Digital ID systems are transforming how welfare schemes are delivered, but their unintended consequences remain understudied. This paper examines Punjab’s Aadhaar (Digital ID)-enabled loan waiver scheme, which aimed to provide debt relief to farmers. Using a difference-in-differences approach with transaction data from cooperative banks, we explore how the scheme affected farmer indebtedness. We find that marginal differences in landholding and loan amount determined eligibility, leaving some farmers unexpectedly excluded. Having anticipated relief, these farmers had borrowed more during the hope period - only to face severe financial distress when they received nothing. Many had to take on further debt, mimicking a debt trap. Our findings highlight how the perceived efficiency of digital schemes can mask serious design flaws, creating new vulnerabilities. By shedding light on these overlooked consequences, we contribute to discussions on digital governance and financial inclusion, emphasizing the need for thoughtful policy design in technology-driven welfare initiatives.