The Gujarat government has launched a Central Bank Digital Currency-based Digital Food Currency pilot, an attempt to change how food subsidies are delivered. India’s public distribution system has operated through physical procurement, storage and distribution of grain for decades. This pilot shifts the entitlement layer from grain movement to a programmable digital claim.
That is not a minor tweak. PDS works only when an entitlement reliably converts into grain at the fair price shop. Any redesign will be judged less by its novelty and more by its failure rates.
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The digital food currency programme
Under the pilot, beneficiaries receive programmable digital rupee (e₹) coupons that can be redeemed at fair price shops. The stated aim is to digitalise a logistics-heavy subsidy regime and improve transparency, traceability and administrative efficiency.
Digital coupons are generated under the RBI’s CBDC framework and credited to beneficiaries’ digital wallets. The entitled quantity of foodgrains can be redeemed through QR code or voucher-based transactions.
The rationale offered is that this approach will address operational problems such as biometric authentication failures and malfunctioning e-POS devices, while creating a real-time transaction trail for monitoring and accountability. The initiative is live in select districts of Gujarat and is slated for expansion to some Union Territories.
One institutional issue needs to be explicit at the start: accountability. When a beneficiary’s coupon fails to redeem or the shop denies supply, the citizen should not be pushed between the food department, the bank, the wallet provider and the ration dealer. Clear liability, time-bound grievance redress, and compensation for wrongful denial are as important as the payment rail.
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PDS efficiency and what vouchers can realistically change
If the programme succeeds, it could reshape how subsidies are delivered. For decades, economists and policymakers have argued that PDS is plagued by supply-side inefficiency. The government procures grain at minimum support prices, stores it in central warehouses, transports it across the country and distributes it through a network of ration shops. While the system has played a critical role in food security, it has generated fiscal pressures, excess stock accumulation and distortions in cropping patterns.
A voucher-based entitlement may reduce dependence on parts of this machinery over time, but only if policy choices follow. A digital entitlement changes how delivery is verified and audited. It does not, by itself, unwind procurement, storage or transport costs.
This is why the “programmable” aspect matters. If the coupon is coded for specific commodities, quantities, shops and time windows, it can tighten compliance. It can also become rigid in ways households cannot absorb. Design choices here should be treated as welfare rules, not as software settings.
State-level PDS reforms and institutional design
The technology is the visible part. The harder part is institutional design. India’s experience shows that states that focused on administrative reforms and accountability mechanisms improved PDS outcomes even before large-scale digitisation.
Chhattisgarh’s widely cited reforms relied on doorstep delivery of foodgrains to ration shops, community monitoring mechanisms and a shift away from private ration dealers toward cooperative or community-run outlets. Digitisation helps, but administrative changes often reduce diversion and leakages more effectively than a new interface.
Tamil Nadu and Kerala offer lessons as well. Both states built reputations for reliable delivery through stable supply chains and local administrative oversight. Beneficiaries in these states have higher confidence in welfare systems, which supports compliance and programme credibility. A key challenge for the Gujarat model will be persuading beneficiaries that digital coupons will reliably translate into actual food entitlements at the shop, month after month.
DBT lessons for scaling CBDC vouchers
The experience of states that implemented direct benefit transfer (DBT) transitions suggests that gradual, evidence-based scaling has merit. Successful DBT transitions were preceded by pilot projects, awareness campaigns, and continuous system refinement. The Gujarat pilot will need the same discipline, especially because PDS errors are politically and socially costly.
The operational plumbing also needs attention before scale. Redemption must work with weak connectivity and device downtime. Dealer settlement must be predictable and quick, or ration shops will resist the workflow. Interoperability across wallet providers and banks will determine whether the system becomes a closed loop or a scalable public utility.
Beneficiary databases and portability in PDS delivery
Beyond this, the success of PDS hinges on maintaining dynamic beneficiary databases. Inclusion and exclusion errors arise from outdated lists that fail to reflect migration, income changes or demographic shifts. States must invest in regularly updating social registries to improve targeting accuracy and reduce disputes. A digital voucher system that relies on static data will only digitise existing inefficiencies.
Portability is the adjacent issue. Migrant households are the stress-test for any entitlement system. If vouchers are not portable across districts and states, exclusion will persist. If they are made portable, coordination, authentication and grievance systems must be strengthened to prevent denial on jurisdictional grounds.
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Food subsidy bill and procurement policy reform
Some policy experts argue that digital food vouchers may open the door to more targeted subsidies and moderate the growing food subsidy bill. But fiscal savings will materialise only if subsidy reform is accompanied by procurement and agricultural policy adjustments.
The current procurement footprint has inflated costs partly because diversified procurement, including millets and pulses, has not been widely adopted. Distribution reforms without procurement and cropping-policy shifts will not deliver efficiency at scale.
Digital exclusion, data governance, and new fraud risks
Another challenge is ensuring that digital transformation does not create new forms of exclusion. Even small transaction failure rates can affect millions in a programme of PDS scale. States that expanded digital governance services invested heavily in support systems such as trained operators, fallback options, and multi-channel authentication so that technology failures did not translate into benefit denial.
A real-time trail also raises a governance question the draft should not leave implicit: data. Transaction-level welfare data needs purpose limitation, retention rules, audit logs, and safeguards against repurposing. Transparency for the state cannot mean permanent surveillance for the citizen.
Digitisation can also displace leakage rather than end it. New risks include coerced “assisted transactions”, wallet capture, SIM swaps, and dealer-led skimming. Strong audits, anomaly detection, and social audit mechanisms matter as much as the CBDC rail.
The CBDC-based Digital Food Currency pilot is a significant experiment in welfare innovation and part of the push for digital infrastructure. But its success will depend less on the sophistication of the technology and more on whether policymakers internalise the lessons from state-level reforms.
Every reform of this scale is made successful by incremental experimentation, tight accountability, and careful policy learning.