India To Roll Out CBDC This Fiscal, Wholesale Businesses To Get Access First

The Reserve Bank of India (RBI) is set to introduce the Digital Rupee, India’s own Central Bank Digital Currency (CBDC) in this fiscal year itself.

The CBDC will be launched in a phased manner, initially only to be used by wholesale businesses, a BS report said citing sources. The report added that the Digital Rupee is designed in such a way that it leaves no room for anonymity for its users.

Last month, media reports suggested that the RBI will make the CBDC available for retail and wholesale segments first.

“RBI is also working on [a] phased implementation of a central bank digital currency (CBDC) in both [the] wholesale and retail segment[s],” said Ajay Kumar Choudhary, executive director (fintech) of the RBI at an event last month.

Choudhary added that the Finance Act, 2022, made the necessary changes to the RBI Act, 1954 to allow the central bank to roll out the CBDC this year. Sections of the RBI act were amended to treat CBDC as banknotes as well.

However, the latest reports omit the retail industry, reducing the list of industries getting the digital currency first to one.

Talks of a digital currency issued by the RBI have been going on since late 2020. However, the RBI first announced its plans in late 2021. Union Finance Minister Nirmala Sitharaman officially launched the CBDC Project on February 1, 2022.

“Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23,” Sitharaman said.

A graded approach to launching India’s first CBDC has always been on the mind of the Reserve Bank. Last month, T Rabi Sankar, RBI’s deputy governor, said that while the central bank is ready to launch the CBDC, it will do so in steps to avoid disruptions in banking and financial systems.

The Indian government has been projecting the Digital Rupee as a method to further digitalise India’s financial systems. Further, the RBI has noted that since India has a high GDP to currency ratio, CBDC will allow sustained use of banknotes for small ticket transactions, while large transactions can be carried out using CBDC.

“India’s high currency to GDP ratio holds out another benefit of CBDCs. To the extent large cash usage can be replaced by CBDCs, the cost of printing, transporting, storing and distributing currency can be reduced,” Sankar added.

However, India’s stance on other non-fiat cryptocurrencies is still a matter of concern. For one, the government has adopted a strict taxation regime, which includes a 30% tax on gains made on crypto, 1% TDS on all transactions over INR 10,000 and possible inclusion in the GST.

Further, RBI’s continued negative comments on cryptocurrencies, along with a number of investigations going on into a number of major crypto exchanges have seen an uncertain air surrounding India’s crypto landscape.