India Trials RBI Digital Food Coupons: A New Era for Public Distribution System Efficiency

The Union government is preparing to test RBI-backed “digital food coupons” for delivering free foodgrains, marking the first use of India’s central bank digital currency in the public distribution system. Beginning next month, a limited pilot will link ration entitlements under PMGKAY and NFSA to CBDC-based coupons, redeemable at fair price shops through mobile wallets in select regions.

Under the proposed system, eligible households will receive a fixed quantity of digital food coupons every month in an RBI-enabled wallet on their phones. Instead of biometric authentication or physical ration cards, beneficiaries will scan a QR code at the fair price shop, instantly debiting their coupon balance and triggering grain issue, officials familiar with the design have indicated.

CBDC-linked coupons: where the ration pilot will run

The pilot will initially cover beneficiaries in the Union Territories of Chandigarh and Puducherry, along with a few districts of Gujarat, according to government and media reports on the rollout plan. These geographies already have relatively high digitisation in PDS operations, making them suitable test beds before a national expansion is considered.

Officials say the number of beneficiaries in the first phase will be deliberately capped, allowing the Centre, states and RBI to study on-ground issues such as connectivity gaps, shop-level adoption and grievance redress. Insights from these locations are expected to shape any scale-up, including whether the model is extended to more NFSA and PMGKAY cardholders in other States.

How digital food coupons will work at ration shops

In the CBDC model, RBI issues e₹ to a partner bank, which then loads beneficiary-specific digital food coupons into a dedicated wallet that functions like a closed user system. These coupons are “programmable”, meaning they can only be used to buy specified foodgrains at authorised fair price shops, and cannot be converted to cash or used elsewhere.

At the ration shop, the dealer will display a QR code linked to their merchant wallet. Beneficiaries open their mobile app, select the food coupon, and scan the code. Once the transaction is authorised, the coupon value is deducted, and the entitlement is recorded as delivered. Each redemption is logged digitally, creating a clear audit trail of grain movement and subsidy use across the system.

Step	Action in CBDC coupon system
1	RBI issues e₹ to bank for food subsidy
2	Bank credits digital food coupons to beneficiary wallet
3	Beneficiary visits fair price shop with mobile
4	QR code at shop scanned using wallet app
5	Coupon redeemed; grains issued and logged

Targeting leakages, biometric failures in PDS

The Centre sees CBDC-based coupons as a way to curb diversion and ghost beneficiaries, long-standing problems in the public distribution system. Since coupons are linked to verified individuals and can be spent only at authorised outlets, scope for reselling physical grain or misusing paper coupons reduces sharply, say policy planners tracking the initiative.

The digital approach also seeks to bypass authentication failures in Aadhaar-based systems, especially for elderly and manual workers whose fingerprints often do not match. By shifting to QR-based redemption, officials hope to cut transaction denials due to faulty biometrics or patchy connectivity, while still preserving transaction-level visibility for auditors and subsidy managers.

CBDC maturity and concerns over digital access

The pilot builds on a retail CBDC ecosystem that has grown steadily since December 2022, with the RBI reporting more than 60 lakh e₹ users and expanding features like offline and programmable payments in recent years. These capabilities allow the government to design coupons that work even in low-connectivity areas and are locked for food purchases.

However, experts caution that digital literacy, smartphone access and support infrastructure will determine how inclusive such a ration system can be. Officials have indicated that assisted modes or feature-phone options are being explored to ensure beneficiaries without smartphones are not excluded, but these alternatives will be closely watched during the first months of the pilot before any wider rollout is contemplated.