In what way could replacement of price subsidy with Direct Benefit Transfer (DBT) change the scenario of…

Question

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

Ghissu Editorial · Accepted Answer

Replacing price subsidies with DBT would shift support from cheap goods for all to cash for verified beneficiaries, cutting leakage and market distortion but risking exclusion and inflation erosion. PAHAL, the LPG DBT relaunched in January 2015, showed how duplicate claimants are struck off first.

**Introduction**

The Economic Survey 2014-15 put India's major subsidies at about 4.2% of GDP, much of it leaking. Replacing price subsidies, which make goods cheap for every buyer, with Direct Benefit Transfer (DBT) of cash into verified bank accounts would change who benefits, what it costs and how markets work.

**How DBT Would Change the Subsidy Scenario**

SKETCH: comparison | Price Subsidy vs DBT
a: Price Subsidy
b: DBT
- Routed through goods :: Routed through bank accounts
- Universal, untargeted :: Verified beneficiary
- Dual pricing :: Single market price
- Protects real quantity :: Fixed cash value

1. **Sharper Targeting**: The JAM trinity pays only verified households, weeding out ghost claimants where the Shanta Kumar Committee (2015) found close to half of PDS grain leaking.
2. **Fiscal Savings**: PAHAL, the LPG DBT relaunched in January 2015, struck off duplicate connections, showing that leakage is the first thing DBT cuts.
3. **End of Diversion**: A single market price removes the incentive to divert kerosene for adulteration or urea to industry.
4. **Balanced Input Use**: A per-hectare cash fertiliser subsidy would let prices reflect cost and end urea overuse.

**Risks That Could Limit the Change**

1. **Exclusion Errors**: Authentication failures and distant banks hurt the poorest; the Nagri (Jharkhand) cash-for-ration pilot was withdrawn in 2018.
2. **Inflation Erosion**: Fixed cash loses value as food prices rise, while PDS grain protects the quantity consumed.
3. **Tenant and Gender Gaps**: Tenants without titles and women in male-headed homes may miss the cash.

**Conclusion**

DBT can turn a leaky price intervention into a targeted income transfer, as PAHAL and PM-KISAN show. Phased rollout, women as payees and price-indexed amounts would secure entitlements and free fiscal space for farm investment.

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

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