CBDC-Based Direct Benefit Transfer System

PRERNA FOR IAS

Mehnat Aapki, Guidance Humari

Roz ki Prelims Practice — Experts ke Saath

CBDC-Based Direct Benefit Transfer System

Why in News

On 14 August 2026, the Government of India launched a Central Bank Digital Currency (CBDC)-based Direct Benefit Transfer system under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) in Chandigarh and Dadra & Nagar Haveli. Beneficiaries receive food subsidy directly in their digital-rupee wallets for use with empanelled food merchants.

Background

India’s CBDC, called the Digital Rupee or e₹, is sovereign digital money issued by the Reserve Bank of India. RBI began pilots for wholesale CBDC in November 2022 and retail CBDC in December 2022. The present welfare initiative builds on CBDC-based food-subsidy pilots launched in Gujarat on 15 February 2026 and Puducherry on 26 February 2026.

How the System Works

Unlike conventional DBT credited to a bank account, the subsidy is transferred as programmable digital-rupee tokens to a CBDC wallet. These tokens can be spent for their specified purpose through authorised merchants. The model enables instant transfer, traceability and monitoring while reducing diversion, leakage and cash handling.

India’s Stand and Significance

The Government sees CBDC-based DBT as a way to combine financial inclusion, targeted welfare and Digital Public Infrastructure. It could improve fiscal efficiency while demonstrating a practical use of sovereign digital currency beyond ordinary payments.

Current Status

Chandigarh and Dadra & Nagar Haveli became the first UTs to extend programmable CBDC food subsidy to all eligible PMGKAY beneficiaries, following the earlier pilots. The initiative is currently an important large-scale test; wider expansion will depend on user acceptance, technological reliability, privacy safeguards, cybersecurity and accessibility for people with limited digital skills.

Analytical Questions

1. Why is CBDC-based DBT different from a normal bank-based DBT?

Answer: In normal DBT, money is credited to a bank account and can usually be spent freely. In CBDC-based DBT, the transfer can be programmed for a specific purpose. This may reduce diversion of subsidy. However, the system must still preserve convenience, privacy and dignity for the beneficiary.

2. Can programmable CBDC improve welfare delivery without reducing individual choice?

Answer: It can improve targeting, but too many restrictions may become inconvenient. The Government should define only essential conditions and avoid excessive control over spending. Beneficiaries should have clear information and grievance support. Welfare technology should reduce leakage without making poor citizens feel that every purchase is being monitored.

3. What are the main risks if CBDC-based welfare is expanded across India?

Answer: The key risks are cyber fraud, technical failure, privacy concerns and digital exclusion. Many beneficiaries may use feature phones or have limited digital skills. Therefore, offline options, simple interfaces, local assistance and strong cybersecurity are necessary. A system is successful only when the weakest user can use it safely.

4. Could CBDC-based DBT reduce the role of commercial banks?

Answer: Possibly, but the effect depends on scale. If people hold large amounts directly in CBDC wallets, bank deposits could reduce. That may affect banks’ ability to lend. For welfare transfers, however, balances may be small and purpose-specific. RBI therefore needs to expand CBDC carefully while watching banking-system liquidity.

5. If you were implementing this scheme in a district, what would be your first priority?

Answer: My first priority would be ease of access. I would ensure beneficiary registration, merchant readiness, offline payment options and quick grievance redressal. I would also monitor failed transactions and fraud complaints. Technology should not become a new barrier. The test is whether benefits reach people reliably and on time.