Model Answer
0 min readIntroduction
Subsidies have long been a cornerstone of India’s economic policy, aimed at ensuring affordability of essential goods and services, particularly for vulnerable sections of society. Traditionally, these subsidies were delivered through price controls and administered sales via the Public Distribution System (PDS). However, the system was plagued by inefficiencies and leakages. In recent years, there has been a significant shift towards Direct Benefit Transfer (DBT), where cash benefits are directly transferred to beneficiaries’ bank accounts. This transition aims to create a more efficient, transparent, and targeted subsidy regime. The question explores how this replacement fundamentally alters the subsidy landscape in India.
Understanding Price Subsidies and DBT
Price Subsidies: These involve the government lowering the price of a good or service for consumers, typically through the PDS. The difference between the market price and the subsidized price is borne by the exchequer. Examples include subsidized food grains, fertilizers, and LPG cylinders.
Direct Benefit Transfer (DBT): This involves directly transferring cash benefits to the bank accounts of identified beneficiaries. The beneficiaries can then purchase the goods or services at market prices. DBT aims to empower beneficiaries with choice and reduce the scope for corruption.
Comparison of Price Subsidies and DBT
| Feature | Price Subsidies | Direct Benefit Transfer (DBT) |
|---|---|---|
| Delivery Mechanism | PDS, administered sales | Direct transfer to bank accounts |
| Targeting | Universal or broad-based, often with inclusion/exclusion errors | Aadhaar-linked, self-selection, or targeted based on socio-economic criteria |
| Leakages & Corruption | High due to diversion, ghost beneficiaries, and inefficiencies in the PDS | Lower, as benefits are directly credited to beneficiaries |
| Distortion of Market | Significant, leading to overconsumption and inefficient resource allocation | Minimal, as beneficiaries purchase goods at market prices |
| Administrative Costs | High due to storage, transportation, and monitoring of PDS | Relatively lower, primarily related to beneficiary identification and transfer mechanisms |
Changes Brought About by DBT
Increased Efficiency and Reduced Leakages
DBT significantly reduces leakages by eliminating intermediaries and directly transferring benefits to beneficiaries. The JAM (Jan Dhan, Aadhaar, Mobile) trinity has been instrumental in this regard. According to a 2019 study by the National Council of Applied Economic Research (NCAER), DBT has reduced leakages in the PDS by approximately 43%.
Empowerment of Beneficiaries
DBT empowers beneficiaries by giving them the freedom to choose what to purchase, rather than being restricted to the goods available through the PDS. This promotes consumer sovereignty and allows beneficiaries to prioritize their needs.
Improved Targeting
DBT allows for more precise targeting of subsidies to those who genuinely need them, based on socio-economic criteria or self-declaration. This ensures that resources are used more effectively.
Market Efficiency
By removing price distortions, DBT promotes a more efficient allocation of resources and encourages competition among suppliers.
Challenges in DBT Implementation
Financial Inclusion & Banking Infrastructure
Access to banking services remains a challenge in rural areas, particularly for marginalized communities. Lack of bank accounts or limited banking infrastructure can hinder DBT implementation.
Aadhaar Related Issues
While Aadhaar is central to DBT, concerns regarding data privacy and exclusion of individuals without Aadhaar persist. The Supreme Court’s judgment on Aadhaar has clarified its scope, but challenges remain.
Digital Literacy
Beneficiaries need to be digitally literate to access and manage their DBT accounts. Lack of digital literacy can create barriers to participation.
Identification of Genuine Beneficiaries
Accurately identifying genuine beneficiaries remains a challenge, particularly in the absence of updated socio-economic data.
Conclusion
The replacement of price subsidies with DBT represents a paradigm shift in India’s subsidy regime. While challenges related to financial inclusion, digital literacy, and beneficiary identification remain, the benefits of increased efficiency, reduced leakages, and empowerment of beneficiaries are undeniable. Continued investment in strengthening banking infrastructure, promoting digital literacy, and refining targeting mechanisms will be crucial to realizing the full potential of DBT and ensuring that subsidies effectively reach those who need them most. The future of Indian subsidies lies in a more direct, transparent, and accountable system.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.