By Anit Mukherjee —
- Status: In Progress – The Modi government has created a new portal to track its efforts to transition to a direct benefit transfer model in India
- Difficulty: High – With the size of India’s population, and the difficultly in targeting remote and disconnected rural population, employing a comprehensive direct benefit transfer program remains difficult.
This is the thirteenth installment in a series of articles on the Modi Reforms Scorecard by the staff and experts at the Wadhwani Chair in U.S.-India Policy. The series seeks to provide analysis on why reforms marked as “Incomplete” or “In Progress” have not been completed, and what impact such reforms could have on specific sectors or the economy at large.
Direct Benefit Transfer (DBT) is one of the success stories of the Modi government. Started in 2013 under the previous government led by the Indian National Congress, DBT expanded significantly both in scale and scope during the last five years. From its inception, nearly $104 billion in government benefits has been transferred through DBT until May 2019. With nearly 600 million beneficiaries spread over 440 schemes under 55 different ministries, DBT has become a whole-of-government initiative under the National Democratic Alliance government. More importantly, DBT is now a platform with a defined protocol and process of onboarding existing programs and new initiatives such as the recently announced cash transfer for farmers (PM KISAN), providing future central and state governments with powerful tools to alleviate poverty and reduce inequality going forward.
Figure 1: Timeline of DBT Beneficiary Enrollment, 2013-14 to 2018-19
The rapid expansion of DBT is due to several factors. First, it has leveraged increased financial inclusion (Jan Dhan), almost universal coverage of India’s biometric ID (Aadhaar) and expansion of mobile network, the so-called Jan Dhan-Aadhar-Mobile, or JAM, strategy. Aadhaar has been used extensively for removing fake and duplicate entries in LPG cooking gas, the National Rural Employment Guarantee Scheme (NREGS), and social pensions beneficiary lists for example, saving the central government an estimated $11 billion from these programs alone. Fiscal savings from the LPG program (PAHAL) have been used to expand access for nearly 50 million new house in rural areas through the Ujjwala program thereby achieving the dual goals of efficiency and equity in the distribution of fuel subsidies, providing a model for other countries as well.
Second, DBT has been extended to the largest food subsidy program in the world, the Public Distribution System (PDS) which has over 700 million beneficiaries. Under this framework, the Aadhaar numbers family members are linked to the ration cards who then obtain their quota through biometric authentication at fair price shops. As per government estimates, Aadhaar linkage has eliminated nearly 28 million duplicate and fake beneficiaries, saving the government nearly $4.5 billion in food subsidy in two years. Given the size of India’s food subsidy program, it would be interesting to see whether the next government moves from in-kind to cash transfers or provides a choice to the PDS beneficiary depending on their preference. The DBT framework makes this feasible to implement if there is a political consensus to do so.
Third, DBT has helped improve public expenditure management and incorporated different modes of government-to-person transfers. On the beneficiary side, this provides a choice to receive the transfers into accounts that may or may not be linked to Aadhaar. Contrary to the prevailing perception, Aadhaar is not mandatory to receive DBT; 40 percent of transfers are “Aadhaar seeded”. On the government’s side, the cost of maintaining the DBT platform is offset by the efficiency gains in monitoring and tracking implementation. Also, as various state governments restructure their own programs in a DBT mode, they can use the common DBT infrastructure and payments systems set up by the center, thereby saving significant administrative effort and resources in the process.
Figure 2: Beneficiary Perception of DBT Schemes in Rajasthan
Recent studies indicate that there is considerable support for DBT programs – beneficiaries feel that they have more control over their entitlements and find less evidence of corruption. At the same time, Aadhaar authentication failures can cause inconvenience and may even lead to denial of benefits, as some field reports have pointed out in the case of PDS in Jharkhand. How DBT is perceived by beneficiaries would therefore depend on the design as well as implementation, something that the next government would need to address as part of the overall strategy to transfer public subsidies and payments directly to the people whom it is meant to benefit.