09th January, 2016 (MAINS)


Q1. In what way could replacement of price subsidy with Direct Benefit Transfer (DBT) change the scenario of subsidies in India? Discuss. 

[12.5marks/2015/GS-3] 200 words.

Please write answer in the comments section.

  • Dev Verma

    2015 mains question sloved:
    Positive change:
    1.Middlemen will be eliminated. Hence leakages will be reduced.
    2.The scheme is Aadhar card based which is based on biometric identification, thus fake & duplicate beneficiaries will be eliminated.
    3.DBT scheme allows time-bound transfers hence avoids delays in transferring money, which is one of the biggest problems beneficiaries are facing.
    4.This scheme eliminates intermediaries and rents for fair price shops as subsidies and benefits of welfare schemes are transferred directly. This will help Indian economy in the long run as the structural expenditure will be reduced.
    5.As everyone can purchase goods at market price, there will be healthy competition between the sellers in the market. The problem of middlemen diverting subsidized grains to markets will be eliminated.
    Negative change:
    1.Many rural & tribal areas, don’t have banking facility and road connectivity.
    2.Most of the banks appoint Business Correspondents to enrol beneficiaries in rural areas. They may open more than one account for each beneficiary for incentive. And there are many complaints that they are not giving passbooks to the beneficiaries making them unaware of the scheme. Illiterate beneficiaries are more vulnerable in this case.
    3.Direct cash may not be used for intended purpose and can be used in unhealthy ways. For example, the cash instead of food subsidy may be spent on drinking and smoking as most of beneficiaries’ families’ heads are men. This will be a disadvantage to women as there is no guarantee that they will get their share of the cash.

  • DVM

    As an Emerging Economy India is growing at the rate of 7% of It’s Gross Domestic product(GDP) and has a potential to grow with the rate of 10% of it’s GDP. India is passing through the demographic Transition where it’s GDP and Purchasing Power Parity(PPP) is increasing at tremendous rate but simultaneously facing the problem of Huge fiscal deficit due to variety of reasons and one of the Major reason among them is subsidies given by the government. The government gives the subsidies to overcome the problems of Illiteracy, Unemployment, Food crisis and to eliminate the vicious cycle of poverty. below are the various subsidies given by the government to it’s people:
    1. Subsidies on Fertilizers.
    2. subsidies on LPG cylinders.
    3. Subsidies on various government schemes like Right to Food, Right to education etc.
    4. Subsidies to various fuels companies to artificially maintain the prices of fuels in market etc.

    At present these subsidies are either given to the Producer(like fertilizer manufacturer or to fuel supplying companies) or to be distributed through state machinery like district bodies. These leads to the major pilferage and diversion of money before reaching to the intended recipient, It also breeds the corruption. In order to avoid this problem the Government of India Initiated the Programme of Direct Benefit Transfer in which Money is directly been transferred to the beneficiaries account which will help in the reducing the menace of Corruption to a major extend and will also help in eliminating the ghost entries by conducting the proper survey which will help in reducing the fiscal deficit in major extent by meeting the needs of the population at large. The government has initiated different schemes to achieve to acheive the target like:
    1. JAN DHAN YOJANA: This scheme will provide the bank account to atleast one person in family which will help in increasing the formal banking penetration in country and also help in transferring the Money into beneficiaries account directly.
    2. JAN DHAN- ADHAAR-MOBILE(JAM) TRINITY : It will help in linking the bank account to the beneficiaries adhaar number which will be helpful in tranferring the various subsidies directly to users like Gas subsidies, Fertilizers subsidies, Food security subsidies etc.
    3. PAHAL SCHEME: The government has initiated the PAHAL scheme in which the affluent person who does not needs the subsidiary benefits were encouraged to voluntarily give up their LPG subidiary which will help in reducing the LPG subsidiary to Major extent.
    4. The government has also liberalized the fuel prices as per the market rate which helped in reducing the fuel subsidies and helped in making the fuel companies in profit etc.

    In order to achieve the better result of such novel schemes there is an urgent need of creating awareness among the masses regarding the benefits of this schemes and increasing the penetration of institutionalized banking facilities in the rural parts of India. This can be achieved by making effective use of e-governance and by connecting the all Panchayats to high speed internet by National optical fiber network with rapid pace. Even if the DBT is not panacea to the problem of corruption and misappropriation of funds it will prove to be an effective medicine, which will help in developing the country in inclusive way and will help in reducing the fiscal deficit which can be used for other infrastructure development projects.

  • niks’ fixes

    The Direct Benefit Transfer (DBT) scheme is changing the scenario of subsidies in multiple ways in India:
    1. Better targeting of beneficiaries – The LPG subsidy has now been limited to families with annual taxable income less than 10 lakhs per annum. In such ways, subsidy goes to only the people in need. In absence of DBT, subsidies could not be targeted and undeserving also reaped the benefits.
    2. Reduced leakages – More benefits are now reaching the public directly and the leakages due to middlemen, corruption, impersonation etc. has been drastically reduced.
    3. Aid in planning – Since beneficiaries can be directly reached and targeted, it reduces the burden of subsidy financially as lesser number of people need to be reached. And bold initiatives with pre-defined target groups can be planned more easily.
    4. Women empowerment – The government promotes the DBT to be transferred to the woman head of the family. This brings forward financial empowerment of women and raises their stature and confidence in the society. This further benefits their families as these empowered women raise their children in a better manner and bring about radical change in the place of family in the society.

    These changes have been made possible, to a large extent, by increased use of Information and Communication Technologies in governance like the JAM trinity of Jan Dhan account, Aadhaar Card and Mobile phone. Let us hope such solutions become more widespread and bring about a radical change in the Indian society.