Direct Benefit Transfer: All you need to know

Reforming the government delivery system through the Direct Benefit Transfer scheme is a progressive step, but it has limitations too. What is DBT? What are the challenges faced by DBT? Read here to know more.

Is DBT a part of the antipoverty program?

DBT can be a solution for beneficiaries to reduce the malpractices in the payment systems.

In this article, let us look at the Direct Benefit Transfer scheme, its history, Components, advantages, and the government schemes under the Direct Benefit Transfer.

What is Direct Benefit Transfer?

Direct Benefit Transfer scheme or program aims to establish a Giro system to transfer subsidies directly to the people through their linked bank accounts.

The following programs are part of the DBT initiative:

• National Child Labour Project
• Student Scholarship
• LPG subsidy

History of Direct Benefit Transfer (DBT)

The program was launched in selected cities of India on 1 January 2013.

The DBT was inaugurated at Gollaprolu in the East Godavari district by the former Union Minister for Rural Development, Jairam Ramesh, and the former Chief Minister of Andhra Pradesh, N. Kiran Kumar Reddy.

The first phase of DBT was launched in 43 districts, covering scholarships and social security pensions initially.

With effect from December 2014, it was expanded across the nation. 

Structure of the Direct Benefit Transfer

The Direct Benefit Transfer program aims to bring transparency and terminate pilferage from the distribution of funds sponsored by the Central Government of India.

Benefits or subsidies are immediately transferred to citizens living below the poverty level under DBT.

The Office of the Controller General of Accounts’ Central Plan Scheme Monitoring System (CPSMS) serves as a common platform for routing DBT.

CPSMS can be used to prepare the beneficiary list, digitally sign it, and process payments in the beneficiary’s bank accounts via the Aadhaar Payment Bridge.

Note: Aadhar is not mandatory to access benefits under DBT.

To know more about The Architecture Of Direct Cash Transfer To Public Using AADHAR, click here.

Objectives of Direct Benefit Transfer

• Curbing pilferage and duplication.
• Accurate targeting of the beneficiary.
• Reduced delay in payments.
• Electronic transfer of benefits, minimizing levels involved in benefit flow.

The mechanism of the Direct Benefit Transfer Scheme

• First, the beneficiaries are determined, and the beneficiary database is digitalized.
• Beneficiaries are given bank accounts if they don’t already have one.
• Beneficiaries will enrol in Aadhaar after the bank account has been set up.
• The seeding of Aadhaar with bank accounts and the beneficiary database.
• Putting the payment into the beneficiary’s account as soon as possible and starting the last-mile connectivity or service delivery under the protocol.

The Components of the Direct Benefit Transfer 

Beneficiary Account Validation System, a strong payment and reconciliation platform integrated with RBI, NPCI, Public and Private Sector Banks, Cooperative Banks, and Regional Rural Banks (core banking solutions for banks, settlement systems of Reserve Bank, Aadhaar Payment Bridge of the Payment Corporation of India), etc., are the essential elements in the execution of DBT schemes.

Validation of Beneficiary Account

These functions include features like application for the scheme by the beneficiary with a bank account and Aadhaar details, review by scheme owners for eligibility of the beneficiary according to scheme guidelines, beginning bank account/Aadhaar verification, payment initiation through Fund Transfer Order, etc. These features make up a workflow-based framework for centrally sponsored and state-linked schemes.

MGNREGA, PM-AWAS, PM-KISAN, DBT-PAHAL, etc. are some examples of such systems.

Although many of the initiatives use Aadhaar to process payments, payments can also be made using a bank account number if Aadhaar is not readily available.

Payment and Reconciliation Platform

By sending payment instructions to PFMS, which then sends them to banks after the appropriate beneficiary confirmation, the IT systems of the plan start the process of paying legitimate beneficiaries.

With the integration of more than 500 banks for the verification of bank accounts and the Aadhar seeding of beneficiaries with the NPCI, PFMS has developed into a powerful payment and reconciliation platform.

The failure of payments and delays in the beneficiary receiving their monies were significantly reduced by the prior authentication of beneficiary accounts.

Core Banking Solutions

As the final mile of distribution, banks are important to the DBT process flow.

All account-based transfers are sent through core banking channels. The processing effectiveness at this point along with the flow of reverse MIS provided the DBT program with the desired momentum.

Aadhaar Payment Bridge (APB)

One of the unusual payment methods mandated by NPCI, the Aadhaar Payment Bridge (APB), leverages the Aadhaar number as a crucial key to digitally channel government rewards and subsidies into the Aadhaar Enabled Bank Accounts (AEBA) of the targeted beneficiaries.

NPCI generates an Aadhaar mapper to enable the transfer of funds.

The most crucial element of the Aadhaar Payments Bridge (APB) is the Aadhaar mapper, which holds data about the bank accounts that have been seeded with the Aadhaar number and are used by NPCI to send payments to the destination Bank.

The types of schemes covered under the Direct Benefit Transfer 

The following are the different methods of cash transfer covered under DBT.

Cash transfer

The government immediately forwards cash to each beneficiary under the Direct Benefit Transfer cash transfer scheme. Following is a list of the numerous ways that money is transferred from the government to beneficiaries:

• The beneficiary may receive the amount directly.
• The fund is transferred from the State Treasury Account to the beneficiary.
• Through an Implementing Agency that has been assigned by the government.
• The beneficiary gets the fund from the State or Central Government.
• Some examples include the National Social Assistance Program (NSAP) and MGNREGA.

In-kind benefit transfers from the government to beneficiaries

• The Government pays benefits to the recipients in kind under the Direct Benefit Transfer In-Kind Benefit Transfer Scheme either directly or through government-appointed implementing entities.
• The cost of purchasing the items that can be used for public distribution and transporting them to the intended beneficiaries is often covered by the government. Then, these goods or services are provided to the beneficiaries at no cost or for a very cheap cost.

Other types of transfers

The Direct Benefits Transfer program also distributes funding and subsidies to other non-governmental functionaries that help implement government objectives, in addition to cash and in-kind transfers.

This category of benefit transfer includes incentives, entitlements, etc. that are provided to community workers and Non-Governmental Organizations (NGOs). Due to the assistance they provide to other recipients and the community, they are provided such benefits.

Advantages of the Direct Benefit Transfer 

• Direct Benefit Transfer lessens the possibility of fraud while accelerating the safe delivery of information and money.
• It eliminates the need for middlemen, such as government employees, by sending the subsidy amount directly to the beneficiary accounts.
• Transparency is increased, and incidences of theft from central government-sponsored monies being distributed are reduced.
• Direct Benefit Transfer ensures precise targeting of beneficiaries.
• By linking the fund deposits to their Aadhaar details, beneficiaries will be permitted to join just one bank account, preventing the duplication of subsidies.
• It enables the government to communicate with both citizens and program participants at the same time.
• DBT assists in the distribution of grants to worthy candidates who are living in poverty. It makes it easier for the government to communicate with the target recipients.
• The plan prevents theft during the distribution of payments and lessens the exploitation of public resources.
• DBT is a potent settlement and transaction technology that collaborates with numerous organizations.
• DBT has shown to be a successful method of reaching out to people to disperse aid funding.

Challenges faced by the Direct Benefit Transfer 

• Despite its widespread use and applicability, it can be noted that DBT has a few structural issues that need to be taken into account in due course.
• Approximately 91% of the population in the nation has currently registered for an Aadhar card. Since DBT and Aadhar are linked for programs, it is necessary to increase the Aadhar connection to 100% to ensure that no one is excluded.
• A low level of digital literacy in people living in rural areas poses one of the significant challenges in implementing this mechanism.
• Around 81% of Indians now have access to financial services, which may disqualify those from rural backgrounds. People won’t be able to access financial facilities if they are inadequate. Pradhan Mantri Jan Dhan Yojna of the Government of India will play a vital role here.
• Reaching those without bank accounts is extremely difficult for bank correspondents. Additionally, internet connectivity issues and other technical difficulties plague bank correspondents. For the benefits to reach the beneficiaries, banking services in rural regions must be improved.

Direct Benefit Transfer in PDS

Recently, The Centre has decided to make the Direct Benefit Transfer (DBT) for the Public Distribution System (PDS) optional for states as the pilot initiatives have failed to yield the desired results.

Details

The Centre had launched pilot projects for cash transfers in three Union Territories — Chandigarh, Puducherry, and Dadra & Nagar Haveli — to PDS beneficiaries, who had to then purchase food grains from the open market.

Food and Public Distribution Minister Ram Vilas Paswan stated the DBT effort did not achieve the desired objectives since recipients diverted payments for reasons other than purchasing food grains.

Furthermore, PDS recipients in a Maharashtra hamlet were offered the option of using DBT or purchasing foodgrains from a fair-pricing shop. It was discovered that the beneficiaries preferred to shop at the fair price shop.

Similarly last year, Jharkhand discontinued a DBT pilot in the public distribution system ten months after it was launched.

Positives of DBT in PDS

• DBT can prevent fraudulent transactions while also reducing red tape and enhancing efficiency.
• Flexibility and convenience: PDS provided flexibility, convenience, and choice in terms of food quality – people could now buy better quality grains than what they received through the PDS or spend the money on other foods.
• Targeting: The goal of DBT is not to do away with subsidies, but to target them effectively so that they flow only to the intended beneficiaries.
• Prevent market distortion: The subsidy in indirect subsidy is embedded in the physical delivery of a product at a price lower than the open market price. This price disparity disrupts the market, creating chances for arbitrage, supply diversion, and profit in the black market.
• Low economic cost: To handle the rationing of subsidized commodities, sophisticated administrative machinery must be maintained at a high expense, which can be reduced by DBT.

Negatives of DBT in PDS

• Delay in payment: Money not being deposited in accounts on time.
• Not Inflation indexed: The cash sum is not adjusted for market pricing or inflation. As a result, the monetary value is less than the market value of rice.
• Multiple accounts: Money is being placed into another account. This occurs when recipients open a new bank account, which is automatically connected to their Aadhaar number. The money is automatically deposited in the newest account to be seeded with Aadhaar via the Public Finance Management System – National Payments Corporation of India’s cash remittance system. The beneficiary, on the other hand, examines the account registered with the civil supplies department.
• Inaccessibility: According to a study by NITI Aayog, it was found that the beneficiaries of the cash transfer initiative had trouble accessing funds deposited in their bank accounts.
• Lack of communication: DBT’s standard operating procedures require recipients to be notified through SMS. People are unconcerned about money being deposited by SMS. As a result, recipients were frequently required to make several journeys to banks to check on and withdraw funds. This resulted in significant opportunity costs, particularly for the rural poor.
• Extra cost: It was also discovered that the majority of beneficiaries had to spend extra money on single-purpose visits to banks to withdraw the subsidy amount and to the market to purchase food grains.
• Time-consuming: Beneficiaries discovered that going to the bank to withdraw money takes longer than going to the ration shop to obtain their fortnightly rations.
• Exploitation by banks: Banks were discovered to be adjusting the money beneficiaries received with any outstanding loans they had, rendering them unable to buy rice from ration stores.
• Inadequate grievance redressal mechanisms: There were toll-free numbers, but people did not know how to report their grievances.

What is the current level of Central Government subsidy and to what extent is it under DBT?

• In the fiscal year 2021-22 Union Budget, the Centre allocated approximately Rs 3.70 lakh crore (more than 10% of the entire budget amount of Rs 35.83 lakh crore) for 38 different forms of subsidies, the most important of which being food, fertilizer, and gasoline.
• All subsidies are included in DBT. DBT also covers several sorts of scholarships/stipends and monetary support, in addition to subsidies.
• 312 schemes, including key subsidies being run by 54 Central Government Ministries and Departments, are part of DBT.
• The deletion of 3.99 crore duplicate and fake/non-existent ration cards (between 2013 and 2020) resulted in an estimated saving of approximately Rs 1 lakh crore for the Public Distribution Scheme (PDS).
• MGNREGS saved 10% on wages by removing duplicate, fictitious/non-existent, and ineligible beneficiaries. Aside from that, 4.11 crore duplicate, fake/non-existent, dormant LPG connections have been removed.

Way forward

• For a DBT implementation to succeed, there must be a focus on three critical areas:

1. Proper identification of beneficiaries: Aadhaar can solve the identification problem.
2. Timely transfer of money to beneficiaries: Some banking tasks could be replaced by mobile penetration. However, physical connectivity to financial centres will be required at the final mile.
3. Their ability to access these benefits with relative ease.

• Choice-based DBT system: People could be given the option of switching to cash transfers or remaining with subsidized food in this case. This will protect recipients, particularly the most vulnerable, against suboptimal implementation.
• More pilot initiatives are needed, with a focus on beneficiary convenience rather than government cost savings. If beneficiaries embrace it freely, savings will occur, possibly in bigger numbers.

Article Written by: Remya