Direct Benefits Transfer: Overview

The Direct Benefits Transfer (DBT) scheme first found mention in the 2011-12 Union Budget speech, by the then Finance Minister, Pranab Mukherjee who had stated that the government plans to move towards direct transfer of cash subsidy for kerosene, Liquefied Petroleum Gas (LPG), and fertilizers. A task force headed by Nandan Nilekani was set up to work out the modalities of operationalising Direct Cash Transfer for these items. Later this task force submitted its report in February 2012. The Government launched Direct Cash Transfer scheme on 1 January 2013 to transfer cash into bank accounts of beneficiaries across 20 districts in the country. The scheme has now been rechristened as Direct Benefits Transfer (DBT) and curtailed beneficiary districts to 20. It covers 7 welfare schemes instead of 20. At least two lakh beneficiaries are expected to benefit from DBT scheme immediately. Food, fertilisers, and fuel have been kept out of its purview for the present. The National Food Security Bill, 2011, pending in Parliament, includes cash transfer and food coupons as possible alternative mechanisms to the Public Distribution System. But it should be borne in mind that DBT is just been launched. There would be several lessons on the way as scheme expands and progress and is implemented in the entire country before 2014.

How does the Scheme Work?

The money is directly transferred into bank accounts of beneficiaries having Aadhar cards. The Aadhaar number is a unique identification number that every resident of India (regardless of citizenship) is entitled to get after he/she furnishes demographic and biometric information. LPG and kerosene subsidies, pension payments, scholarships and employment guarantee scheme payments as well as benefits under other government welfare programmes will be made directly to beneficiaries. The money can then be used to buy services from the market.

Already on a pilot basis Electronic Benefit Transfer has begun in Andhra Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West Bengal, Karnataka, Puducherry and Sikkim. The Government claims the results are encouraging. Under the DBT each and every beneficiary has to establish his identity and eligibility many times by producing multiple documents for verification. The verification of such documents is done by multiple authorities. Interestingly an Aadhaar enabled bank account can be used by the beneficiary to receive multiple welfare payments as opposed to the one scheme, one bank approach, followed by a number of state governments.

A Game Changer

Government believes that the Direct Cash Transfer or Direct Benefits Transfer is likely to be a game-changer in more than one way. The Centre releases as much as Rs 2, 00,000 crore as subsidies under various schemes for the targeted sections across the country. Therefore it is within its right to devise methods to reach beneficiaries the way it wants.

Firstly, the Direct Benefits Transfer (DBT) scheme is aimed at cutting the bloated subsidy bill of Rs.1, 64,000 crore. India’s budget deficit was 5.8 per cent of gross domestic product in the financial year ending 2012 March. Secondly, unlike other welfare scheme launched so far by the Centre, DBT helps in timely and quick transfer to intended beneficiaries. Thirdly, the transfer of direct cash into account of targeted beneficiary is a winning proposition for the recipients as it aims to eliminate middlemen in various government sponsored welfare schemes and subsidized food, fuel and fertiliser schemes. Take for instance, it's estimated that public coffers can be richer by several crore yearly just by switching to cash handouts for LPG and kerosene, a proposed move that would also curb diversion of subsidised cylinders for commercial use and diesel adulteration with inexpensive kerosene. Bringing all subsidies under DBT's ambit can be the major fiscal game-changer the economy needs very much. Fourthly, the Direct Benefits Transfer scheme is likely to be simple and error free. On the basis of Aadhar cards money is deposited in beneficiaries’ accounts. Fifthly indirect transfers are more prone to leakages than direct cash transfers. So, that is why the Central Government has put in a mechanism of direct cash transfer. According to Planning Commission the Public Distribution System has become so inefficient that 58 per cent of the subsidized grains do not reach targeted beneficiaries while one-third of it siphoned from the system. Sixthly, the Aadhar based DBT helps eliminate duplicate cards and cards for non-existent persons or ghost beneficiaries often found in schemes such as the PDS and MNREGS. Seventhly, with the actual transfer of cash taking place with the help of micro automated teller machines (ATMs) it would infuse financial inclusion on a greater scale in rural India. Quoting a World Bank Study the Reserve Bank of India last year in its annual report has said, in India only 35 per cent have formal accounts versus an average of 41 per cent in developing economies. With the implementation of DBT, it could fuel financial inclusion. Eighthly, aided by Aadhar technology Direct Benefits Transfer will not be a mere welfare scheme but also the world's largest experiment in administrative reform. It will revolutionise the delivery of welfare measures in world’s populous democracy.

DBT: Not a Magic Wand

Can Direct Benefits Transfer Scheme act like magic wand? Probably it cannot solve all the problems by India’s poor and improve country human resources index. It will have problems with banks, post offices and online connectivity. These have to be resolved. But there is no point in throwing the baby with bath water attitude and abandon DBT altogether. DBT in ultimate analysis aims at poverty elimination, inclusive growth and delivering better welfare measures. No doubt rampant corruption, inefficiencies and leakages have made many welfare schemes dysfunctional. Direct Benefits Transfer to the poor aims to mitigate these many malaises. Considering these benefits, India would be in right direction to implement cash transfer though there would be many lessons to be learnt and hurdles to cross.