India's Unified Payments Interface (UPI), launched in 2016, has become the nation's most popular digital payments platform. However, the central bank digital currency (CBDC), or digital rupee, introduced via a pilot in 2022, has seen significantly lower adoption rates compared to UPI.
Recent data from the Reserve Bank of India (RBI) indicates a decline in retail CBDC in circulation, from Rs 1,016.46 crore in the 2024-25 financial year to Rs 771.66 crore in 2025-26. In contrast, UPI recorded 24.07 billion transactions worth Rs 29.37 lakh crore in September 2026 alone.
New UPI MDR and CBDC Adoption
In a move to strengthen payment infrastructure, a Merchant Discount Rate (MDR) of 0.40% will be applied to UPI transactions exceeding Rs 2,000, effective October 15. This development has raised questions about whether it might accelerate the adoption of the digital rupee.
Geeta Chugh, MD and Sector Lead for Financial Institutions Ratings at S&P Global, believes the impact on digital rupee adoption will be modest at best. "UPI makes it extremely efficient to transfer money, and I think that is going to be there," Chugh noted in an interaction. While the RBI has made CBDC interoperable with UPI, allowing users to transfer CBDC using UPI QR codes, the additional requirement of downloading a specific wallet and the non-interest-paying nature of CBDC add a degree of hassle for users.
Programmability: The Digital Rupee's Core Strength
Chugh stressed that the digital rupee should not be viewed as a competitor or replacement for UPI. Instead, its primary advantage lies in its programmability. "India’s CBDC should not be judged by wallet adoption. It should be judged by whether it makes money programmable and settlement more efficient," she stated.
Programmable CBDC allows for rules and compliance to be embedded directly into the money itself. This means funds can be released only when specific preconditions are met, restricted to certain uses, or linked to predefined outcomes. S&P Global suggests that the digital rupee will evolve into a settlement asset for select use cases rather than a broad payment digitizer, a role already well-covered by UPI.
Real-World Applications of Programmable CBDC
The RBI's annual report highlighted multiple CBDC pilots in 2025-26 under direct benefit transfer (DBT) schemes by central and state governments, leveraging this programmability. For instance, in Gujarat, Puducherry, and Chandigarh, public distribution system (PDS) beneficiaries received food subsidies through programmable CBDC, redeemable for eligible commodities at fair price shops.
Additionally, the RBI has developed the Unified Markets Interface (UMI), a multi-layer platform designed to facilitate the tokenisation of financial assets and enhance settlement efficiencies using wholesale CBDC. Finance Minister Nirmala Sitharaman has also urged the RBI to further advance its CBDC initiatives and sharpen the digital rupee's capabilities.