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Uncertain Advantage

Is direct benefit transfer really a panacea for the rural poor?

Given the complex and varied situations in rural India, the results of the direct benefit transfer method are so far mixed at best and debilitating at worst, as seen in the subsidies for farm equipment and fertilizers
For poor rural people living on the margins, the system of direct benefit transfer show mixed results.

For poor rural people living on the margins, the system of direct benefit transfer show mixed results.

Direct benefit transfer (DBT), a system through which government programs transfer funds directly to bank accounts of beneficiaries, is hailed as a major intervention that is expected to cut a whole lot of misdirection and leakage in state spending as the eventual subsidy goes direct to the intended beneficiary. In principle, it is wonderful.

Proponents argue that with digitally enabled banking and ease of transfer of money without involving cumbersome paper transactions, the move not only eliminates spurious transactions but also cuts the red tape and improves efficiency. Huge efforts undertaken for financial inclusion and particularly the commendable effort in starting Jan Dhan bank accounts for tens of millions of people, DBT has become a real rather than only a hoped for method of reaching benefits directly to intended beneficiaries.

However, given the complex and varied situations and scenarios in rural India, so far the results of the DBT method are at mixed at best and debilitating at worst. There are many examples of this, some of which are recounted here.

Farm equipment subsidies

Different states have a range of schemes for offering subsidy on a wide range of agricultural implements such as pumps, drip irrigation systems, farm mechanization equipment, implements and so on. In the non-DBT era, the farmer had to do all that was needed in this bad world to become eligible for receiving the benefits. The eligible farm household would then go to a dealer (in fact, most often the dealer would approach the eligible farmer), pay his share to the dealer and take his equipment, leaving the job of collecting the subsidy to the dealer.

A range of malpractices of course evolved. Even the most reputed manufacturers routinely overpriced their gizmos to ensure that the payment by farmers covered their costs, and the subsidy part, when realized, was a windfall gain. There were many palms that were routinely greased and the subsidy thus benefited many people other than the farmer. The farmer’s chief gain was the ability to buy the gadget at a fraction of the price.

With DBT, the scene has changed. Even now, there are perhaps still bits of suspicious engagement in declaring someone as eligible. But now, the dealer demands full payment in advance before delivering the machine because he will receive nothing from the subsidy and it will go straight to the buyer. The trouble is that the buyer simply may not have enough money to pay upfront. Since the subsidy is given after the sale, he has got to borrow now, often from the same dealer and at high interest rates. This introduces an element of uncertainty for the farmer because not all dealers or other moneylenders consider all eligible farmers credit-worthy.

Cash transfer on fertilizers

This is perhaps likely to be the worst affected and the results will be there for all to see as the Kharif season program rolls out. When the subsidies were given to the producers of fertilizers on the cost plus formula, the reported problem was the inflation of cost of production. But in the market, the urea bag was available for the same price to every farmer.

Now almost 60% farmers are those individuals who do not have their land in their name, though it may be in their operational control. This could be because of the fact that land settlements are done once in so many decades and mutations do not happen regularly, so my land may be still in my grandfather’s name. The subsidy on fertilizer goes to the farmer whose name appears on the record. So my grandfather, who died, regretted by all, can enjoy the subsidy credited in his account, which he needs to open posthumously.

Plight of the sharecropper

Even if this problem be tracked and tackled (though it is easier said than done since subdivision of property within the family more often than not leads to vitiated rather than strengthened bonds between siblings and descendants), what is impossible to track and tackle is the case of the sharecropper.

There are different sharecropping arrangements prevalent in the country. In some, costs are shared along with the output and in others costs are borne entirely by the sharecropper. The latter case would make the fertilizers very expensive for actual users. In the former case, the landowner will get an additional bonanza in the form of the subsidy, which he may or may not part with. So, as usual the system works against the interest of the poorer and weaker of the two parties.

These are merely two examples. Added to these are the usual reasons of distance between banks and residence of a majority of hapless rural folk, the somewhat unpredictable and by no means conducive orientation of most rural bank branches, etc., as the causes of distress. But in general, DBT is far from a panacea in rural and agricultural situations. We can only hope that in some critical instances such as fertilizer applications, it does not prove debilitating.

Blind belief in technology

Merely because something is technology enabled does not necessarily make it more efficient or automatically successful. Kentaro Toyama, computer scientist and development researcher, argues in his book Geek Heresy: Rescuing Social Change from the Cult of Technology that technology is at best an amplifying factor. It amplifies the effect one seeks to make, but cannot substitute the effort per se nor can it work if a large number of non-technical essentials are missing in the whole system.

As we have seen, the obsolescence of land records, the prevalence of informal but variegated sharecropping contracts for agriculture operations, etc., are the non-technical essentials that obtain in the instance of digitally enabled DBT system adopted by government for reaching subsidy benefits to the rural folk.

Finally, if the officers deciding the eligibility of farmers (which includes land records officers, village council chiefs and district government officials) are too powerful and cause misdirection of the subsidy, perhaps the man who now works the data entries in the databases and causes transfers of benefits to occur has acquired a power he never had before. Subsidies are seen as easy money and the human mind is ingenious. This works, as is usual in rural India, in many layers. It is not easy to avoid the lure of easy money and such technology systems just enlarge the pool of rent seekers. This is something that needs to be accepted before any solution can be found.

Sanjiv Phansalkar is Programme Director at Tata Trusts. He was earlier a faculty member at the Institute of Rural Management Anand (IRMA). Phansalkar is a fellow of the Indian Institute of Management (IIM) Ahmedabad.

The views expressed in the article are personal.

Sanjiv Phansalkar
Sanjiv Phansalkar
Sanjiv Phansalkar is associated closely with Transform Rural India Foundation. He was earlier a faculty member at the Institute of Rural Management Anand (IRMA). Phansalkar is a fellow of the Indian Institute of Management (IIM) Ahmedabad. Views are personal.


  1. Moin Qazi says:

    In traditionally administered government programmes, the poor often get less than their due because of local corruption in disbursement, with amounts being sponged by middlemen. By digital modes, the government can pass on benefits directly to the poor, bypassing layers of bureaucracy. Prices can be left to market forces and subsidies paid to the deserving through their accounts.
    Many of India’s anti-poverty programmes end up feeding the rich more than the needy. India has eliminated a raft of bureaucratic middlemen by depositing government pension and scholarship payments directly into the bank accounts of people, in a bid to prevent corrupt state and local officials from diverting much of the money to their own pockets.
    Rs 36,000 crore have been saved by the government through cash transfers via the Direct Benefit Transfer (DBT) scheme. More than 1,200 government schemes were examined for coverage and about 550 of them could be immediately taken up. More than 320 million beneficiaries are being provided various aids by direct credits to their accounts.
    Full coverage has been achieved in 84 schemes, including Pradhan Mantri Jan Dhan Yojana and Mahatma Gandhi National Rural Employment Guarantee Act where wages are being paid into accounts without the intervention of the administration. Similarly subsidies for liquid petroleum gas (LPG) are also going directly into the account of beneficiaries.
    Now these programmes have the potential for making a serious dent in poverty in India. Under the acronym JAM – Jan Dhan, Aadhaar, Mobile – a quiet revolution of social welfare policy is unfolding.
    Jan Dhan is Modi’s flagship programme to give poor people access to financial services, including bank accounts, credit and insurance. Aadhaar is the initiative to issue unique biometric identification cards to all Indians. Together with mobile money platforms, they will enable the state to transfer cash directly to those in need – without the money going through intermediaries that might take a cut.
    But along with technical literacy it is s necessary to empower the recipients to access their funds more conveniently at little cost. There is concern about the lack of operable infrastructure and the resulting delays in receiving subsidies or cash transfers.
    In a series of experiments with cash transfers in places such as Rajasthan, Jharkhand, and Delhi, recipients have to navigate a complex and wobbly ecosystem hobbled by unclear fingerprints to receipt systems that relied on internet access in places where no internet access exists.
    In parts of Rajasthan, a programme gave cash transfers (deposited in recipients’ bank accounts) in lieu of kerosene subsidies. During this time, the consumption of kerosene dropped dramatically along with user satisfaction. Many poor families were simply unable to navigate the many loops required to open a bank account, where they would receive their transfer, let alone afford the initial fee to start an account in the first place.
    While the JAM Trinity and cash transfers have a role to play, so does continued outreach to marginalised families through simple technology (like cellphones) and education.
    One of the most important governance ingredients that has increasing relevance on account of the incessant buzz of choruses like “sabka sath, sabka vikas” is the need for tolerance and transparency in the ruling class.
    Tulsidas tells us that dispirited on seeing Ravana in an armed chariot while Rama was without arms or a chariot, Vibhishana expressed his deep anxiety thus: “Ravan rathi, virath Raghubeera!”
    However, Rama explained to him that a hero who has self-control, benevolence, forgiveness, discretion, evenness of mind and compassion as his weapons or horses is unconquerable. There is a great lesson for us in this timeless wisdom.
    The government should also take a radical relook at grassroots development apparatuses. The current approach of India seems to miss the holistic nature of sustainable development, allowing the goals and targets to be divided up between different ministries and departments without identifying the interlinkages that exist between the different goals, and this risks working in silos – which is unlikely to deliver.
    The best approach to local development is to tap into the knowledge already available and think of ways it can be leveraged to achieve more appropriate, locally useful and sustainable development.
    Approaches to rural development that respect the inherent capabilities and native of rural people and that systematically build on experience have a reasonable chance of making significant advances in improving those people’s lives. A critical success factor is creating organisational capabilities at local levels that can mobilise and manage resources effectively for the benefit of the many rather than just the few.
    It is important to reaffirm that significant advances are attainable for the hundreds of millions of households that constitute “the rural poor”. They are a potential source of great knowledge, wisdom and creativity that have to seek first and foremost their own survival.
    Their poverty deprives not only them but also the rest of us of the greater value they could generate under more supportive and enabling circumstances.

  2. Pushpa Sundar says:

    Ver interesting and insightful Sanjay.