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CBDC-based Direct Benefit Transfer under PMGKAY will be launched in Chandigarh and Dadra & Nagar Haveli on 14 August 2026.
They become the first Union Territories to deliver food subsidy to all eligible PMGKAY beneficiaries as programmable Digital Rupee tokens in CBDC wallets.
The rollout builds on earlier pilot implementations in Puducherry and Gujarat and marks complete saturation of eligible beneficiaries in the two UTs.
Beneficiaries will use the tokens to buy foodgrains from empanelled merchants through a traceable real-time digital payment mechanism.
The model is presented as a proof of concept and a scalable template for other States and Union Territories.
Ordinary Direct Benefit Transfer credits rupees to a beneficiary's bank account, and once there the money is fungible — it can be spent on anything, or withdrawn as cash. That flexibility is a feature for cash transfers and a problem for in-kind entitlements such as subsidised foodgrain, where the state's intention is that the benefit be consumed as food. A Central Bank Digital Currency token is a direct liability of the central bank in digital form, and because it is issued as a token rather than as a bank-account balance, conditions can be written into the token itself. That is programmability: the token can be restricted to particular merchant categories, particular goods, or a particular validity window. Money carrying such conditions is called purpose-bound money. The consequences follow directly. Diversion becomes structurally difficult rather than merely detectable after the fact, because the token simply will not spend anywhere else. Every redemption is visible in real time, so utilisation can be monitored without a separate reporting chain. And the beneficiary does not need a functioning bank branch relationship, only a wallet — which is why the release frames it as promoting financial inclusion. The trade-off, and the reason it is being piloted rather than mandated, is that restricting how a poor household may spend a benefit reduces its autonomy, which is a live argument in welfare economics.
Simple Analogy: A bank transfer is cash in a wallet; a programmable CBDC token is a voucher that the shop till will only accept for the item it was issued for — except that it settles like money, instantly and at the central bank.
Provide a sovereign digital form of currency issued as a direct liability of the Reserve Bank of India
Key: The RBI launched the wholesale pilot (e-rupee-Wholesale) on 1 November 2022, initially for settlement of secondary market transactions in government securities, and the retail pilot (e-rupee-Retail) on 1 December 2022 within a closed user group of participating customers and merchants
Deliver food subsidy as programmable tokens rather than as a bank account credit
Key: Eligible PMGKAY beneficiaries receive subsidy in CBDC wallets and redeem it with empanelled merchants for foodgrains; the model provides end-to-end traceability, real-time monitoring of utilisation and reduced cash handling
Provide free foodgrains to beneficiaries covered under the National Food Security Act, 2013
Key: The scheme was extended for five years from January 2024 to December 2028, providing 5 kg of free foodgrain per person per month to around 81 crore NFSA beneficiaries
Route government benefits directly to beneficiaries, cutting intermediaries and leakage
Key: Rests on the JAM trinity — Jan Dhan accounts, Aadhaar and mobile connectivity — and now extends to CBDC wallets as an alternative delivery rail
| Aspect | Conventional DBT | CBDC-based DBT | UPI |
|---|---|---|---|
| What the beneficiary holds | A rupee balance in a commercial bank account | Digital Rupee tokens, a direct liability of the Reserve Bank of India, held in a CBDC wallet | A bank account accessed through a payment interface |
| Can spending be restricted? | No — the credit is fungible once received | Yes — tokens can be programmed for specific goods, merchants or validity periods | No — UPI is a transfer rail, not a form of money |
| Traceability of end use | Limited; requires separate reporting | End-to-end and real time, since every redemption is a token transaction | Transaction visible, but end use of the money is not restricted |
| Requires a bank account? | Yes | A CBDC wallet is required | Yes, a linked bank account |
| Status | The standard delivery mode across 320 schemes | Piloted in Puducherry and Gujarat; being saturated in Chandigarh and Dadra & Nagar Haveli | Fully operational nationwide |
PMGKAY delivers the entitlement created by the NFSA, which covers roughly two-thirds of India's population, so the delivery mechanism chosen has direct consequences for a statutory right
Portability of the food entitlement is the other major reform of the public distribution system; a wallet-based token raises the same portability questions in digital form
The release positions CBDC-based DBT as a DPI initiative, sitting alongside Aadhaar, UPI and DigiLocker in India's public digital stack
A widely used retail CBDC would shift deposits from commercial banks to central bank liabilities, a standing concern in the debate about how far retail CBDC should be scaled
Purpose-bound money reduces leakage but also constrains beneficiary choice, the same trade-off that runs through the cash-versus-kind transfer literature
Redemption through empanelled merchants keeps the retail leg of the public distribution system intact while changing the money that flows through it
GS Paper 3 > Economy > Money and Banking; GS Paper 2 > Governance > Welfare Delivery
General Awareness > CBDC, Payment Systems and RBI Initiatives
General Awareness > Government Schemes and Economy
CBDC and digital payments are a standing banking-exam topic and have appeared in UPSC Prelims economy questions since 2023
A sovereign digital currency issued as a direct liability of the central bank; India's version is the Digital Rupee or e-rupee
CBDC tokens carrying embedded conditions restricting where, on what or by when they may be spent
Money that can be used only for a defined purpose, achieved here by issuing food subsidy as tokens redeemable only for foodgrains at empanelled merchants
The two RBI CBDC pilots — wholesale launched 1 November 2022 for government securities settlement, retail launched 1 December 2022 within a closed user group
Pradhan Mantri Garib Kalyan Anna Yojana, extended from January 2024 to December 2028, providing 5 kg of free foodgrain per person per month to around 81 crore NFSA beneficiaries