New Delhi: India is aiming to tighten the validity of its welfare payments system by running pilots of the e-Rupee(e₹), a digital version of the currency that can address the challenge of leakages within the welfare distribution system. Launched in 2022 by the RBI as a Central Bank Digital Currency (CBDC), the eRupee differs from UPI in that it can be programmed to be used only for select purposes, helping to arrest the misuse of government subsidies by beneficiaries.
Though government corruption has been minimized as the cash is now being directly credited to the beneficiary’s bank account, there is no guarantee that the beneficiary will be using the cash for its intended purpose. Even if the fertilizer subsidy or transit subsidy is paid, many times the beneficiaries do not use them for the intended purpose, and there have been cases of ‘commission taking’ middlemen who are intended to supply these fertilizers or agricultural equipment to the beneficiaries.
The Solution: Programmable e-Rupee
Unlike physical cash or regular digital bank transfers, the e-Rupee can be “coded” for a specific intent. In this case, the “Fertilizer e-Rupee” token could be programmed to work only at authorized agricultural input shops. If a beneficiary tries to use it at a grocery store, the transaction will be automatically declined. These e-Rupees can also come with expiry dates, forcing the beneficiary to use them within the specified time period.
The “China Inspiration” and Global Ambition
India’s approach comes at a time when China has successfully implemented the solution through its Digital Yuan (e-CNY) initiative, where direct disbursements and purpose-based spending have helped boost the efficiency of welfare systems, also helping in keeping a track on every unit spent.
Challenges to Adoption
While the technology is promising, there are various challenges to the system, where onboarding all stakeholders- from ration shops to kiranas to railways and various other intermediaries remains the foremost challenge. As the use of this money is limited to a few vendors, critics argue that it can result in the state getting too much control over private citizen’s spending habits.
Currently, the government is running pilot programs to test the e-Rupee across Pondicherry, Gujarat and Chandigarh, where the eRupee is being used to redeem foodgrains exclusively at authorized shops. Though the government hasn’t made any further announcements in this regard, the technology seems promising, but it also comes with challenges that could attract controversy.
