Reinventing the Ration Shop: Can Digital Currency Reshape India’s PDS?

Yesterday the Government of India launched a pilot project in Gujarat integrating the Reserve Bank of India’s Central Bank Digital Currency (CBDC) with the Public Distribution System (PDS). The pilot covers nearly 26,000 beneficiary families across select areas of Ahmedabad (Sabarmati zone), Surat, Anand and Valsad districts . Beneficiaries who have completed e-KYC formalities receive digital tokens in RBI-enabled wallets, which can be redeemed at fair price shops through QR codes or OTP authentication.

Gujarat has nearly 7.5 million ration cards , covering over 3 crore people , and officials have indicated that if successful, the pilot will be scaled across the state and later replicated in other Union Territories. The experiment marks the first time food subsidy distribution is being attempted through sovereign digital currency rather than solely through biometric verification and physical record systems.

From Rationing to Rights - The Evolution of PDS

India’s PDS began in the 1940s as a wartime rationing system focused on urban scarcity management. Post-Independence, it evolved into a universal distribution model, later shifting in 1997 to the Targeted Public Distribution System (TPDS) , which aimed to direct subsidies toward Below Poverty Line (BPL) households.

The turning point came with the National Food Security Act (NFSA), 2013 , which converted food access into a legal right, covering up to 75% of the rural population and 50% of the urban population , amounting to nearly two-thirds (67%) of India’s population . By 2026, the PDS has become not merely a welfare scheme but the backbone of India’s food security architecture.

The World’s Largest Food Distribution Network

Today, the PDS serves approximately 80–81 crore beneficiaries , making it the largest food distribution programme globally. It operates through nearly 5.3 lakh Fair Price Shops (FPSs) spread across rural and urban India. Close to 100% of ration cards have been digitised , and over 95% are Aadhaar-seeded , enabling electronic authentication through around 5 lakh ePoS machines installed nationwide.

Annually, the Food Corporation of India and state agencies procure and distribute more than 600 lakh tonnes of food grains , primarily rice and wheat. The system supplies 5 kg of grain per person per month under NFSA, and during crises like the pandemic, additional allocations pushed distribution volumes up by nearly 40% above normal levels .

For nearly two-thirds of India’s population , the PDS ensures caloric security. For the poorest households, subsidised grain priced at ₹2–₹3 per kg often represents savings of up to 80–90% compared to market prices . The sheer logistical scale procurement, storage, inter-state movement, allocation and retail delivery makes it one of the most complex public service operations in the world.

Structural Fault Lines - Persistent Challenges

Despite digitisation and reform, leakages and inefficiencies persist. Studies over the years have estimated diversion rates ranging between 10% and 30% , though reforms have reduced this from earlier levels exceeding 40% in some states.

Inclusion and exclusion errors remain significant. Estimates suggest that up to 10–15% of eligible households may be excluded , while a smaller but persistent percentage of ineligible beneficiaries continue to receive benefits.

Authentication failures through biometric systems affect an estimated 2–5% of transactions in low-connectivity or fingerprint-mismatch cases, seemingly small percentages that translate into millions of denied transactions annually.

Operational viability of FPS dealers is another issue. Commission margins in many states remain thin, and delayed reimbursements affect nearly 20–30% of shops , encouraging irregular practices. Storage inefficiencies also contribute to wastage; although scientific storage capacity has expanded, gaps remain, especially in states with high procurement volumes.

Further, nutritional diversity remains limited. Over 75% of distributed grain is rice , with wheat constituting most of the remainder, while pulses and millets account for a marginal share. This cereal-heavy bias does not fully address protein and micronutrient deficiencies.

Can Digital Currency Address These Gaps?

The CBDC pilot attempts to target two persistent weaknesses: diversion and transactional friction. By issuing subsidy value in the form of traceable digital tokens, the government can monitor end-to-end flow in real time. Unlike biometric-only systems, digital wallets combined with OTP verification may reduce authentication failures that affect up to 5% of beneficiaries .

Digitally recorded transactions can potentially cut diversion rates further below the current 10–15% range , especially in urban centres. Automated reconciliation between allocation and offtake can improve transparency, while QR-based verification reduces manual intervention.

However, digital currency alone cannot correct errors in beneficiary identification or improve grain quality. If 10% of households are wrongly excluded , digitising delivery will not automatically correct that exclusion. Technology strengthens efficiency, but institutional accountability remains indispensable.

Portability, Transparency, and Integration

The broader reform path lies in consolidating and deepening the gains of the One Nation, One Ration Card (ONORC) framework, which now enables interstate portability for nearly 100% of NFSA beneficiaries. This portability is particularly crucial for migrant workers, who constitute an estimated 10–15% of India’s workforce and often move across state boundaries in search of employment. Integrating CBDC systems with ONORC can create a unified, portable and real-time subsidy architecture, ensuring that entitlements travel seamlessly with the beneficiary while enabling governments to track allocation and offtake across states with greater precision.

At the same time, structural corrections must accompany technological upgrades. Beneficiary databases require periodic, data-driven audits to address exclusion errors that still affect an estimated 10–15% of eligible households. Without correcting identification gaps, digital delivery mechanisms risk becoming efficient systems that still leave out the deserving. Equally important is diversifying the food basket. Currently dominated by rice and wheat, the PDS should aim to ensure that at least 15–20% of allocations include pulses and millets, aligning food security with nutritional security.

The viability of more than 5 lakh Fair Price Shops must also be strengthened through timely commission payments and rationalised incentives, as dealer distress often translates into service inefficiencies at the last mile. Parallelly, investments in digital infrastructure must continue so that the remaining 2–5% authentication failures, small in percentage terms but significant in absolute numbers, are eliminated, particularly in remote and low-connectivity regions.

India’s PDS feeds nearly two out of every three citizens. Its reform is therefore not a matter of incremental administrative adjustment but one of national food sovereignty and social justice. The Gujarat CBDC pilot is a bold technological intervention, but its ultimate success will depend not merely on digitising transactions, but on whether it deepens transparency, strengthens portability, corrects structural distortions and, above all, preserves the dignity of every beneficiary who depends on the ration shop for survival.