The DBT(Direct Beneficiary Transfer) is a scheme, where the Welfare Benefits provided by the Government are directly credited to the bank or postal account of the accurately identified beneficiary.
Most of the Welfare Benefits Provided by the union and state governments are being delivered through DBT mechanism. E.g., PMKISAN, PAHAL scheme etc.
Advantages of DBT mechanism
- No leakages: DBT mechanism reduces the leakages of welfare benefits.
- Inclusive: Providing welfare benefits through cash transfer directly to the bank accounts of the beneficiaries is more inclusive compared to the in-kind benefits as it can cover more beneficiaries overcoming the geographical/ topographical challenges.
- Cost-effective: Providing subsidies through cash transfers is cost-effective as it avoids the logistic costs involved in distribution of subsidised goods. E.g., Distribution of subsidised food grains under PDS involves cost of procurement, storage and distribution.
- Choice to the beneficiary: Rather than providing welfare benefits in-kind/subsidised goods, DBT provides choice to the beneficiary to purchase goods or service of his choice from the market.
- Addresses regressive nature of some subsidies: Most of the subsidies are regressive in nature benefiting the richer households more than the poor. Earlier LPG subsidies benefited rich more than the poor as rich consumed more LPG cylinders than the poor households. Introduction of DBT enabled the government to put a ceiling on the subsidy benefits provided to a household.
- Doesn’t distort the market: Many subsidies provided in India involve price interventions. Such price interventions can distort the incentives of producers to increase their efficiency. E.g., Fertiliser subsidies disincentivised many vintage fertilizer plants to improve their efficiency as they are assured of getting compensated for the difference between the cost of production and government’s determined subsidised price. The inefficient firms fail to optimally utilize the scarce resources like Natural gas.
Introduction of DBT in fertilizer subsidies can overcome this challenge.
- Inclusion/Exclusion errors: Status of beneficiary is dynamic. The aim of social protection is to ensure that person comes out of below poverty at some point of time. But absence of continuous evaluation of schemes and their beneficiaries results in providing benefits to unintended beneficiaries. For example, most of the welfare benefits provided today are based on Socio economic Caste Census survey conducted in 2011.
- Misutilization: The DBT mechanism for providing welfare benefits are often criticised for their potential misuse by the beneficiary, as there is a chance that the cash is not utilized for the intended purpose.
- Inflation: Providing subsidies through direct cash transfer schemes may give more choice for the beneficiaries to consume goods and services from the market, but expose them to the market volatilities like inflation.
Thus, measures such as regular revision of beneficiaries list and revising the cash transfers by linking them with an appropriate inflation index should be taken to overcome the limitations of DBT mechanism.