India is preparing to distribute a significant portion of its welfare payments through its central bank digital currency (CBDC), the e-rupe, as it aims for nationwide adoption. The Reserve Bank of India is currently conducting around 10 pilot programs targeting distribution of social benefits using the digital rupee, in a move designed to expand the practical applications of e-rupe ahead of the upcoming BRICS summit.
Push for digital distribution in welfare schemes
According to official figures, India’s welfare programs manage a budget of roughly $80 billion annually. The ongoing pilot schemes are channeling some of these funds through e-rupe to ensure payments reach beneficiaries directly, without intermediaries, in a more transparent manner. In particular, rural farmers now benefit from targeted incentives, such as up to 80% support for installing drip irrigation systems. These digital payments are only redeemable at authorized vendors, aiming to prevent misuse of funds and ensuring aid fulfills its intended purpose.
In Gujarat, authorities plan to enroll 7.5 million households in the e-rupe system by June to receive subsidized food assistance. This shift seeks to boost the daily use of digital currency in routine welfare transactions, especially among lower-income populations.
Uptake still limited
The number of e-rupe users surged from around 7 million at the start of 2024 to over 10 million recently. Despite this growth, transactions via the e-rupe, which was introduced in December 2022, have totaled just $3.6 billion to date. In contrast, the Unified Payments Interface (UPI), India’s leading digital payment platform, processes about $300 billion in monthly transactions, highlighting the still modest position of e-rupe within the country’s payments ecosystem.
Early pilot phases saw large banks pay employee salaries directly into digital wallets, temporarily lifting daily transaction volumes above one million in December 2023. However, these numbers proved unsustainable, underscoring the need for continued incentives to encourage widespread and organic usage in everyday life.
Although these pilot schemes showcase potential advantages of digital currency, they have yet to spark a major transformation; most users participate due to state-backed incentives rather than voluntary adoption.
BRICS ambitions and geopolitical considerations
The Reserve Bank of India aims not only for domestic progress but also seeks global influence by promoting central bank digital currencies like e-rupe within international structures. Proposals to integrate CBDCs across BRICS countries—Brazil, Russia, India, China, and South Africa—are expected to be presented at the BRICS leaders’ summit in 2026. If successful, such integration could reduce the role of the US dollar in cross-border trade among these emerging economies.
These efforts, however, carry significant political implications. Former US President Donald Trump has previously warned of imposing new trade sanctions should BRICS countries seek US dollar alternatives. Additionally, during Trump’s tenure, new import tariffs were levied on India in response to its purchase of Russian oil. These developments indicate that India’s strategy to expand digital currency usage is not just about internal modernization but could also reshape global financial balances as the country seeks a stronger regional and international role.
