to minimize corruption and leakage in subsidy programs while providing a clearer use case for the digital currency following its slow initial rollout. In one such pilot, farmers in Maharashtra's Phulenagar village 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 aims to bring all 7.5 million households eligible for subsidized food on board by June, effectively using targeted transfers to increase adoption. This push highlights the core challenge faced by central bank digital currencies worldwide: driving usage. Although the e-rupee has grown to about 10 million users from 7 million earlier this year, the total transactions since its introduction in December 2022 amount to only $3.6 billion, a relatively small figure compared to India's Unified Payments Interface, which processes approximately $300 billion each month. Earlier attempts to boost adoption have sometimes been artificially engineered. It was reported in 2024 that several major banks, including HDFC, Kotak Mahindra, and Axis Bank, credited their employees' salaries into e-rupee wallets, helping the system temporarily surpass 1 million daily transactions in December 2023. As India experiments with its digital currency domestically, policymakers are also considering its potential role in the global economy. The Reserve Bank of India has urged the government to propose a plan for linking central bank digital currencies across the economies of Brazil, Russia, India, China, and South Africa at the 2026 BRICS summit, aiming to facilitate cross-border trade and reduce dependence on the US dollar. However, this ambition carries significant political risks, particularly given the threat of tariffs from the US on BRICS countries pursuing dollar alternatives.