India's Digital Rupee: Central Banks' push towards Surveillance State

RBI has announced its plans to introduce digital rupee, a Central Bank Digital Currency(CBDC). Across the globe, the implementation of Central Bank Digital Currencies varies significantly. One prominent model, particularly observed in China, demonstrates a potential for pervasive state control that is fundamentally incompatible with Indian values.

Let us look at the Key Characteristics of the Chinese CBDC Model:

Pervasive Surveillance: Transactions are meticulously tracked and traceable by the state, offering little to no privacy for individuals. This data can be used for extensive monitoring of citizens’ financial behavior.

Centralized Control: The digital currency system grants the government unprecedented power to freeze accounts, set spending limits, or even block transactions based on social or political criteria.

Lack of Anonymity: The concept of anonymous cash transactions is largely eliminated, replaced by a system where every financial interaction leaves a digital footprint accessible to authorities.

Integration with Social Control: There are concerns about its potential integration with broader social credit systems, where financial behavior could influence access to services or freedoms


 


The Misuse of a CBDC – The China Case

A CBDC managed by a central bank could be misused if it falls into the wrong hands and lacks proper protections. For instance, the Chinese Communist Party (CCP) aims to replace all cash in China with their digital renminbi. If this occurs, a digital currency might enable the CCP to monitor every purchase, increase domestic surveillance efforts, and gain more control over private transactions. With this new ability to see monetary transactions, the CCP could tighten its grip on the people to enforce party rules. This new authority, combined with the CCP’s social scoring system, would give the CCP the power to punish Chinese citizens who act against CCP interests. For example, a Chinese citizen,who criticizes CCP will face a low social score and will face restrictions on currency access or receive a lower interest rate compared to “good” citizens (as defined by the CCP). Imagine if this happens to India.

The State Bank of India (SBI) has also faced public backlash and regulatory scrutiny concerning its operations, particularly in relation to the Reserve Bank of India (RBI)-backed Central Bank Digital Currency (CBDC) and other digital payment systems. This has manifested in several ways, including customer complaints about UPI transaction limits and penalties imposed by the RBI for compliance failures.

One significant instance of public backlash against SBI involved complaints regarding Unified Payments Interface (UPI) transaction limits. Anupam Mittal, CEO of People Group and a judge on “Shark Tank India,” publicly criticized SBI on X (formerly Twitter) in August 2024. He stated that since July 20, merchants were encountering “UPI limit errors” specifically for SBI-linked UPI payments, a problem he noted was not occurring with other banks. This incident underscores public frustration when digital payment systems, especially those as widely adopted as UPI, experience disruptions. SBI has faced direct regulatory action from the RBI. In May 2025, the RBI imposed a monetary penalty of ₹1.73 crore (approximately $207,000 USD) on SBI for various compliance violations . These violations included issues in loan disbursals, customer protection in unauthorized electronic transactions, and improper handling of current accounts. This issue highlights the erosion of public trust in Digital transactions making cash the better alternative. 

The RBI has been actively promoting its retail CBDC, the e-rupee, since its pilot launch in December 2022. Despite efforts to boost adoption, including incentivizing banks to use CBDC for employee compensation and linking it with UPI, the e-rupee has struggled to gain mainstream traction compared to the highly successful UPI. While the RBI aimed for one million daily CBDC transactions by the end of 2023, and briefly achieved this with bank employee salary disbursements, daily transactions dropped significantly by June 2024. This struggle for adoption, even with RBI’s push, indicates a public preference for established digital payment methods like UPI, which SBI is a major participant in. The public’s reluctance to fully embrace CBDC, partly due to concerns like the lack of interest returns on CBDC wallets and the widespread convenience of UPI, indirectly contributes to the perception of challenges within the broader digital payment ecosystem.

In the future, technical difficulties could emerge in diverse ways that could threaten economic sovereignty of India. This could also erode the personal liberty and freedom of Indians leading to a surveillance state like China. 

Credits:

https://qvive.in/india-news/indias-digital-rupee-not-a-democratic-future-a-surveillance-state/



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