Direct Benefits Transfers

Direct Benefits Transfers

How would Direct Benefit Transfer (DBT) of power subsidy work?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Read the attached story

Context

  • Punjab has been providing free power to the agriculture sector.
  • The new Electricity Amendment Bill 2020 has proposed providing subsidy on power to farmers through DBT, which is contrary to the prevailing ‘free power’ system in Punjab.

Free or subsidised power is being provided to millions of consumers in almost every state. Punjab is no exception but its free power scheme is. Other states can learn from the example of Punjab, here.

Practice questions for mains:

Q. Discuss the efficacy of Direct Benefit Transfer in power subsidy for farmers.

Punjab on knees

  • Before it submits suggestions regarding the Electricity Amendment Bill 2020, recently drafted by the Union Power Ministry to amend the Electricity Act 2003, a big challenge lies ahead for the Punjab government.
  • Under the garb of DBT, it is a move to stop the free power supply to them.

What is the current system of power subsidy for farmers in Punjab?

  • At present, Punjab is supplying free power to 14.16 lakh electricity-run tubewells of the agriculture sector which are getting power through 5,900 Agricultural Pumpset Feeders (APFs).
  • These APFs are metered and the Punjab Power Corporation charges the state government for consumed units recorded in metered APFs.

The Free Power Scheme

  • Farmers are getting power supply for their Kharif and Rabi crops from these feeders as per the recommendations of the Punjab Agriculture University (PAU), Ludhiana.
  • It is supplied for around eight hours every day in Kharif season and four hours on alternate days during Rabi crop season.
  • The state government pays around Rs 6,000 crore power subsidy bill to Power Corporation every year under the scheme to the farming sector.

What would change under the DBT allowed under the new Electricity Bill 2020?

  • Under DBT, farmers will have to pay the bill for the power consumed for agriculture purposes.
  • After that, they will get the subsidy in their bank accounts through DBT.
  • A meter would be installed on every individual tubewell.

Issues with Punjab farmer

  • Approximately the annual power bill will come to around Rs 46,000 to Rs 48,000, and farmers are required to pay a bill of Rs 4,000 per month.
  • In Punjab, 67 per cent of farmers come under the small and marginal categories with 1-2 hectares land.
  • Paying bills in advance is not possible for them due to debt.
  • If farmers don’t pay their bills, the department will disconnect their connection, which could lead to farmers’ agitation.

Can it work like DBT on LPG gas cylinders?

  • The bill suggests the subsidy be paid directly to consumers in cash on the pattern of LPG subsidy.
  • This proposal should be tried in a pilot project and if results are encouraging, only then it should be included in the amendment bill.
  • It is not feasible to provide meters on every pump set up across the country and then give cash subsidy every month after the consumer has paid the bill.

Punjab government’s own DBT scheme titled ‘Paani Bachao Paisa Kamao’ is also working here. How it is different from DBT under the new Bill?

  • The Punjab government’s scheme is a voluntary one.
  • The farmers who have adopted it need to get install a power meter on their tubewell but are not required to pay any power bill.
  • The main purpose of PBPK is to save groundwater by using it judiciously because, under the traditional system, several farmers are misusing the water by over-irrigating the crops due to free power available to them.

What do farmers’ organisations think of this?

  • Farmers’ organisations say that if the Punjab government agrees to this bill, they will fight it tooth and nail.
  • From where will poor farmers pay such heavy bills when they get an income after six months following the sale of their crop, they ask.
  • Anywhere in the world, the agrarian sector cannot run without the support of the government as it is the base of every human being who is dependent on farmers’ produce from his/her morning tea to dinner.

Back2Basics

[pib] Draft Electricity Act (Amendment) Bill, 2020

Direct Benefits Transfers

Public Finance Management System (PFMS)

Note4Students

From UPSC perspective, the following things are important :

Prelims level : PFMS

Mains level : DBT to farmers

  • The Punjab govt has directed all government procurement agencies to link the bank accounts of farmers with the Public Finance Management System (PFMS) portal before the procurement of paddy begins.
  • This has angered the arhatiyas (commission agents), a large number of whom want the government to roll back its decision.

Public Finance Management System (PFMS)

  • PFMS is an online platform developed and implemented by the office of the Controller General of Accounts (CGA) under the Union Ministry of Finance.
  • The PFMS portal is used to make direct payments to beneficiaries of government schemes.
  • In the present case, the idea is to monitor the accounts of farmers to ensure they get the payment for their crops from the arhatiyas, who pay farmers only after selling their produce and receiving the money from the buyers.

Background

  • PFMS initially started as a Plan scheme named CPSMS of the Planning Commission in 2008-09 as a pilot in four States of Madhya Pradesh, Bihar, Punjab and Mizoram.
  • It was for four Flagship schemes e.g. MGNREGS, NRHM, SSA and PMGSY.
  • In December, 2013 the Union Cabinet approved the national roll out of PFMS for all States

Direct Benefits Transfers

[op-ed snap] Necessary steps to ending poverty

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Universal Basic services will lead to overty elimination.

CONTEXT

It is by now close to 50 years since Indira Gandhi brought the idea of eradicating poverty into the electoral arena in India. ‘Garibi Hatao’ had been her slogan.

Income Generation And Poverty Elimination

  • The role that income generation actually played in lowering poverty in India may be gauged from the facts that economic growth had surged in the 1980s, and the late 1960s was when agricultural production quickened as the Green Revolution progressed.

Why poverty still exist?

  • So, if there had been a focus on poverty even 50 years ago, why have we not seen it end?
  • This is because the approach of public policy to the problem has been to initiate schemes which could serve as no more than a palliative, as suggested by the very term ‘poverty alleviation’ commonly used in the discourse of this time.
  • These schemes failed to go to the root of poverty, which is capability deprivation that leaves an individual unable to earn sufficient income through work or entrepreneurship.
  • Income poverty is a manifestation of the deprivation, and focussing exclusively on the income shortfall can address only the symptom.

Efficacy of income support programme

  • An income-support scheme for any one section of the population is grossly inequitable.
  • We can think of agricultural labourers and urban pavement dwellers as equally deserving of support as poor farmers.
  • While it is the case that at present agricultural subsidies go to farmers alone, these are intended as production subsidies and so channelled due to the criticality of food production to all.

Welfare Programme More Efficient

  • On the other hand, a welfare programme cannot, ethically speaking, exclude those equally placed.
  • The BJP’s hurried introduction of its scheme also came with an overshooting of the fiscal deficit target, suggesting that it involves borrowing to consume, a fiscally imprudent practice.
  • The PM-Kisan has, however, been dwarfed by the promise of the Nyuntam Aay Yojana (NYAY) of the Congress, which envisages an annual transfer 12 times greater to the poorest 20% households.
  • While this scheme is not discriminatory, it is severely challenged by the issue of beneficiary identification in real time.
  • Poverty is capability deprivation.
  • Health, education and physical infrastructure are central to the capabilities of individuals, and the extent of their presence in a society determine whether the poor will remain so or exit poverty permanently.

What is needed?

1.Universal Basic Scheme

  • In light of a pitch that has been made for the implementation in India of a publicly-funded universal basic income (UBI) scheme, we can say that from the perspective of eliminating poverty, universal basic services (UBS) from public sources are needed, though not necessarily financed through the budget.
  • The original case for a UBI came from European economists.
  • Europe is perhaps saturated with publicly provided UBS.
  • Also the state in some of its countries is immensely wealthy.
  • So if a part of the public revenues is paid out as basic income, the project of providing public services there will not be affected.
  • This is not the case in India, where the task of creating the wherewithal for providing public services has not even been seriously initiated.

2.Focus on Human Development

  • There is indirect evidence that the provision of health, education and public services matters more for poverty than the Central government’s poverty alleviation schemes in place for almost half a century.
  • A discernible pattern is that the southern and western regions of India have lower poverty than the northern, central and eastern ones.
  • This, very likely, is related to higher human development attainment in the former. This indicator is based on the health and education status of a population apart from per capita income, bringing us back to the relevance of income generation to poverty.

Way Forward

  • There is a crucial role for services, of both producer and consumer variety, in eliminating the capability deprivation that is poverty.
  • As these services cannot always be purchased in the market, income support alone cannot be sufficient to eliminate poverty.
  • It is in recognition of the role of services in enabling people to lead a productive and dignified life that the idea of multi-dimensionality has taken hold in the thinking on poverty globally.
  • At a minimum these services would involve the supply of water, sanitation and housing apart from health and education.
  • It has been estimated that if the absence of such services is accounted for, poverty in India would be found to be far higher than recorded at present.
  • The budgetary implication of the scale at which public services would have to be provided if we are to eliminate multi-dimensional poverty may now be imagined.
  • This allows us to appraise the challenge of ending effective poverty and to assess the potential of the income-support schemes proposed by the main political parties. There are no short cuts to ending poverty, but ending it soon is not insurmountable either.

Direct Benefits Transfers

[op-ed snap] Pathways to an income guarantee

Note4students

Mains Paper 3: Economy | Inclusive growth & issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: MIG

Mains level: Why there is a need of income support and how ut can be mobilised!


CONTEXT

The idea of a minimum income guarantee (MIG) has caught up with political parties. With the promise of the Nyuntam Aay Yojana (NYAY) by the Congress party, it is clear that the MIG is going to be a major political issue for the coming general election.

What is MIG?

  • A MIG requires the government to pay the targeted set of citizens a fixed amount of money on a regular basis.

Income guarantee schemes at present

  • A limited version of the MIG in the form of the PM KISAN Yojana is already being implemented by the NDA government at the Centre.
  • State governments in Odisha and Telangana have their own versions of the MIG.

What is Nyay

  • NYAY is the most ambitious of these MIG schemes. It promises annual income transfers of ₹72,000 to each of the poorest five crore families comprising approximately 25 crore individuals.
  • If implemented, it will cost the exchequer ₹3.6 lakh crore per annum.

Concerns regarding such income guarantee scheme

  • Is there a case for additional spending of such a large sum on the poor? The answer is yes.
  • Can government finances afford it? No.
  • Even if the government can mobilise the required sum, is the scheme a good way of spending money on the poor? No.

The situation of the marginalised section

A.Situation of farmers

  • Many landless labourers, agricultural workers and marginal farmers suffer from multi-dimensional poverty.
  • Benefits of high economic growth during the last three decades have not percolated to these groups.
  • Welfare schemes have also failed to bring them out of destitution.
  • They have remained the poorest of Indians.

B.Workers

  • Contract and informal sector workers in urban areas face a similar problem.
  • Due to rapid mechanisation of low-skill jobs in the construction and retail sectors, employment prospects for them appear increasingly dismal.

Problems faced by the marginalised section

  • These groups are forced to borrow from moneylenders and adhatiyas (middlemen) at usurious rates of 24-60% per annum.
  • For instance, for marginal and small farmers, institutional lending accounts for only about 30% of their total borrowing.
  • The corresponding figure for landless agricultural workers is even worse at 15%.

The relevance of Additional Government spending

  • There is a strong case for direct income transfers to these groups.
  • The additional income can reduce their indebtedness and help them get by without falling into the clutches of the moneylender.

Constraints due to limited finances

  • However, the fiscal space is limited.
  • No government can afford it unless several existing welfare schemes are converted into direct income transfers, or the fiscal deficit is allowed to shoot up way above its existing level, 3.4% the GDP.

Effects of income guarantee

1. Positives

A.On Poverty

  • On the one hand, income transfers will surely reduce income inequalities and help bring a large number of households out of the poverty trap or prevent them from falling into it in the event of shocks such as illness or death of an earner.
  • The poor spend most of their income, and a boost in their income will provide a boost to economic activities by increasing overall demand.

B. On workers

  • In principle, the income supplement can come in handy as interest-free working capital for several categories of beneficiaries such as fruit and vegetable vendors and small artisans, and promote their businesses and employment.

C. On health and education

  • Studies show that even a small income supplement can improve nutrient intake at high levels of impoverishment.
  • Besides, it can increase school attendance for students coming from poor households.
  • This would mean improved health and educational outcomes, which in turn will make the working population more productive.
  • Moreover, with a modest income support the risk of beneficiaries opting out of the workforce will also be small.
  • Besides, a moderate income support can be extended to a larger set of poor households. For the lowest 40% (about 10 crore households), income is less than their consumption expenditure.

2.Negatives-

  • On the other hand, large income transfers can be inflationary, which will hurt the poor more than the rich.
  • At the same time, large cash transfers can result in withdrawal of beneficiaries from the labour force.
  • A MIG can also provide legitimacy to the state’s withdrawal of provisions of the basic services.

Identifying beneficiaries

  • the SECC along with the Agriculture Census of 2015-16 can help identify a larger set of poor based on verifiable criteria; namely, multidimensional poverty, landlessness and the marginal farmer.
  • Together, these criteria cover the bottom 40%, approximately 10 crore households.
  • Drawing upon the experiences with the poor-centric welfare schemes such as MNREGA, Saubhagya and Ujjwala and PM-KISAN, datasets can be prepared and used to update the list of needy households.
  • For these 10 crore households, to start with, the scheme will require ₹1.5 lakh crore per annum.
  • Nonetheless, the required amount is beyond the Centre’s fiscal capacity at the moment.
  • Therefore, the cost will have to be shared by the States. Still the scheme would have to be rolled out in phases, as was done for MGNREGA.

Way Forward

  • All considered, no income transfer scheme can be a substitute for universal basic services
  • The direct income support to the poor can deliver the intended benefits only if it comes as a supplement to the public services such as primary health and education.
  • This means that direct transfers should not be at the expense of public services for primary health and education.
  • Moreover, universal health and life insurance are equally important, and so is the case with crop insurance.
  • Each year, medical shocks and crop failures push many families into the poverty trap.
  • The scope of Ayushman Bharat needs to be expanded to include outdoor patient treatments. The PM Fasal Bima Yojana can be made more comprehensive by providing free and wider insurance coverage.

 

Direct Benefits Transfers

[op-ed snap] A meaningful safety net for the poor

Note4students

Mains Paper 3: Agriculture | Issues related to direct and indirect farm subsidies and minimum support prices

From UPSC perspective, the following things are important:

Prelims level: PM-KISAN

Mains level: PM-KISAN and its mandate and benefits arising from it.


NEWS

CONTEXT

In the last week of February, the government launched a scheme to pay Rs 6,000 every year to poor rural households who own less than 2 hectares of land.

Analysis of rural income and the impact of cash transfer

  • The national sample survey (NSS) of household expenditures for 2011-12 (the latest publicly available) provides MPCE by fractile groups such as the poorest 5 per cent, the next 5 per cent, the next 10 per cent, and so on.
  • In 2011-12, the household size in rural areas in the state was 5.5. The consumer price index for rural areas changed from 111 in 2011-12 to 137 in 2017-18, giving a ratio of 1.23. Therefore, Rs 6,000 per family in terms of 2011-12 prices translates to Rs 74 per month (Rs 6,000/12/5.5/1.23).
  • According to the Rangarajan Committee Report, the poverty line for rural Bihar was Rs 971 in 2011-12.

  • Thus, the transfer leads to significant reduction in poverty. A similar calculation for all the states and union territories show a 10 per cent reduction in the percentage of the poor in many of them.

Analysis fo benefits by analysing Food security Scheme

  • The actual reductions are likely to be greater once one accounts for the benefits of the food security scheme.
  • The NSSO survey of consumption expenditure of 2011-12 provides data on the quantity of rice and wheat obtained from the ration shop and market as well as the prices at which they were obtained. The average purchase by the bottom 5 percentile households in 2011-12 was 15 kg of rice and 6.5 kg from the PDS shops at around Rs 3.5 per kg of rice and Rs 3.7 per kg of wheat.
  • The household would save Rs 195 per month on its purchase of wheat and rice.
  • With a household size of around 5.5, the food security act provides an additional income of Rs 35 per month per person.
  • The poverty line should be lower by that amount and the poverty gap would reduce by Rs 35. Thus, in the case of Bihar, another 10 per cent will cross the poverty line. Consequently, poverty will reduce from 40 per cent to 20 per cent.

Conclusion

  • The annual benefit of Rs 6,000 will provide the household some cushion against unexpected expenditure due to illness or accidents, which pushes many people to the margins of the poverty line — at times, even below it.
  • The new scheme will not eliminate poverty. But its impact on reducing poverty will not be negligible.

Direct Benefits Transfers

[oped snap] Little, late

Note4Students

Mains Paper 2: Governance | Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge  PM-KISAN .

Mains level: The news-card analyses PM-KISAN’s drawbacks and better alternative


NEWS

CONTEXT

That direct cash transfers (DCT) are the best way to support farmers — as opposed to subsidised supply of fertiliser and electricity or physical purchase of produce at above-market prices — is a well-established fact. The launch of the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) by Prime Minister, therefore, welcome, except that it is too little too late.

PM-Kisan Yojna

  • The scheme provides a flat Rs 6,000 per year to all small and marginal farmers owning up to 5 acres of land — an estimated 12 crore — payable in three instalments.
  • There is no crop with a basic cultivation cost below Rs 10,000 per acre today.

Drawbacks Of scheme

  • An instalment of Rs 2,000 under PM-Kisan would enable a farmer to barely buy Bt cotton seeds for two acres, meet his fertiliser requirement of wheat for two-thirds of an acre or harvest cane from one-sixth of an acre.
  • So, even if the money is transferred directly into the farmer’s Aadhaar-seeded bank sans any leakage, its utility from a purely agricultural standpoint is quite limited.
  •  Such a narrow time window and then blaming them — especially those ruled by the Opposition — for not showing interest in the scheme smacks of political opportunism.
  • Telangana and Odisha have come out with DCT schemes that, even if primarily politically-inspired, are more meaningful and effectively designed.
  • The Centre alone has, for 2019-20, budgeted a mammoth Rs 2,77,206 crore towards food, fertiliser and crop loan subsidies. This is over and above the Rs 75,000 crore provision towards PM-Kisan.

Better Usage of Funds

  • Abolishing the subsidy on fertiliser and farm credit — both of which have no real economic rationale — and limiting that on food to maintaining a minimum buffer stock to enable market intervention if necessary, it would be possible to create a Central DCT fund.
  • The money from this can be used not only for resource-poor landowning farmers but even share-croppers, landless agricultural labourers and other vulnerable households in both rural and urban areas.
  • And with Aadhaar-seeded bank accounts and digitisation of land records, it can be well-targeted too.

 

Direct Benefits Transfers

[op-ed snap]Good jobs, not Universal Basic Income, are needed for a good society

Note4students

Mains Paper 3: Economy | Inclusive growth & issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: universal Basic Income

Mains level: Debate surrounding Universal Basic Income and alternatives such as good jobs.


NEWS

CONTEXT

Neither is quotas in limited government jobs, nor raining down cash on farmers and informal workers in the garb of universal basic income are solutions for the Indian economy’s failure to create more good jobs at the bottom of the pyramid.

Need for Universal Basic Income

  • The fear is that unless fundamental economic structures are changed, further advances of technologies into the realms of “Industry 4.0″ will deprive even larger numbers of people of opportunities for work from which they can earn adequate and steady incomes.
  • UBI and its many variants—quasi-UBI and income supplements for targeted groups—treat only the symptoms of the disease.
  • The root cause of the disease is that many people do not have work that provides adequate incomes.
  • The “gig” economy is creating many opportunities for earning incomes. However, the incomes are insecure and often insufficient. Moreover, the conditions in which people have to work to earn their incomes are not always satisfactory.

What is a good Job?

  • A good job implies a contract between the worker and society.
  • The worker provides the economy with the services it needs. In return, society and government must create conditions whereby workers are treated with dignity and can earn adequate incomes.
  •  Good jobs require good contracts between workers and their “employers”.
  • Therefore, the government, to discharge its responsibility to create a good society for all citizens, not only for investors, must regulate contracts between those who engage people to work for the enterprise and those who do the work, even in the gig economy.

Good Jobs Instead Of UBI

  • The solution is not to endow workers with a UBI—that way leads to dependency, unfulfillment, depression and marginalization.
  • Employers to employ more numbers of less-skilled workers and pay them well. If they are provided good working conditions and opportunities to learn and grow, they will lead more satisfying lives.
  • To increase the productivity of firms, too often governments subsidize labour-replacing, capital-intensive technologies, rather than pushing innovation in socially more beneficial directions to augment rather than replace less skilled workers.”
  • India’s political leaders are challenged to provide more good jobs for the country’s huge number of young jobseekers.
  • Panic solutions are quotas for everyone in the limited numbers of government jobs and raining down cash to farmers and workers in informal sectors in the garb of “universal basic income”.

Way Forward

  • Economists and policymakers must go to fundamental principles: one, “fairness” for workers must be a stronger principle than “flexibility” for employers.
  • Reduce the number of labour regulations but be very firm about the essential regulations to ensure good incomes and good working conditions.
  • Two, tax incentives should be directed towards hiring of less-skilled workers, rather than attracting more capital investments that displace workers, so that people at the bottom of the pyramid can step on to the formal escalator for upward mobility in society.

 

Direct Benefits Transfers

[op-ed snap] Next wave of reforms needed to achieve the objectives of Ujjwala

Note4Students

Mains Paper 2: Governance| Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of Pradhan Mantri Ujjwala Yojana (PMUY).

Mains level: The news-card analyses the success story of Pradhan Mantri Ujjwala Yojana (PMUY), in a brief manner.


Context

  • The astounding success of the Pradhan Mantri Ujjwala Yojana (PMUY) in distributing deposit-free LPG cylinder connections to women is the result of the political will and a well-meaning execution machinery.

Background

  • It is rare to find a scheme that has so successfully involved stakeholders down to the level of panchayats and had a perfect programme governance.
  • It is learnt that the minister of petroleum and natural gas, the secretaries in the ministries and the chairpersons and managing directors of oil marketing companies personally supervised the work.
  • They visited at least one district to understand the issues on the ground coming in the way and provided solutions.

Success of the scheme

  • The scheme took the household coverage from about 56% to about 81% in just three years.
  • That was unimaginable a few years ago when, even for an urban consumer, getting a cylinder was a wait in frustration.
  • Almost everyone in the beneficiary segment and the industry is complementing the doers most deservedly.
  • Despite being a social scheme, the delivery was cost-effective with numbers indicating about ₹1,600 spend per beneficiary.
  • The Ujjwala scheme was possible only because of the robust foundation created by the subsidy payment scheme, direct benefits transfer (DBT), which was another significant achievement of the government.
  • The government plans to cover more women with additional budgetary provisions made in the interim budget of 2019.

Objective of PMUY

  • The objective of the scheme was to make the rural households climb the energy ladder and stop using agro-waste as fuel at homes.
  • The argument was that women face a health hazard, spend time of the day collecting agro-waste fuel, and are unduly held responsible for collecting fuel when men arguably are earning bread.

Challenges: necessity for the next wave of reforms

  • However, the excellent delivery of the Ujjwala scheme is inadequate to achieve the objectives. The next wave of reforms is necessary.
  • Agro-waste usage cannot be done away with yet because of unaffordability and often non-availability of refill, though cylinders are already at home.
  • The subsidy against that refill is credited to their bank accounts with no delay.
  • However, many newly enrolled consumers do not have the capacity to make upfront payment for the refill.
  • Many micro issues lead to the consumers not updating their phone numbers and a vast majority of them, in turn, cannot order a refill with ease.
  • Delivering low volumes, especially in sparsely populated, hilly and far flung areas, is not feasible and costly.
  • Also, strengthening supply chain in new areas will take time.

Efficiency of the private sector will make PMUY sustainable

  • The public sector has the strength to make these social schemes succeed.
  • The efficiency of the private sector will make it sustainable.
  • The size of the sector and the growth it promises makes it imperative to assess the possibility of courageously unbundling, decentralizing, and democratizing activities.
  • The scope is in the whole value chain from sourcing infrastructure to storage and transportation, and from bottling to distribution.

Issues and possible Solutions

  • Aggregation of demand from low-demand areas using technology, servicing them by vehicles that also carry other goods, and using private sector services may be a solution.
  • Tech-enabled, Aadhaar-based micro-financing may help bridge the finance gap for refill purchase.
  • The possibility of avoiding full payment, as subsidy follows immediately, can be explored in case of digital payments as the payer’s credentials are established while paying.
  • Refill bookings need to become easy and quicker by making the interface simpler, including possibly by voice.
  • Start-ups and tech companies have a potential to demonstrate their prowess here.

Other issues being put across by social analysts

  • If women had the freedom to come out of homes and indulge in recreation while gathering agro-waste, how can we ensure they find other avenues of recreation instead of being restricted to their homes as they are in some sections of society.
  • Also, the argument is that men benefit as much as women, as the indoor combustion of agro-waste is a health hazard for them as well.
  • In most households the economic benefits of subsidy are accruing to the earning members i.e. the men.

Conclusion

  • For success of any scheme, social reforms are necessary too.
  •  The DBT and PMUY are all set to be followed by reforms which will be far reaching in meeting the objectives.
  • The success of PMUY is already a benchmark, with many countries reaching out to India to help them replicate it.

Direct Benefits Transfers

[op-ed snap] The return of targeted cash transfers

Note4students

Mains Paper 3: Economic Development| Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of Minimum income guarantee scheme.

Mains level: The news-card analyses the issues and challenges w.r.t the idea of idea of minimum income guarantee scheme in India, in a brief manner.


Context

  • The general budget announced a scheme, Pradhan Mantri Kisan Samman Nidhi, under which vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support of ₹6,000 a year.
  • The idea of minimum income guarantee (MIG) is not new and has been in discussion for some time among academics in India but attracted attention after it was proposed in the Economic Survey of 2017.

Proposal of transferring some income is built on the twin principles

  • In simple terms the proposal of transferring some income to every citizen is built on the twin principles of universality and a notion of minimum basic income to those living at the poverty line.
  • The principle of universality is at the core of it given the problems of targeting.
  • But some form of income support to those who are unable to participate in labour market has been there in most countries in some form or other including in India, like the National Social Assistance Programme (NSAP) pensions for widows, elderly and disabled.

No country has implemented it yet

  • Although the idea of UBI has been in discussion for decades, no country has implemented it.
  • While a proposal for UBI was rejected by a three-fourth majority in Switzerland, Finland which started a pilot has now discontinued it.
  • But even in Finland, the pilot was not a strict UBI but a social protection scheme aimed at only the unemployed.
  • While there have been some pilots by NGOs in developing countries in Asia and Africa, they have varied in content of transfer and coverage with only few being fully universal.
  • Only the Namibia pilot experiment provided income transfer to people in the poverty line.

Indian context

  • The proposals in the Indian context have mostly been for a targeted income transfer scheme and not UBI.
  • In developed countries, the UBI is supposed to supplement existing social security provisions and a top-up over and above universal provision of health, education and so on.
  • In the Indian context, most arguments in favour of UBI are premised on the inefficiencies of existing social security interventions and seek to replace some of these with direct cash transfers.

Issue

System of cash transfers is not leakage proof

  • It is not just the fascination for targeting the poor which is at the core of these proposals but also a belief that all existing forms of social security transfers are inefficient.
  • While there is certainly some exaggeration in such claims, it is not true that the system of cash transfers is efficient and therefore leakage proof.
  • Several studies on cash transfers have found that cash transfers are not greatly superior in terms of leakages compared to other schemes of in-kind transfer such as the public distribution system (PDS).
  • On the other hand, numerous studies have documented that a move towards universalisation and use of technology enabled Chhattisgarh and Tamil Nadu to reduce leakages in the PDS.
  • But the real message from these experiments is also that universalisation is the key to efficient delivery of services against targeting proposed by these cash transfer schemes.

Cash transfers: not a panacea for all problems

  • The obsession with cash transfers also comes with an understanding that these will take care of all problems.
  • The current sets of proposals claim these as silver bullets for agrarian crisis to malnutrition to educational deficit and also a solution for the job crisis.
  • This is a tall order with different reasons for persistence for some of these.
  • A good example is the public distribution system (PDS) where it is clearly established that in-kind transfers are twice as effective in increasing calorie intake compared to equivalent cash transfer.

Limits the role of state to only providing cash income to the poor

  • The real issue with the approach of a targeted cash transfer scheme is that it envisions the role of the state to only providing cash income to the poor.
  • This kind of ‘Robin Hood’ approach seeks to absolve the state of its responsibility in providing basic services such as health, education, nutrition and livelihood.
  • But it is also iniquitous since it seeks to create demand for services without supplying the services, leaving the poor to depend on private service providers.
  • There is now sufficient evidence which shows that privatisation of basic services such as health and education leads to large scale exclusion of the poor and marginalised.
  • In any case, India is among the countries with lowest expenditure to GDP ratio as far as expenditure on health, education and so on are concerned.

Way Forward

  • The best antidote to poverty is enabling citizens to earn their living by providing jobs.
  • For those who are willing to work, schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme should be strengthened to enable then to earn decent incomes.
  • Similarly, the crisis in agriculture is unlikely to be resolved by income transfers.
  • But even with free and universal access to public services and access to livelihood opportunities, there may be a role for cash transfers, particularly for those who are unable to access the labour market or are marginalised due to other reasons.
  • The NSAP seeks to do exactly that by providing pensions to elderly, widows and disabled.
  • But even for these vulnerable and marginalised groups, the Central contribution to pensions has been only ₹200 per month.
  • The government needs to ensure a decent incomes to the poor, then only the intent to eradicate poverty through income transfers can be realised.

Direct Benefits Transfers

Be cautious in shifting to DBT, RBI tells States

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: Issues with DBT


News

Central bank’s report details benefits, pre-conditions for implementation

  1. Acknowledging the problems that have been experienced by three Union Territories (UTs) in the implementation of direct benefit transfer (DBT) for food subsidy, the RBI has advised States that are planning to shift to cash transfer to be cautious while effecting the migration.
  2. As for the processes to be followed by States prior to DBT execution, the RBI has referred to certain pre-conditions mentioned in the Central government’s 2015 food subsidy rules.
  3. The pre-conditions include complete digitisation and de-duplication of the beneficiary database and seeding of bank account details and Aadhaar numbers in the digitised database.

Problems outlined by RBI

  1. In its report on State finances, the RBI referred to problems such as inadequacy of transfers to maintain pre-DBT consumption levels, insufficiency of last-mile delivery mechanisms and a weak grievance redressal system.
  2. At present, three UTs — Puducherry, Chandigarh and urban areas of the Dadra and Nagar Haveli — are implementing the mode of cash transfer.
  3. The beneficiaries have the choice of buying food grains from the open market.
  4. In view of complaints of the poor finding it difficult to get rice under the DBT, the Puducherry government, early this year, approached the Centre to permit it to revert to the old system of supplying rice.

Benefits of DBT

  1. On the question of whether cash transfer is an alternative to the public distribution system (PDS), the RBI has stated that the cash transfer mode reduced the need for large physical movement of food grains.
  2. Further, given the wide inter-State and intra-State variations in food consumption habits, the DBT provides “greater autonomy” to beneficiaries to choose their consumption basket, apart from enhancing dietary diversity.
  3. Another reason for promoting the concept of DBT is to reduce the leakage in the PDS, as the Central government has to absorb a huge food subsidy bill under the National Food Security Act (NFSA)

Direct Benefits Transfers

[op-ed snap] Universal Basic Income is not feasible for India

Image source

Note4students

Mains Paper 3: Economy | Inclusive growth & issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: International Monetary Fund (IMF), Fiscal Monitor, GDP, Economic Survey, Universal Basic Income

Mains level: Debate surrounding Universal Basic Income


Context

IMF joins in the UBI debate

  1. The International Monetary Fund (IMF) has added its bit to the ongoing debate on Universal Basic Income in India.
  2. The latest Fiscal Monitor of the IMF, in its analysis, used fiscal space equivalent to the cost of the public distribution system and energy subsidies in 2011-12
  3. It showed that this can finance an annual Universal Basic Income of Rs 2,600 per person
  4. It is equivalent to about 20% of that year’s median per capita consumption, with the estimated cost at about 3% of the gross domestic product (GDP)

UBI: New to India?

  1. The basic idea of Universal Basic Income is not new for India
  2. The erstwhile Planning Commission had worked on it in the early 1960s

Why UBI debate started?

  1. Economists in the Union finance ministry published an excellent chapter on Universal Basic Income in the 2016-17 Economic Survey
  2. A large proportion of the population in India still lives below the poverty line and a number of government programmes providing subsidies and support to the poor are marred by inefficiencies
  3. There are leakages in the system, and often, people who actually need government support are left out
  4. Universal Basic Income is seen by many as an alternative to the existing system of subsidies, which is often associated with systemic inefficiencies

Why can India not opt for Universal Basic Income?

  1. Fiscal capacity
  • The Economic Survey calculations showed that a 75% universality rate with an annual Universal Basic Income of Rs 7,620 per year at 2016-17 prices will cost about 5% of the GDP
  • Economists calculated that an inflation-indexed Universal Basic Income of Rs 10,000 at 2014-15 prices—about three-quarters of that year’s poverty line—will cost about 10% of the GDP
  • Thinking: It is often assumed that resources can be raised by rationalizing subsidies and capturing a part of the revenue foregone on account of various tax exemptions, including in the personal income tax
  • Reality: The revenue forgone in most cases is optical and the result of poor design. In any case, a part of it is now out of the system with the implementation of the goods and services tax
  • Further, politically, it will be extremely difficult to roll back subsidies in order to create fiscal space for Universal Basic Income

2. Can create distortions in the labour market

  • A steady, permanent and guaranteed income without any work is likely to affect labour mobility and participation
  • It is also likely to increase wages, as has been witnessed after the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act
  • Problem: Higher wages without a commensurate increase in productivity will affect India’s competitiveness
  • This could also have longer-term implications in terms of higher inflation and lower growth

3. Nature of Indian politics

  • It is highly likely that political parties, in order to improve their chances in elections, would want to increase the amount of Universal Basic Income
  • Or try to bring back subsidies in some form or the other, which will have fiscal implications
  • India still has to prove that it can actually run balanced budgets for an extended period
  • The political class always has this temptation to declare premature victories and give away fiscal gains

What India actually needs?

  1. India needs rationalization of subsidies, better targeting and operational efficiency
  2. It needs to move to cash transfers at an accelerated pace with the use of Jan-Dhan, Aadhaar and mobile
  3. This will help reduce costs and spare resources for capital spending to augment growth
  4. As history has shown, the best way to pull people out of poverty is sustained higher growth

Back2Basics

Read Economic survey all chapters here- Click2get

Direct Benefits Transfers

[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.

Direct Benefits Transfers

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

Direct Benefits Transfers

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

Direct Benefits Transfers

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

Direct Benefits Transfers

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

Direct Benefits Transfers

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

Direct Benefits Transfers

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
  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

Direct Benefits Transfers

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
  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

Direct Benefits Transfers

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
  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

Direct Benefits Transfers

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.
  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.

Direct Benefits Transfers

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.
  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.

Direct Benefits Transfers

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”.
  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”.

Direct Benefits Transfers

Direct transfer of kerosene subsidy

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

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.

Direct Benefits Transfers

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.
  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.

Direct Benefits Transfers

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.
  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.

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:

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