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Resource centre on India's rural distress
 
 

Is direct benefit transfer really a panacea for the rural poor? -Sanjiv Phansalkar
-VillageSquare.in

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

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.

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