The initiative replaces conventional bank account transfers with direct credit of subsidy in beneficiaries’ CBDC wallets, marking a shift in the way food assistance is delivered through the Public Distribution System (PDS) in the Union Territory.
The pilot was inaugurated on February 26 by Union Minister for Consumer Affairs, Food and Public Distribution Pralhad Joshi in the presence of Puducherry Lieutenant Governor K. Kailashnathan and Chief Minister N Rangasamy.
How the digital subsidy model works?
Under the new framework, digital coupons generated through the Reserve Bank of India will be credited as programmable digital currency (e₹) directly into beneficiaries’ CBDC wallets. These digital tokens can be redeemed for entitled foodgrains at Fair Price Shops and authorised merchant outlets.
According to the ministry, the tokens are purpose-bound and can be used exclusively for purchasing eligible foodgrains, aiming to ensure that subsidy funds are spent only on intended items. Transactions are designed to be secure, traceable and processed in real time.
Officials said the system seeks to address operational challenges related to biometric authentication and electronic point-of-sale (e-POS) devices, while enhancing transparency in subsidy distribution.
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Part of broader digital reforms in PDS
The CBDC-based transfer builds on existing digital reforms in the food distribution system, including nationwide portability of ration cards under the One Nation One Ration Card (ONORC) framework, Aadhaar-enabled authentication, and data monitoring tools such as the Rightful Targeting Dashboard.
The government said the new pilot integrates a sovereign digital payment layer into the Direct Benefit Transfer (DBT) mechanism. Puducherry is currently implementing PDS through a DBT model, making it the first location for the CBDC-based rollout.
Scale of the food subsidy programme
PMGKAY, described by the government as one of the world’s largest food security programmes, covers over 80 crore beneficiaries nationwide. The scheme provides free foodgrains, including rice and wheat, and in some cases millets, to eligible households.
Union Minister Pralhad Joshi said the CBDC integration would enhance transparency and beneficiary awareness of entitlements. He added that around 20 lakh automated calls are made monthly using artificial intelligence tools to gather feedback on the quantity and quality of foodgrains distributed.
Expansion plans
The Department of Food and Public Distribution said the pilot began with a limited number of beneficiaries in Puducherry and will be expanded across the Union Territory. It is also slated for rollout in Chandigarh and Dadra and Nagar Haveli, followed by further expansion based on an evaluation of outcomes.
Officials acknowledged support from the Reserve Bank of India and Canara Bank in operationalising the pilot.
The government said a broader decision on nationwide implementation will be taken after analysing the results of the pilot phase.
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