GS Paper III — Q1
What do you mean by Digital Rupee? In this context, explain the working and progress of India's Central Bank Digital Currency…
What do you mean by Digital Rupee? In this context, explain the working and progress of India's Central Bank Digital Currency (CBDC). (Answer in 150 words) 10 marks
हिंदी में प्रश्न पढ़ें
डिजिटल रुपये से आप क्या समझते हैं? इस सन्दर्भ में, भारत के केन्द्रीय बैंक डिजिटल मुद्रा (सी बी डी सी) की कार्यप्रणाली तथा प्रगति का वर्णन कीजिए। (उत्तर 150 शब्दों में दीजिए)
Model answer
Drafted with AI by UPSC Answer Check against this question's marking rubric, to the 150-word length. UPSC does not publish answers for Mains — this is one way to score well, not an official key. How we build rubrics and answers.
Digital Rupee (e₹) is India’s Central Bank Digital Currency: a digital form of currency issued by the RBI, its direct liability and legal tender (Finance Act, 2022 amended the RBI Act, 1934). Unlike cryptocurrencies it is sovereign and stable, and unlike UPI it is money itself, not a channel for moving bank deposits.
Working: e₹-Wholesale (November 2022) settles secondary-market government securities trades; e₹-Retail, a token-based version piloted since December 2022, serves person-to-person and merchant payments. Under a two-tier model, the RBI issues e₹ and banks such as SBI, ICICI and HDFC (and, since 2024, permitted non-banks) distribute it through wallets; it earns no interest, and e₹-R wallets are interoperable with UPI QR codes.
Progress: Offline (NFC) payments and programmability have been added; programmable e₹ is piloted for DBT and PDS food subsidies (Gujarat, Puducherry, Chandigarh), and cross-border pilots are planned. Yet e₹-R in circulation fell from about ₹1,016 crore (March 2025) to ₹772 crore (March 2026). e₹ can cut currency costs and speed settlement, but low adoption, privacy concerns and bank disintermediation remain challenges.
How this answer will be evaluated
Framework: GS3 Economy/Technology: Definition > Working > Progress
What earns full marks: Clear definition, detailed working mechanism, specific progress updates, and balanced view.
Evaluation rubric
Each sub-part is marked on its own, against the marks and word limit printed on the paper.
- The answer Define the Digital Rupee and explain how India's CBDC works (issuance, two-tier distribution, retail and wholesale forms) and how far it has progressed (pilots, new features, adoption). 10 marks · 150 words
explain— definition/context → points in order → small example → short close
Must cover
- Define the Digital Rupee as RBI-issued sovereign digital currency and legal tender
- Explain the working mechanism: RBI issuance and two-tier distribution through banks' wallets
- Describe the progress of India's CBDC with specifics (pilot launches, features, adoption)
- Distinguish e₹-Wholesale and e₹-Retail
Loses marks
- Confusing CBDC with UPI or e-wallets
- Vague description of 'progress' without specifics
- Ignoring the 'working' aspect of the question
Earns more
- Distinguish CBDC from cryptocurrency and from UPI/bank money
- Mention features such as offline payments, programmability, UPI QR interoperability
- Explain the benefits of CBDC
- Discuss the challenges or risks (low adoption, privacy, bank disintermediation)
Extra mark
- Specific pilot dates (e₹-W 1 November 2022, e₹-R 1 December 2022)
- Legal basis (Finance Act 2022 amendment to the RBI Act) or recent circulation data from the RBI Annual Report
What "What" is asking you to do
What is an interrogative rather than a command word. It opens a multi-part stem — what the thing is, then its causes, risks or remedies — and the definitional clause is the gate rather than the answer, with the marks spread across the clauses that follow it.
Structure that answers it
What it is, in two or three lines → the second clause of the stem, at length → the third clause, at length → a closing line only if room remains
Where marks are lost
Spending half the answer establishing the object and leaving the later clauses, which carry most of the marks, thinly answered.
Practice this exact question
Write your answer and it is marked point by point against the model answer above — what you covered, what you missed, what you got wrong.
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