India Expands Digital Currency Usage Through Welfare Programs Ahead of BRICS Summit

To boost the adoption of its central bank digital currency, India is leveraging its welfare payment system, with around 10 pilot programs currently in operation. These initiatives, managed by the Reserve Bank of India, involve routing a portion of the country's $80 billion welfare system through the digital currency. The primary objectives are to minimize leakage and corruption in subsidy programs and to provide a clearer use case for the CBDC following its slow rollout. In one such pilot in Maharashtra's Phulenagar village, farmers are receiving subsidies that 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, utilizing targeted transfers to scale up adoption. This push highlights the global challenge of increasing usage of central bank digital currencies. Despite growing to about 10 million users from 7 million earlier in the year, the cumulative transactions of the e-rupee since its introduction in December 2022 total only $3.6 billion, a relatively small figure compared to the $300 billion processed monthly by India's Unified Payments Interface. Early adoption efforts have sometimes been artificially inflated, such as when major banks credited employee salaries into CBDC wallets to help the system achieve 1 million daily transactions in December 2023, a milestone that was not sustained. As India experiments with its domestic digital currency, policymakers are also exploring its potential role in the global economy. The Reserve Bank of India has proposed 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, including the threat of tariffs from the US on BRICS countries pursuing alternatives to the dollar.