India Accelerates Digital Currency Adoption Through Welfare Programs

India is leveraging its welfare payment system to boost the adoption of its central bank-issued digital currency, the e-rupee, ahead of the BRICS nations summit later this year. The Reserve Bank of India has initiated around 10 pilot programs, which involve routing a portion of the country's $80 billion welfare system through the e-rupee. This effort seeks to minimize leakage and corruption in subsidy programs while providing a clearer use case for the digital currency following its slow rollout. In one such pilot, farmers in Maharashtra's Phulenagar village 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, using targeted transfers to drive adoption. This push highlights the core challenge faced by central bank digital currencies globally: driving usage. Although the e-rupee has grown to around 10 million users from 7 million earlier this year, the total transactions since its introduction in December 2022 amount to just $3.6 billion, a relatively small figure compared to India's Unified Payments Interface, which processes approximately $300 billion each month. Earlier adoption efforts have sometimes been artificially inflated. For instance, in 2024, several major banks, including HDFC, Kotak Mahindra, and Axis Bank, credited employee salaries into CBDC wallets to help the system reach 1 million daily transactions in December 2023, a milestone that was not sustained. As India experiments with its digital currency domestically, policymakers are also considering its potential role in the global arena. 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, with the goal of streamlining cross-border trade and reducing dependence on the US dollar. However, this ambition carries significant political risks, as President Donald Trump has threatened tariffs on BRICS countries that pursue alternatives to the dollar and has already imposed duties on Indian imports tied to its purchases of Russian crude, raising the stakes for any coordinated monetary effort.