Policy Update
Rishap Singh
Background
India’s Direct Benefit Transfer (DBT) system marks a transformative step in public service delivery. It aims to fundamentally reshape how welfare benefits reach citizens. Introduced about a decade ago, DBT was designed to directly credit government subsidies into the bank or postal accounts of accurately identified beneficiaries. The system’s core innovation lies in the JAM trinity—Jan Dhan bank accounts, Aadhaar unique IDs, and mobile phones—which enabled massive-scale, targeted, and transparent transfers.
DBT emerged in response to widespread inefficiencies, corruption, and leakages that plagued India’s traditional, paper-based subsidy distribution system. For decades, the system was criticized for being slowed down by excessive bureaucracy and inefficiency. Notably, the Public Distribution System (PDS) suffered a leakage rate as high as 46.7% in 2011. Funds were routinely diverted by “ghost beneficiaries” and intermediaries, while wealthier households often benefited more than the poor from price subsidies, distorting markets and weakening equity.
The primary objective of DBT was to curb such inefficiencies, eliminate corruption, and ensure welfare benefits reached the rightful recipients. In doing so, it significantly improved the efficiency of public spending while empowering vulnerable citizens with greater financial control. It also reinforced the constitutional guarantee of a dignified life under Article 21, transforming welfare from a system of bureaucratic dependence into one of direct entitlements.
The “Post-DBT Era” (2014 onwards) witnessed notable gains in fiscal discipline and inclusion. The evolution toward DBT 2.0 signals a new phase, focusing on smarter eligibility verification and broader ambitions for poverty eradication, making DBT a cornerstone of inclusive governance.
Functioning
India’s Direct Benefit Transfer (DBT) system uses the country’s digital infrastructure—especially the JAM trinity (Jan Dhan accounts, Aadhaar, and mobile phones)—along with the India Stack to transfer benefits directly into beneficiaries’ bank accounts. This replaces older, inefficient physical distribution methods. DBT includes both cash transfers (like PM-KISAN, pensions, and scholarships) and in-kind support (such as food through PDS and fertilizer subsidies). Aadhaar plays a central role, serving as both an identity verifier and a financial address via the Aadhaar Payments Bridge (APB).
While DBT has successfully reduced leakages, challenges persist. The system spans over 450 schemes, widely regarded as inefficient and a major drain on public resources. Identifying eligible beneficiaries is further complicated by outdated databases such as the 2011 Census, which can distort actual need and lead to inclusion or exclusion errors.
This backdrop sets the foundation for DBT 2.0, conceptualized in two major dimensions:
- Online Eligibility Verification:- DBT 2.0 seeks to digitize and simplify eligibility determination using Aadhaar-linked systems. Platforms like DigiLocker and API Setu enable real-time, cost-effective digital verification, replacing cumbersome document submissions and reducing fraud.
- Comprehensive Subsidy Rationalization:- A more ambitious proposal envisions consolidating all subsidies into a single cash transfer, empowering beneficiaries with purchasing freedom and cutting bureaucratic inefficiencies. This includes re-evaluating beneficiaries every five years using AI and big data. Implementation would be through Centre-state MoUs, with successful models from states like Telangana and Odisha providing replicable templates.
Performance
Savings and Efficiency
- Total Cumulative Savings:- ₹3.48 lakh crore as of 2024.
- Subsidy Allocation Reduction:- Subsidies as a percentage of total government expenditure have halved from 16% (Pre-DBT Era: 2009–2013) to 9% in 2023-24.
Source: PIB Delhi
Welfare Efficiency Index (WEI)
This composite index, combining fiscal outcomes and social indicators, has risen nearly threefold from 0.32 in 2014 to 0.91 in 2023. The WEI is composed of DBT Savings (50% weight), Subsidy Reduction (30% weight), and Beneficiary Growth (20% weight).
Source: PIB Delhi
Beneficiary Coverage
Surge in Beneficiaries:- Beneficiary coverage has surged 16-fold from 11 crore to 176 crore since DBT implementation. This demonstrates the system’s ability to significantly expand reach without proportionally increasing budget outlays.
Source: PIB Delhi
Resilience
While there was a temporary spike in subsidies during the COVID-19 pandemic in 2020–21 due to emergency fiscal measures, the system’s efficiency rebounded, validating its long-term effectiveness. DBT’s capacity to provide food or cash support to a remarkable 85% of rural households and 69% of urban households during the pandemic has been praised by the World Bank.
Sectoral Impact (Key areas of savings)
Source: PIB Delhi
- Food Subsidies (PDS):- Achieved ₹1.85 lakh crore in savings, accounting for 53% of total DBT savings, largely due to Aadhaar-linked ration card authentication.◦
- MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme): Saved ₹42,534 crore with 98% of wages transferred timely through DBT-driven accountability.◦
- PM-KISAN (Pradhan Mantri Kisan Samman Nidhi): Saved ₹22,106 crore by deleting 2.1 crore ineligible beneficiaries.◦
- Fertilizer Subsidies: Saved ₹18,699.8 crores by reducing sales of 158 lakh MT of fertilizer through targeted disbursement
Impact
The Direct Benefit Transfer (DBT) system in India has had a far-reaching impact, driving not only financial savings but also systemic governance and social transformation.
- Enhanced Fiscal Prudence and Governance:- DBT eliminated ghost beneficiaries and middlemen, directing funds to genuine recipients without increasing budgets. This optimized fiscal allocation, reflected in the sharp rise in the Welfare Efficiency Index, makes DBT a cornerstone of modern governance in India.
- Citizen Empowerment and Dignity:- DBT, especially under the proposed 2.0 model, empowers citizens with purchasing power and autonomy, ending dependence on bureaucratic systems. This shift restores the “Right to Dignity” and promises generational change.
- Poverty Reduction and Social Inclusion:- Since liberalization, poverty has dropped from 47% in 1991 to 4% (5 crore people) in 2019. The JAM trinity accelerated this through financial inclusion and improved access to housing, water, electricity, and food, especially empowering women.
- Global Role Model:- Recognized by the IMF as a “logistical marvel” and praised by the World Bank, India’s DBT is now showcased globally, especially during its G20 Presidency, as a scalable model for transparent, inclusive welfare and anti-corruption reforms.
Emerging Issues and Suggestions
Key Issues:
- Exclusion Errors:- Eligible individuals may be denied benefits due to outdated beneficiary lists, missing documents, or mismatches in Aadhaar or bank data.
- Technological Barriers:- Rural areas often face poor internet connectivity and low digital literacy, limiting people’s ability to access DBT services effectively.
- Banking Infrastructure:- Limited availability of bank branches, ATMs, and banking correspondents in remote regions hampers last-mile delivery of funds.
- Aadhaar Dependence:- Biometric failures (especially among elderly and manual workers) and data privacy concerns hinder smooth authentication and raise trust issues.
- Grievance Redressal:- Many beneficiaries struggle to report or resolve issues due to weak, non-responsive, or language-restricted complaint systems.
- State-Level Variations:- Disparities in DBT implementation across states due to different platforms and processes create inconsistencies and inefficiencies.
Suggestions:
- Strengthen Grievance Redressal:- Set up multilingual, toll-free helplines, local facilitation centres, and online complaint tracking to resolve issues promptly and equitably.
- Enhance Digital Literacy:- Conduct focused awareness and training drives in rural and marginalized communities to build confidence in using digital platforms.
- Upgrade Infrastructure:- Expand mobile banking, digital kiosks, and banking correspondents to improve financial access in underserved areas.
- Improve Aadhaar Processes:- Ensure regular data updates and introduce alternate methods like OTP or facial recognition to reduce biometric failures, while enforcing data privacy standards.
- Standardize State Systems:- Develop common frameworks for DBT platforms, payment timelines, and monitoring tools across all states to ensure uniform service delivery.
- Leverage Emerging Technologies:- Use AI for real-time monitoring, blockchain for tamper-proof records, and partner with private tech firms for innovation and scale.
Way Forward
The Direct Benefit Transfer system has unequivocally proven to be a transformative tool for India’s welfare delivery, significantly enhancing the efficiency of public spending and expanding the reach of social benefits. It has successfully demonstrated that fiscal prudence and inclusivity can indeed go hand-in-hand. The vision for DBT 2.0 and beyond is to consolidate these gains and usher in an era of absolute poverty eradication and deeper citizen empowerment.
By subsuming fragmented subsidy schemes into a unified, direct transfer mechanism, India aims to move decisively away from a “70-year legacy of inefficient planning”. This bold step is crucial to fully unleash the potential of India’s robust digital infrastructure and political will to ensure every citizen can participate fully in the economy with dignity. These reforms seek to eliminate poverty, reduce bureaucracy, and empower citizens with dignity. India’s DBT journey offers a global model for building efficient, transparent, and inclusive welfare systems for a sustainable and equitable future.
References
BlueKraft Digital Foundation. (2025). A Quantitative Assessment of India’s DBT System. https://www.newsonair.gov.in/direct-benefit-transfer-initiative-saved-%E2%82%B93-48-lakh-cr-by-reducing-leakages-it-minister/
Pai, T. M., & Holla, N. (2020). DBT 2.0: A Model To Free India From Poverty https://swarajyamag.com/economy/dbt-20-a-model-to-free-india-from-poverty
Indicus Centre for Financial Inclusion. (2021). Direct Benefit Transfers: Status and Challenges Ahead. https://www.indicus.org/admin/pdf_doc/Direct-Benefit-Transfer-Status-and-Challenges-Ahead.pdf
Ministry of Finance. (2025). India’s DBT: Boosting Welfare Efficiency. In Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2123192
Vaidya, R., FOcUS, Basavaraddi, I., SpeciaL, Patel, K., JUne 2023 a deveLOpMent MOnthLY, KuMar tiWari, S., & KamiLa, anshuMan. (2023). Unveiling the science of life.https://www.ies.gov.in/pdfs/dbt-in-india-by-tiwari-and-kamila.pdf
Ministry of Finance, Government of India. (2024). Year Ender 2024: Department of Expenditure.https://www.pib.gov.in/PressReleasePage.aspx?PRID=2088438
International Journal of Novel Research and Development. (2025). A Critical Analysis Of Direct Benefit Transfer In India https://ijnrd.org/papers/IJNRD2501065.pdf
About the Contributor: Rishap Singh is a Research Intern at IMPRI, New Delhi. He is currently pursuing his Master’s in Public policy and Governance from Tata institute of Social sciences, Hyderabad.
Acknowledgement: The author extends her sincere gratitude to the IMPRI team and Ms. Aasthaba Jadeja for her invaluable guidance throughout the process.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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