Budget 2016: PAHAL may be a success but not all DBTs are; FM should mind the gaps

By Malini Chakravarty

Direct Benefit Transfer (DBT) schemes, in vogue for some time in India now, have surfaced with renewed fervour over the last year and a half. DBT, as the term suggests, is a strategy aimed to electronically transfer price subsidies and benefits provided under various welfare schemes as cash directly into the bank accounts of beneficiaries.

The Economic Survey 2014-15 made a strong case for replacing various price subsidies and in-kind transfers with DBT schemes through the “JAM Trinity” (Jan Dhan–Aadhaar–Mobile) platform.

Budget 2016: PAHAL may be a success but not all DBTs are; FM should mind the gaps


As per the Ministry of Finance website, by March 2015, 36 schemes, including that for LPG subsidy (also known as modified DBTL or PAHAL), had been brought under the DBT scheme. Several of these were already a cash benefit (such as various kinds of pensions, different types of scholarships, payments related to MGNREGA, etc.).

DBTL, on the other hand, is a product-linked price subsidy which is transferred to the beneficiaries’ bank account when they purchase cooking gas. Since then the ambit of DBT has been expanded to provide cash transfers in lieu of product-linked price subsidies such as for subsidies in agriculture as well as for in-kind transfer of food through the PDS, by the Centre as well as a number of tates.

DBTs: Pros and Cons

As is known, any social welfare programme must deal with three basic issues: How much to deliver? Whom to deliver to? How to deliver? While it is generally agreed that cash transfers for welfare programmes which in any case are cash benefits need to be strengthened, opinion is sharply divided on the issue whether and to what extent DBT schemes can be seen as a magic bullet for delivering all kinds of welfare programmes.

Those in favour argue that DBTs can help plug leakages, lead to better targeting, increase transparency and efficiency in the delivery of social welfare benefits, save fiscal resources and increase beneficiary choice and flexibility.

Critics, on the other hand, point out that DBTs only seek to address the issue of “how to deliver”. The most important issue “whom to deliver to” cannot be addressed by DBTs. This is because a programme of cash transfers does not by itself solve the problems of identifying beneficiaries and hence the problems of exclusion errors that plague targeted systems.

Moreover, given that the systems of price indexation that exist in India are typically slow and inadequate, cash transfers (when given in lieu of in-kind transfers) may not insulate poor people against periodic price inflation. Further, successful implementation of DBT schemes is predicated on access to well-functioning banking infrastructure and network connectivity, which may not be available in all areas of the country.

The alternative solution for last mile delivery through Banking Correspondents (BC), the network that connects to the beneficiaries at the last mile, is also fraught with a number of problems, including that of attrition. Critics also note that replacing in-kind transfers such as those on food with cash transfers may even compromise food security in the economy, as the basic purpose of the PDS of “providing an incentive to farmers for foodgrain production and ensuring the distribution of such food to deficit area, would be lost in a system of cash transfers”. For instance, if withdrawal of state support for production of food grains leads to a fall in production, it may lead to dependence on expensive imports.

Experience on the Ground

While the arguments for and against DBT are many, it is important to understand how these have been faring on the ground. Indeed there are some examples of successful cash transfers, for instance, that of the successful transfers of funds into beneficiary bank accounts following the recent flood in Tamil Nadu.

Reports show that PAHAL scheme has been a success in terms of weeding out ghost beneficiaries and reducing leakages leading to savings of fiscal resources (although doubts have been raised about the veracity of the extent of savings made). At the same time, there are a number of cases, which though touted as successes, are beset with problems.

Implementation of the DBT of pensions in Andhra Pradesh, for instance, has been hampered because of lack of adequate banking infrastructure, shortfall in the number of BCs and issues with network connectivity. Similarly, in Uttar Pradesh, the DBT for certified seeds launched last year has shown large scale exclusion.

This is mainly owing to the conditionality requiring that farmers provide land ownership records to be identified as eligible beneficiaries. This alone has ensured that a large number of farmers are left out of the programme – one, because of difficulty of obtaining land records; and two, because a significant amount of land is cultivated by share croppers, under unrecorded tenancy.

In short, given the plethora of problems that a single minded-focus on cash transfers can entail, it is pertinent that cash transfers are seen as supplements, and not as substitutes to public provisioning of goods and services. It is, therefore, hoped that the government would take into account the varying experiences on the ground, before it makes big ticket announcements for DBT in the forthcoming budget.

(The author is with Centre for Budget and Governance Accountability. She can be reached at malini@cbgaindia.org. Views expressed are personal.)

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Updated Date: Feb 24, 2016 09:14:41 IST

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