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The government’s DBT plan involves transferring the subsidy amount directly to the beneficiaries’ bank accounts.

  • Here, the government does not have to fiddle around with differential pricing for the underprivileged.
  • This method can effectively address the issue of leakages and go a long way in solving the mis-targeting problem.

The government has also linked DBT to Aadhaar. Efficient targeting, using Aadhaar-linked data, ensures that the intended beneficiary receives the money in his account, thus helping him as well as reducing the government’s subsidy burden. This has resulted in effectively solving the leakage and mis-targeting problems in some schemes.


  • DBT in India
  • Pre requisite of successful DBT
  • Merits of DBT
  • Demerits of DBT
  • DBT in fertilizers
  • Is India ready to implement DBT in all programmes?
  • Suggestions for improvement
  • Conclusion

DBT in India

Direct Benefit Transfer is a mechanism to transfer the subsidy amount directly to the bank account of beneficiaries. Main agendas for DBT is to prevent and address following

  1. Leakages
  2. Delays
  3. Reducing structural expenses in distributing the subsidies in hand
  4. Encouraging everyone to have bank account and achieve financial inclusion.

Right now it is applied to only 4 areas that too in selected districts:

  1. LPG subsidies
  2. Jnani Suraksha Yojana
  3. Old age pension
  4. Scholarships

Pre requisite of successful DBT

source

Merits of DBT (Direct Benefit Transfer)

  • Leakage and delays are prevented.
  • Reduces Corruptions and black money issue.
  • Reduces economical inequalities in rural areas as everyone gets theire share rightfully.
  • Reducing the government expense on PDS, Cooperative society, bureaucracy to distribute scholarships etc.
  • Reduces time, energy and money of people to get their money/commodity.
  • Encourage free and fair market structure. Earlier subsidised grains entering market through backdoor used to distort the price in market.
  • More circulation of money in economy which will lead to at least 0.5% growth in GDP.
  • Government can better focus on other issues and not engaging in distribution.
  • Transportation charge for FCI and NABARD subsidies for warehouses will be reduced.
  • Slowly importance of MSP will reduce while price a farmer would fetch will increase which is win-win situation for farmers, also non-food crops will get importance which is issue right now in India.
  • Financial institutions will pay attention in rural area once people have cash in their hand.
  • Health facility will get better with private hospital giving facilities once people will have money to get treatment.

Demerits of DBT

  • Money in the hand of poor may get spent in something other than what is needed, a scholarship needed to be spent in education only, but how government can ensure that, once she has sent it to account
  • Most accounts holder are males who have accessibility to banks, hence it will lead to usage by them only. Females may not get their share if they are the intended beneficiaries
  • With lesser banks in rural parts of India, it will be another overhead for people to get their withdrawal
  • Delay in transfer may create more turbulence as many will flock to banks to check on their balances

DBT in fertilisers

Government is embarked on rationalizing subsidies as has been seen in LPG subsidy which saved thousands of crores of government exchequer. Now it has proposed for rolling out DBT for fertilizers as has been mentioned in recent economic survey.

Pros of DBT in fertilizer –

  • It would be beneficial for minimizing the use of fertilizer which would check degradation of soil nutrients and would prevent water contamination.
  • Farmers would be free from moneylender’s debt trap as now they would have secure money in their bank accounts. It would be helpful for inculcating saving habits also in farmers.
  • Released government control on the fertilization market would drive competition and would enhance productivity.
  • Enhanced financial inclusion and financial literacy will give boost to digital India and skill India.
  • No middlemen > no leakage > benefits to the needy > correct use of tax payer’s money (redistribution of wealth).
  • Less burden on government exchequer > fiscal consolidation target >money transferred in job creation and infrastructure development

However there are some cons which need to be factored – 

  • More money in hand may lead to misuse like in drug, alcohol, unnecessary shopping or gambling etc.
  • May further widen the gap between big farmers and small farmers.
  • Bio-identification can be detrimental for the personal information of farmers if not properly handled.

Operational challenges –

  • Management of data whether it may be of land, of status of farmer (landholder, tiller or tenant etc) or pertaining to agriculture practice is not up to the level in our country.
  • Though crores of accounts are opened but still there is a good number of people who are unbanked.
  • Some farmers have little knowledge about banking system so they can fall prey of undue interference.

Is India ready to implement DBT across all programmes?

The debate of implementing DBT in all subsidy programmes is discussed below. A proper implementation would helpful in following ways –

  • Filling leakages: DBT will help in reducing malpractices like leakages, ultimately giving the beneficiary what he is entitled. Example: LPG subsidy.
  • Increasing incomes: with large number of schemes which are implemented with an intention to increase incomes of the poor, but due to delay and other factors most of the time poor gets subsidy after a long time (like in wages of MNREGA). DBT can reduce these cases.
  • Financial inclusion: with the provision of DBT, poor will get themselves included in financial system of the country, which will help them to get other benefits and will boost their saving.

Some of the downsides of the implementation – 

  • People may use money for other purposes rather than using it for what it is meant for like in case of PDS.
  • Due to lack of education and financial literacy, poor will keep themselves outside the purview of banks.
  • Inadequate development of the banking channel in rural areas is also a challenge.
  • Lack of adequate documents also leads to exclusion of many poor from banking sector.

source

Conclusion

DBT revolutionized the banking sector by connecting low income segments of society with banks. There is no doubt that DBT has created a firm base for financial inclusion, which will include poor sections to the growth and development processes.

National Payment Corporation of India (NPCI) has successfully opened 150 million DBT accounts with Adhaar numbers and around 125 million accounts under Jan Dhan Yojana.

The government is fully relying on this scheme to plug leakages and save costs. It is estimated that over the time it could save up to 1.2% of GDP, which is currently lost in transit.


References:

Any doubts?


  1. Profile photo of Root Root

    Updated with Explainer + Questions

  2. Profile photo of Saiprasad Reddy Saiprasad Reddy

    What is DBT and what are the issues associated with this topic. please share the important information.

    1. Profile photo of Focus Ias Focus Ias
  3. Profile photo of praneetha vishnu praneetha vishnu

    Please explain about fertilizer subsidy scheme in relation to DBT

  4. Profile photo of Devesh Tiwari Devesh Tiwari

    no doubt DBT is bad idea in case of food,health and kerosene , DBT is against basic concept of “subsidy” . but it is must to stop heavy cash leakage happening bcz of clerical errors and corruption.
    can anyone suggest any other innovative alternate for DBT ? any idea ?

    1. Profile photo of Kiran Gundlapalli Kiran Gundlapalli

      DBT is still better approach for subsidy but the implementation is not technically sound as online banking system. Question is why DBT is not so efficient, is it because of technical/clerical errors or corruption/routing this pegs of amount to corrupted hands.
      Sincerely myself or none of my colleges has received LPG subsidy till now to our accounts even though we link AADHAR in bank and LPG Distributor. 🙂 🙂

    2. Profile photo of Ravi Mantwal Ravi Mantwal

      Hello, Devesh!
      Honestly, your views and knowledge spectrum are appreciable. Kudos!
      I am sure you will be one on them next year.
      “IAS Devesh Tiwari Ji” 😉
      Stay Blessed!

      1. Profile photo of Sumer Shah Sumer Shah

        +1

        1. Profile photo of Ravi Mantwal Ravi Mantwal

          Of course! Why not? 🙂

[op-ed snap] Towards a kerosene-free India

  1. Theme: Launch of Direct Benefit Transfer (DBT) for kerosene (DBTK) on a pilot basis in Jharkhand.
  2. Hurdles in implementation: First, the lack of a streamlined and unified digital consumer database; the database of subsidised kerosene beneficiaries falls under the Public Distribution System (PDS), which is managed and maintained by each State government.
  3. While e-PDS is being implemented across India, a digital PDS beneficiary database is not yet available for all the States to enable implementation of DBTK.
  4. The second hurdle is the political economy associated with subsidised kerosene. Since the States determine who gets the subsidy and to what extent, it is an important political currency for the State governments.
  5. Third, DBTK has limited ability to reduce incentives for diversion.
  6. Currently, subsidised kerosene is mainly diverted as a substitute or as an adulterant to diesel. The price differential between unsubsidised kerosene and diesel is in the range between Rs.18 and Rs.32 per litre which is still significant for middlemen as well as end consumers to divert the fuel as diesel substitute.
  7. The third challenge is in ensuring that the subsidy is accessible to its major beneficiaries — poor households.
  8. Highlights from the recent analysis by the Council on Energy, Environment and Water (CEEW): Kerosene is predominantly used as a lighting fuel in rural India and for both lighting and cooking in urban-poor households.
  9. Shifting from kerosene to alternatives such as solar-assisted solutions for lighting and LPG for cooking could be economically beneficial for both the government as well as households and provide households a healthier alternative.
  10. Also, there is a bottom-up demand for such a change. According to the analysis, 78 per cent of rural households in six major States are willing to adopt solar-based lighting solution in lieu of a reduction in their kerosene subsidy.
  11. The way ahead: Moving away from subsidised kerosene, and envisioning a kerosene-free India would be a visionary step towards the goal of clean energy access.

Why to use Aadhar?

  1. The use of Aadhaar as identifier for delivery of services simplifies the Govt delivery processes
  2. Brings in transparency and efficiency, and enables beneficiaries to get their entitlements directly to them
  3. Aadhaar obviates the need for producing multiple documents to prove one’s identity
  4. Legal: The provisions of the Aadhaar Act and Regulations under the Act came into effect from September 14, 2016
  5. As LPG subsidy is an expenditure incurred from Consolidated Fund of India, Ministry has notified the use of Aadhaar as mandatory requirement for availing of the benefit

Aadhaar must for LPG subsidy after November

  1. Govt has made Aadhaar mandatory for availing cooking gas (LPG) subsidies
  2. It has given two months grace period for citizens to get the unique identification number
  3. Oil marketing companies have been asked to faciliate enrolments.
  4. Current system: Govt gives 12 cylinders of 14.2-kg each at subsidised rates per household in a year
  5. The subsidy on every cylinder is transfered in advance directly into bank accounts of individuals, who then buy the cooking fuel at market rates

Weeding out the ghost beneficiaries

  1. Petroleum Ministry: Due to the PAHAL scheme, 3.34 crore duplicate/fake/ghost/inactive domestic LPG connections were weeded out as of April 1, 2015
  2. This figure was 3.56 crore in 2015-16 & using these figures, the government estimated a savings of Rs. 21,261.4 crore over the two years
  3. CAG: The government still has a long way to go in fully eradicating duplicate/fake/ghost accounts
  4. There were several instances of intra-OMC duplication (where a single Aadhaar number or bank account number was used for multiple LPG connections)
  5. And also many instances of consumers receiving more than mandated 12 subsidised cylinders a year

LPG subsidy savings largely due to falling oil prices: CAG

  1. News: About 92% of the Rs. 23,300-crore savings in subsidy payouts by the Petroleum Ministry in 2015-16 was due to the sharp fall in oil prices, according to CAG
  2. Schemes: Implementation of PAHAL (DBTL) Scheme coupled with the ‘Give it Up’ campaign has resulted in the reduction of offtake of domestic subsidised LPG cylinders
  3. But the resultant subsidy savings was not as significant as that was generated through fall of subsidy rates
  4. Context: Centre had claimed that it has saved about Rs. 22,000 crore due to the ‘Give it Up’ campaign, coupled with the direct bank transfers of the subsidies
  5. The CAG’s figure of a saving of Rs. 1,764 crore due to a lower offtake of LPG cylinders was based on actual numbers while the government’s calculations were estimates

CAG audit nails Centre’s claim on LPG subsidy saving

  1. News: A CAG report could state the extent to which Centre over-claimed its LPG subsidy savings
  2. Claim: Saving of Rs 22,000 crore in FY 2015 and FY 2016 due to direct bank transfers of subsidy (DBTL) and asking better off consumers to voluntarily give up theirs (GiveItUp)
  3. Audit: Audit has found that the saving from people voluntarily giving up LPG subsidy and direct bank transfers adds up to less than Rs 2,000 crore
  4. The remaining (Rs 20,000 crore) saving is due to the dramatic fall in the prices of LPG that India annually imports
  5. Trivia: LPG is a mix of 60% Butane and 40% Propane

LPG subsidy savings

  1. The Centre saved over Rs.21,000 crore in LPG subisdy in the last two financial years
  2. Reason: Direct Benefit Transfer- paying subsidy directly into bank accounts of actual users
  3. This helped eliminate duplicate connections as well as diversions
  4. Data: DBT for LPG started in select districts from November 2014 and in the rest of the country from January 1, 2015
  5. As on April 1, 2015, there were 18.19 crore registered LPG consumers and 14.85 crore active consumers implying a gap of 3.34 crore consumers which were duplicate, fake or inactive
  6. Saving: Eliminating such fake consumers helped save Rs.14,672 crore in 2014-15 fiscal
  7. The saving in 2015-16 was about Rs.7,000 crore, lower than the previous fiscal because oil prices slumped, cutting the subsidy required

83 lakh people voluntarily gave up LPG subsidy

  1. News: The govt is committed towards reforming the subsidy structure by making it more targeted
  2. Background: In Mar 2015, PM had started the ‘Give it up’ campaign urging the affluent class to give up their LPG subsidy
  3. Achievement: 83 lakh people had voluntarily given up their LPG subsidy so far.
  4. Future: The govt will provide 5 crore LPG connections on concessional rates in the name of women from BPL families over 3 years till 2018-19

DBT regime may evolve into a social security platform

  1. The govt is planning to scale up the present regime for direct transfer of benefits to the poor under various welfare schemes
  2. Govt. will create a unified national database of beneficiaries that can be updated in real-time
  3. It can automatically trigger new benefits such as vaccine shots for a newborn baby
  4. A committee in the Cabinet Secretariat is also working with the Finance Ministry to create a network of 2 million cash points in 6 lakh villages by March 2017
  5. The cash points such as kirana stores, chemists and Grameen Dak Sewaks will ease the process of getting the cash in hand for the rural poor

Kerala to take DBT route for pension

  1. The Kerala govt is gearing up for an ambitious rollout of DBT of welfare pensions to some 12 lakh beneficiaries in Feb.
  2. Pension will be disbursed with the involvement of local bodies.
  3. The decision to switch over to the DBT system was taken following serious lapses in pension disbursement through the postal network.

Social sector asks Jaitley to review subsidy alternatives

  1. Social sector groups want Finance Minister to review the implementation of alternative subsidy systems before going ahead with DBT.
  2. There have been several instances of in-kind transfers being successfully implemented in various parts of the country.
  3. The demand comes at a time when the govt is keen to expand the ambit of its DBT scheme for subsidies.
  4. There was a unanimous appeal from all the different social sector groups for additional funds for the social sector.

Online initiative to engage LPG consumers and citizens

  1. The aim is to engage the LPG Consumers and Citizens of India in providing efficient and citizen friendly services in LPG distribution.
  2. Two online discussion forums have been launched on myGov.in and mylpg.in.
  3. Valuable suggestions or comments will be considered for improving the customer oriented services related to LPG Coverage & Delivery.
  4. It is one of the initiatives for observing 2016 as the “Year of LPG Consumers”.
PIB

Direct transfer of kerosene subsidy

The Centre has announced a scheme to implement direct benefit transfers for kerosene subsidies starting April 1.

  1. Under the scheme, the consumer would be required to pay the full unsubsidised price of kerosene at the time of purchase.
  2. The subsidy amount will then be directly transferred to their bank account.
  3. This will be done by incentivising States to make the transition.
  4. Few states have already agreed to initiate the scheme in a few of their districts.

Textiles Ministry plans direct benefit transfer to cotton farmers

  1. The Ministry of Textiles is planing to implement DBT to cotton farmers’ accounts, if the price of cotton drops below the MSP.
  2. The ministry will make available the funds to the state govt to be paid to the farmers.
  3. The Cotton Corporation of India will get into MSP operations as and when required in the cotton-growing states.
  4. China has a system for direct payment of benefits to farmers and the Chinese spinning mills have benefited from it.

DBT has helped remove ‘ghost beneficiaries’: CEA

  1. Before DBT, 1 in 4 subsidised LPG cylinders were going to “ghost beneficiaries.”
  2. This saved the government Rs. 12,700 crore on its subsidy bill in 2014-15 and is expected to save Rs. 6,500 crore during the current year.

Questions (attempt in the comments section)

1

What are the merits and demerits of direct benefits transfer (DBT) scheme in the Indian context? Enumerate.

2

Some argue that time is ripe for pushing Direct Benefits Transfer (DBT) for all subsidy programmes. Do you agree? Substantiate.

3

What measures should be taken to make JAM trinity to be an effective enabler of DBT (Direct Benefits Transfer)? Identify the problems and suggest solutions.







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