India’s approach to digital finance has followed a unique path. By using monetary infrastructure as a driver for economic change, the country has transitioned from traditional systems to a sophisticated digital ecosystem. The success of the Unified Payments Interface (UPI) established a foundation for this shift, moving digital transactions into the mainstream.
The current focus has expanded to include Central Bank Digital Currencies (CBDCs). Initial developments indicate that the digital rupee is being positioned as a functional layer within the existing financial framework. The Reserve Bank of India is currently in discussions with four to five central banks, spanning partners across Asia and advanced European economies, to build cross-border transaction systems using CBDCs. The proposed framework is expected to cover both wholesale and retail transactions. Separately, in February 2026, India’s first CBDC-based Public Distribution System in Gujarat, using programmable digital currency to deliver subsidised grain to beneficiaries through an automated Grain ATM, was launched. Taken together, these two developments, one quietly diplomatic, the other publicly inaugurated, point to an Indian CBDC strategy that is beginning to acquire both domestic and international dimensions.
Cross-Border Ambitions
The cross-border initiative deserves particular attention. India remains one of the world’s largest recipients of inward remittances, with the United States contributing the largest share at 27.7 percent of total inflows, followed by the UAE at 19.2 percent, the United Kingdom at 10.5 percent, Saudi Arabia at 6.7 percent, and Singapore at 6 percent. The existing remittance infrastructure is layered, costly, and slow, involving multiple correspondent banks, compliance checks, and currency conversions that erode the value of transfers before they reach recipients.
For a country where remittance inflows constitute a meaningful share of household income, particularly in states like Kerala and Bihar, even marginal reductions in transfer costs would have distributional consequences at scale.
A CBDC-linked bilateral settlement framework would, in principle, compress many of these layers. By enabling direct settlement, it could reduce both the cost and the processing time of cross-border transactions significantly. For a country where remittance inflows constitute a meaningful share of household income, particularly in states like Kerala and Bihar, even marginal reductions in transfer costs would have distributional consequences at scale. Whether the RBI’s ongoing discussions translate into operational infrastructure remains to be seen, but the direction of travel is clear.
Programming Money for Development
The Gujarat initiative introduces a different but equally significant dimension: programmable money as a tool for welfare delivery. The concept of programmable money, digital currency embedded with predefined rules and conditions that govern its use, has been discussed in central banking circles for several years. India appears to be among the first large economies to deploy it specifically within a public distribution context.
A CBDC-based PDS replaces the existing chain of physical vouchers, ration cards, and intermediary dealers with a system in which entitlements are encoded directly into the digital currency itself. The Annapurti Grain ATM, capable of dispensing 25 kilograms of grain in 35 seconds, is the physical endpoint of a transaction that begins with a programmable digital token. The token can only be redeemed for a specific quantity of a specific commodity at an authorised point. It cannot be diverted, resold, or siphoned by intermediaries.
Programmable CBDC does not eliminate all vectors of manipulation, but it does close several of them simultaneously. The transaction is logged, traceable, and conditional, three properties that the existing system cannot easily replicate.
Leakage within India’s PDS has been a persistent and well-documented problem. Estimates of diversion, grain that never reaches its intended beneficiary, have been significant in certain states, though reforms over the past decade have narrowed this gap. Programmable CBDC does not eliminate all vectors of manipulation, but it does close several of them simultaneously. The transaction is logged, traceable, and conditional, three properties that the existing system cannot easily replicate.
Opportunity and Oversight
The potential advantages of programmable digital money extend well beyond food distribution. In theory, the same architecture could be applied to skill development disbursements that are released only after training completion, agricultural input subsidies that are redeemable only for seeds or fertilisers, or housing scheme tranches linked to verified construction milestones. The programmability removes discretion from the disbursement chain and with it, the opportunity for rent extraction at each node.
Efficiency gains are also plausible at the systemic level. Smart contracts executing conditional payments reduce the need for manual verification, inter-departmental reconciliation, and the bureaucratic overhead that currently accompanies large welfare programmes. Cross-border, the elimination of correspondent banking layers could reduce both cost and settlement time in ways that benefit both individual remittance recipients and institutional counterparties.
The programmability removes discretion from the disbursement chain and with it, the opportunity for rent extraction at each node.
Yet the complications are real and should not be understated. Programmable money, by design, restricts how funds can be used, and this restriction cuts both ways. A token redeemable only for chickpeas cannot be used to buy medicine in an emergency. The very feature that prevents diversion also limits the recipient’s autonomy over their own entitlement. There is a meaningful difference between a welfare system that delivers efficiently and one that delivers on its own terms, without allowing beneficiaries to exercise judgment about their own needs.
Privacy concerns sit alongside autonomy ones. Every CBDC transaction is, in principle, traceable to its origin and destination. The same traceability that guards against money laundering and leakage also creates a detailed record of individual economic behaviour, one that resides within state-controlled infrastructure. The People’s Bank of China has faced sustained criticism on precisely this point, with observers noting that programmability and traceability, taken together, expand the central bank’s capacity for financial surveillance well beyond what conventional currency permits. India’s regulatory environment and democratic context differ significantly from China’s, but the architecture raises comparable questions that deserve serious public deliberation.
Cybersecurity risk is a further consideration. In a CBDC infrastructure that integrates with national registries, property records, ration entitlements, and identity databases, the consequences of a successful attack expand accordingly. A breach is no longer merely a financial event. It becomes a welfare event, potentially affecting the food security of millions of beneficiaries simultaneously.
There is a meaningful difference between a welfare system that delivers efficiently and one that delivers on its own terms, without allowing beneficiaries to exercise judgment about their own needs.
Promising, Not Proven
It would be premature to render a definitive verdict on India’s CBDC trajectory. The cross-border initiative is still in discussion; the Gujarat PDS deployment is a pilot in a single state. The gap between a promising early experiment and a nationally scaled, operationally resilient system is considerable, and India’s history with technology-led welfare reform includes both significant successes and well-documented implementation failures.
What is clear is that India is approaching CBDCs with a developmental logic rather than a purely financial one. Where many jurisdictions are debating digital currencies primarily in terms of monetary policy transmission or payment efficiency, India appears to be asking a different question: can programmable money solve problems that conventional welfare architecture has failed to solve for decades?
The current outlook is one of cautious optimism. While the underlying technology is robust, its adoption remains in the early stages, and the associated risks are manageable through a well-designed regulatory framework. For a country with India’s scale of development challenges—the leakages to plug, the remittance corridors to cheapen, the last-mile delivery problems to solve—programmable digital money represents a genuinely promising avenue. Whether it proves to be a transformative one will depend less on the technology itself and more on the institutional capacity, regulatory discipline, and political will that surround its deployment.
Sauradeep Bag is an Associate Fellow with the Centre for Security, Strategy, and Technology at the Observer Research Foundation.
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