The initiative centres on the e-rupee, a central bank digital currency (CBDC) being tested across roughly 10 pilot projects nationwide, where welfare payments are transferred directly into digital wallets for targeted use in sectors such as agriculture and food distribution.

In one case in Maharashtra state, farmer Samadhan Sonawane used CBDC-linked subsidies to install a drip irrigation system on his onion farm, with funds transferred directly from the central bank and covering about 80% of equipment costs.

The remaining balance is paid through approved vendors under the programme’s rules.The system is part of a broader effort by the Reserve Bank of India to streamline India’s estimated $80 billion welfare payment system, which authorities say has historically faced inefficiencies and leakages.

Officials involved in the programme say programmable features in the CBDC allow authorities to restrict how funds are spent, ensuring subsidies are used only for approved goods and services. The pilot is being run in coordination with state governments and financial institutions, including Punjab National Bank.

The approach is also being tested in food subsidy programmes, including a rollout in Gujarat state where about 15,000 beneficiaries are currently enrolled, with plans to scale up to millions of eligible households.

Globally, central bank digital currencies remain in early stages, with dozens of countries running pilot projects, though only a few have launched fully operational systems. India’s programme is among the largest in terms of potential user base.

Since its launch in 2022, India’s e-rupee has seen limited uptake compared with the country’s dominant digital payments platform, the Unified Payments Interface, which processes hundreds of billions of dollars in transactions monthly.

Total e-rupee transactions have reached about $3.6 billion, underscoring both the scale of experimentation and the gap between pilots and mainstream adoption.Supporters of the programme argue that direct digital transfers can reduce fraud, improve transparency and eliminate delays in welfare delivery.

However, economists and digital currency experts caution that restricting spending through programmable money could limit user flexibility and affect adoption.

Critics say that tightly controlled digital currencies risk undermining the cash-like nature of money, raising concerns about privacy and economic freedom if scaled broadly.