Core Focus: The Reserve Bank of India’s digital rupee, its evolving use cases—particularly programmable CBDC for government welfare schemes—and the strategic shift from retail competition to programmability.

In-Depth Notes:
Nearly four years after the Reserve Bank of India (RBI) launched the pilot for the digital rupee, the central bank’s flagship payments initiative is yet to become a preferred mode of payment for ordinary users, with the runaway success of the Unified Payments Interface (UPI) leaving little room for another retail payments platform . However, bankers say the RBI may have found the digital rupee’s winning use case in programmable Central Bank Digital Currency (CBDC), which allows money to be spent only for a pre-defined purpose .

The Programme Shift:
Public sector banks are increasingly deploying programmable CBDC for government welfare schemes, Direct Benefit Transfers (DBTs), targeted lending and employee benefits, giving fresh momentum to what has otherwise been a slow-moving project . Executives of major public sector banks told the press that while retail CBDC transactions remain modest, programmable CBDC is beginning to demonstrate tangible value by enabling governments and banks to control the end use of funds . The RBI Deputy Governor confirmed that CBDC adoption is on the rise and is “not a pilot any more”—it is actually on the ground being used .

Use Cases and Applications:
Punjab National Bank has deployed programmable CBDC for DBT and subsidy schemes in at least one state, with similar projects expected to be rolled out elsewhere . Canara Bank has implemented programmable CBDC in Puducherry for the Pradhan Mantri Garib Jan Kalyan Yojana, allowing welfare benefits to be spent only for designated purposes . Indian Bank has indicated that programmable CBDC can ensure that loans and subsidies are used strictly for their intended purpose; a machinery loan, for instance, could be programmed so that the amount can be spent only on purchasing machinery .

The UPI Challenge:
The RBI faces a fundamental challenge: UPI is such a hit that it has overshadowed everything . CBDC and UPI are differently placed. Programmeable CBDC offers capabilities that UPI cannot: the ability to control where money is spent . This capability is particularly valuable for government welfare schemes, where ensuring that funds reach their intended beneficiaries and are used for their intended purposes is a significant governance challenge. The value of digital rupee notes in circulation actually fell between the end of the last two financial years, from Rs 1,016.46 crore to Rs 771.66 crore, suggesting adoption challenges remain even as the bank pushes to broaden the scope and reach of the digital currency .

Cross-Border and Strategic Expansion:
The RBI plans to launch cross-border digital rupee pilots with Singapore and the UAE while expanding domestic CBDC use, even as the digital rupee’s circulation declines and the Indian currency gains traction in international trade settlements . The RBI has been in conversation with the Monetary Authority of Singapore and the Central Bank of the UAE to launch bilateral pilots for using the digital rupee in international transactions, with both relationships formalised through official channels during 2025-26 . The growing use of the rupee in international trade reduces the need for Indian businesses and the government to hold large reserves in foreign currencies, lowers transaction costs, cuts exposure to exchange rate swings, and helps develop bilateral currency markets with trading partners .