CBDC-based DBT launched for PMGKAY beneficiaries in Chandigarh, Dadra & Nagar Haveli
A Central Bank Digital Currency (CBDC)-based Direct Benefit Transfer (DBT) model was launched for beneficiaries of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) in the Union Territories of Chandigarh and Dadra & Nagar Haveli
Chandigarh and Dadra & Nagar Haveli became the first Union Territories to operationalise food subsidy transfers through this mechanism
Under the model, eligible PMGKAY beneficiaries will receive food subsidies directly into CBDC (digital rupee) wallets instead of conventional bank accounts
Funds credited this way can be used only to purchase foodgrains and other essential food items from authorised merchants, through traceable digital payments
Central Bank Digital Currency (e₹) — Legal and Institutional Basis
A CBDC is a digital form of a country's fiat currency, issued and backed by the central bank, distinct from private cryptocurrencies as it is legal tender. India's Reserve Bank of India began piloting the digital rupee (e₹) in the wholesale segment (e₹-W) on 1 November 2022, followed by the retail segment (e₹-R) on 1 December 2022, launched within a closed user group of participating banks, customers, and merchants.
Key Details
- Legal basis: the Finance Act, 2022 amended Section 22 of the Reserve Bank of India Act, 1934, widening the definition of "bank note" to include notes issued in digital form — this is the provision that empowers the RBI to issue e₹ as legal tender
- There is no separate standalone "CBDC Act"; RBI derives its authority from the amended RBI Act, 1934
- e₹-W (Wholesale) is used for interbank settlement (e.g., government securities transactions); e₹-R (Retail) is for use by the general public and businesses, functioning like digital cash
- The token-based e₹ differs from account-based UPI/bank transfers — it represents value directly, similar to physical currency, and can be programmed for targeted, purpose-linked use
Routing PMGKAY food subsidy through CBDC wallets uses the "programmable" feature of e₹-R — restricting spend to authorised food merchants — a capability ordinary bank-account DBT does not offer, aimed at reducing diversion and improving traceability of welfare transfers.
Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) and the National Food Security Act, 2013
PMGKAY is the scheme under which the Union government provides free foodgrains to eligible households, over and above their entitlement under the National Food Security Act (NFSA), 2013. It was first announced on 26 March 2020 as a COVID-19 relief measure and has since been repeatedly extended.
Key Details
- From 1 January 2023, PMGKAY was merged with NFSA foodgrain distribution, making all NFSA foodgrain entitlements free of cost for Priority Households (PHH) and Antyodaya Anna Yojana (AAY) households
- Entitlement: PHH beneficiaries get 5 kg of foodgrain per person per month; AAY households get 35 kg per household per month, regardless of family size
- The scheme has since been extended in phases, with the government announcing continuation of free foodgrain distribution up to December 2028
- NFSA, 2013 itself covers up to 75% of the rural and 50% of the urban population for subsidised/free foodgrain, operationalising the right to food framework, and is implemented through the Targeted Public Distribution System (TPDS)
The CBDC pilot targets the delivery leg of PMGKAY — instead of physical foodgrain distribution through Fair Price Shops alone, part of the entitlement can now flow as a digital-currency-based cash-equivalent subsidy, testing a new delivery channel for an existing NFSA/PMGKAY entitlement.
Direct Benefit Transfer (DBT) and the JAM Trinity
DBT is the mechanism by which government subsidies and benefits are transferred directly to a beneficiary's account, cutting out intermediaries and leakages. It rests on the "JAM Trinity" — Jan Dhan bank accounts, Aadhaar unique identification, and Mobile connectivity — as the enabling infrastructure.
Key Details
- DBT Mission was set up under the Cabinet Secretariat (later under the Ministry of Finance) in 2013, scaled up nationally from 1 January 2015
- Aadhaar-based authentication for DBT is governed by the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016
- DBT today covers cash transfers as well as in-kind subsidy transfers (e.g., LPG under PAHAL, fertiliser subsidy) across central schemes
- CBDC-based DBT is a technological evolution within the DBT architecture — replacing/supplementing bank-account transfer with a digital-currency wallet transfer
The PMGKAY CBDC pilot is best understood as a new "rail" within the existing DBT/JAM architecture, tested first in smaller Union Territories before any wider rollout — a pattern UPSC has previously tested with DBT pilots (e.g., LPG, kerosene) that were first trialled in select districts/UTs.
- PMGKAY currently provides free foodgrains to more than 800 million (80 crore) beneficiaries
- e₹-R retail digital rupee pilot began 1 December 2022; e₹-W wholesale pilot began 1 November 2022
- Legal basis for e₹: Finance Act, 2022 amendment to Section 22, RBI Act, 1934
- NFSA entitlement: 5 kg/person/month (Priority Households), 35 kg/household/month (AAY households)
- PMGKAY merged into NFSA as a free-of-cost scheme from 1 January 2023; extended till December 2028
- Chandigarh and Dadra & Nagar Haveli are the first Union Territories to operationalise CBDC-based food subsidy DBT