A balanced adoption of the Indian digital currency in the future will be central to fulfilling the canons of equity and equality.
By Aniket Kshirsagar
A constant push for digitalization in its economy has brought India to what promises to be one of the most significant innovations and disruptions to the status quo of the global financial system—the Central Bank Digital Currency (CBDC). India has long had a seat at the table of CBDC, from when it started planning for it in 2017, until December 2022, when it launched its first retail pilot. The recent developments in India’s CBDC adoption can be summarized as follows -
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(Source: Author's compilation)
CBDC is denoted as a digital form of fiat currency issued by the central bank, which has the potential to transform the way we transact and engage with money. With CBDC emerging as a payment instrument in the financial landscape, its potential implementation is being explored globally. Considering India, where digital payments have grown significantly, CBDC could further accelerate the nation's journey towards a cashless and robust payment framework.
As of 2025, India's digital rupee, the e₹, is growing fast with ₹1016 crore now in active circulation. Most people associate cash with money and any or all other related functions, without knowing (or having to know) the economic aspects of money or currency. A digital currency is as much a conceptual shift as it is functional. While trust building is the solution to the latter issue, economic education is the solution to the former.
In the present argument, we focus on the two broad sections of Indian society and its economy: rural and urban. It is important here to clarify the objective. The government can either aim to foster as rapid an adoption of a CBDC as possible or aim to balance the normalized progress in the rural and urban economy at all times, compromising on speed and efficiency, and underutilizing the urban mechanisms that could have fostered a much faster adoption in their own sphere.
In the case of the latter, it may so happen in the urban sector that while the government will try to put restrictions on the holding of the volume of retail CBDC as of now to prevent disintermediation of the financial sector, any restrictions beyond that (to slow down adoption rates to maintain a balance) will lead to a decrease in popularity and compromise on any actual functionality. In either of the two objective scenarios, the government and the central bank cannot do without differentiated efforts in their own sphere to ensure the effective rural adoption of the CBDC.
Differences in rural and urban adoption
The current primary concern is the possibility of creating a rural-urban divide in India, both economic and social, due to skewed adoption of this novel form of payment systems. It is important for the government to tap into the competencies of its federal structure by harnessing the powers and reach of the local governance institutions to ensure that there are no adverse social effects of the introduction of a digital currency. Simultaneously, it is also important for the RBI to coordinate with the local banks to ensure two important functions: disseminating relevant knowledge regarding a digital currency and ensuring accessibility.
While the urban population, with easy access to information and institutions, will be relatively quick in understanding, accepting, and adopting an e₹, it remains a challenge to ensure that the rate and confidence of adoption remain high in the rural section of the economy as well. The burden of adoption lies not on the consumers but on the institutions, which must ensure equity and equality, and must not wait for a market failure before corrective measures are applied.
Potential problems: The case of rural India
As the CBDC is trying to replace cash, at least in some areas of daily functioning of the final beneficiaries, building trust will be slow and challenging in rural sections due to their relatively much higher dependence on cash as compared to the urban population. In India, about 52-60% of all consumer transactions are still done in physical cash, with the rural sector showing a comparatively higher percentage of people who engage in "cash-only" transactions after the widespread adoption of UPI. Apart from the lack of trust, poor digital infrastructure will also hamper the initial progress. Since this is an impedance that can only be overcome with time and continued investment, with progress being made for decades now, it is important to focus on trust building as a short-term goal.
The issue of trust is accentuated not only by the rural population's high volume of visible surface-level cash transactions. The rural economic ecosystem also has informal cash systems, which would be hard to overhaul. For example, informal financial intermediaries, like money lenders, deal only in cash and form a major part of the rural financial system, informal as they may be. It can be termed a vicious cycle wherein the dependence on cash becomes involuntary for the absolute grassroots consumer, who has neither the means nor any incentive to break the cycle. As noted earlier, the burden of adopting a digital currency falls on the suppliers at all levels in the economy. Even after proper systems are in place, trust and capabilities have to be built between two consumers to facilitate one retail transaction, both in the urban and rural sectors. In the latter, the delta in means, beliefs, and acceptance of change is greater, posing a significant challenge.
Proposed solutions: A way forward
Since India is utilizing a two-tier indirect model for the circulation of CBDC, in the future, harnessing the reach of local banks in rural as well as Tier-2 and Tier-3 regions to build trust among the population will be important. Trust can be built through live demos and an education drive about digital currencies facilitated by these banks. Simultaneously, the local banks must hold solid cash reserves for a period where at least a basic level of trust is built.
With the help of local banks, RBI can create e-wallets for the absolutely digitally illiterate and teach them basic transactions, much like the creation of bank accounts is facilitated today in some rural areas. Creation of 'local agents' for knowledge propagation can be explored.
People respond to incentives. Hence, local governing bodies can offer incentives at the village level for the most legal and real peer-to-merchant (P2M) transactions. This measure will be possible only if the volume of CBDC transactions in a particular geographical area can be tracked. This might raise concerns regarding anonymity and the privacy of transactions.
Conclusion
A balanced adoption of the Indian digital currency in the future will be central to fulfilling the canons of equity and equality. The e₹ will present tremendous costs – monetary and non-monetary- in the initial phases, if undertaken as a mainstream payment method in the future. Large-scale literacy will need to be undertaken, during which banks would not be able to lessen their cash reserves, thereby adding costs. Cooperation of the RBI and the government at all levels will be imperative to the successful and equal adoption of the e₹ across all levels of society.
(Aniket Kshirsagar is a student of Economics and Psychology at CHRIST (Deemed to be University), Bangalore. The views expressed are his own.)
