New Delhi: In a significant shift in the way food subsidies are delivered, the government will launch a central bank digital currency (CBDC)-based pilot under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) in Puducherry on 26 February. The move is aimed at making these benefits better targeted, traceable and purpose-bound.
The pilot will test operational challenges, including digital literacy, access to CBDC wallets and merchant readiness at fair price shops. The experience will be used to refine the model before expanding it to other states and Union Territories in a phased manner, the ministry of food said in a statement on Wednesday.
PMGKAY, which provides free foodgrains to eligible beneficiaries under the National Food Security Act (NFSA), is one of the world’s largest food security programmes, covering over 800 million people. At present, beneficiaries receive subsidized or free foodgrains through the public distribution system (PDS), while in some cases the subsidy components are routed through direct benefit transfer (DBT) to the beneficiaries’ bank accounts.
The pilot will be inaugurated by Union Minister for Consumer Affairs, Food and Public Distribution Pralhad Joshi in the presence of Lieutenant Governor K. Kailashnathan and chief minister N. Rangasamy,
Tokenized subsidy
Under the pilot, instead of conventional cash transfer or physical grain distribution, the subsidy amount will be credited as programmable digital rupee tokens into beneficiaries’ CBDC wallets. These tokens can be redeemed only to buy entitled foodgrains at authorized fair price shops and designated merchants, the ministry said.
Digital rupee, issued by the Reserve Bank of India, is a tokenized form of the Indian currency. Unlike regular bank transfers under direct benefit transfer, CBDC tokens are traceable and can be programmed for specific end use. In this case, the subsidy cannot be diverted for other expenses, ensuring it is used strictly for foodgrain buys, the ministry said.
By ring-fencing the subsidy amount, the government aims to strengthen transparency and reduce leakages or diversion. This will also allow authorities to track utilization in real time and reconcile transactions more efficiently.
The initiative integrates the digital rupee with the existing DBT framework and the public distribution system, in coordination with the Reserve Bank of India, the Public Financial Management System (PFMS), the Puducherry government and Canara Bank as the banking partner, the release said.
“The pilot is expected to improve beneficiary targeting by linking digital wallets with verified identities under the existing food security database. It also creates a clearer audit trail, which could help reduce duplication and ghost beneficiaries, a persistent concern in large welfare schemes,” the ministry said.
Subsidy outlay
India’s food subsidy is one of the largest components of its welfare spending and is routed through the ministry of consumer affairs, food and public distribution.
Food subsidy expenditure rose sharply during the pandemic due to the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), under which free foodgrains were distributed to over 800 million people.
In FY21, spending surged to around ₹4.22 trillion, reflecting both additional free grain distribution and the clearing of past dues of the Food Corporation of India.
In FY24, food subsidy expenditure was about ₹2.12 trillion, while it was about ₹1.99 trillion for FY25.
For FY26, the government’s food subsidy is estimated at about ₹2.28 trillion, while for FY27, the budget has projected the figure a tad lower at ₹2.27 trillion.