Chandigarh Selected for Groundbreaking RBI Digital Currency Pilot in Subsidy Distribution
In a significant move towards modernizing India's welfare distribution system, Chandigarh has been chosen as one of only three locations in the country to implement the Reserve Bank of India's central bank digital currency (CBDC), commonly known as the e-rupee (e₹), for subsidy distribution. The pilot project is scheduled to commence from mid-February, marking a pivotal step in integrating programmable digital currency into the Public Distribution System (PDS).
Pilot Aims to Revolutionize Food Subsidy Delivery
The initiative specifically targets schemes such as the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), with the primary objectives of improving efficiency, enhancing transparency, and ensuring effective last-mile delivery of benefits. Alongside Chandigarh, the union government will implement this project in Puducherry and selective districts of Gujarat, focusing on areas with relatively high digital literacy and existing PDS automation to test technical robustness before any potential nationwide expansion.
According to a senior UT official, "The proof-of-concept project will be implemented on a limited scale to test technical robustness before any nationwide expansion. Areas with relatively high digital literacy and existing PDS automation have been selected for the trial." Multiple meetings between UT and central government officials have been conducted to finalize the project details, ensuring a smooth rollout.
How the e-Rupee Pilot Will Operate
Under this innovative pilot, eligible beneficiaries will receive their foodgrain entitlements in the form of e-rupee coupons, which will be credited directly to a dedicated, RBI-enabled mobile wallet or smart code (QR code). These digital coupons are designed as "closed-loop" and purpose-specific, meaning they can only be used for mandated purchases under the National Food Security Act (NFSA).
The process involves beneficiaries redeeming their entitlement at merchant shops by scanning a merchant QR code. Upon scanning, the digital coupon will be deducted instantly, with the transaction recorded in real-time. Importantly, the e-rupee issued under this scheme cannot be withdrawn as cash or utilized for non-essential purchases, thereby ensuring that subsidies are used exclusively for their intended purpose.
Enhanced Transparency and Control Features
The system incorporates several advanced features to prevent misuse and improve accountability. The issued digital money will have time-bound validity, helping authorities identify ineligible or dummy beneficiaries based on usage delays. Additionally, geo-fencing technology will be employed to verify whether beneficiaries are availing subsidies within their registered locations, such as Chandigarh.
An official highlighted, "It will ensure that money is only used for foodgrains as mandated under the NFSA, and not for any other purposes. There were instances when beneficiaries used the DBT for other uses, even for purchasing liquor. This will curb such practices." The digital audit trail created by the system will enable authorities to track the distribution of foodgrains in real-time, significantly reducing leakages and fraud.
Key Differences Between CBDC-PDS and Direct Benefit Transfer (DBT)
- DBT: Once money is transferred to a bank account, it can be used for any purpose; requires an Aadhaar-linked bank account; bypasses middlemen to go directly to the beneficiary's account.
- CBDC-PDS: Can be pre-programmed by the government for specific purposes only; uses a digital wallet app and allows for offline transactions in areas with no internet; bypasses even commercial banks, moving directly from the RBI to the user's digital wallet.
Understanding Central Bank Digital Currency (CBDC)
CBDC is a sovereign digital money issued by the Reserve Bank of India (RBI), which can be programmed for specific uses. It operates with minimal or zero transaction costs and can function offline, making it accessible even in remote areas. Known as the e-rupee or digital rupee, this currency represents a transformative approach to financial transactions and subsidy management in India.
This pilot in Chandigarh not only showcases the city's role as a testing ground for cutting-edge financial technology but also underscores the government's commitment to leveraging digital innovations for more transparent and efficient governance. The outcomes of this project could pave the way for broader adoption of digital currencies in India's welfare ecosystem, setting a new standard for subsidy distribution nationwide.
