Challenges In Direct Benefit Transfer Implementation And The Way Forward


The implementation of Direct Benefit Transfer (DBT) in India has transformed welfare delivery systems, receiving international recognition as a logistical marvel. This research paper explores the nuances of DBT, examining its vast scope and impact on socio-economic development. It delves into the challenges faced during DBT implementation and proposes innovative solutions. DBT is shown to revolutionize welfare delivery, fostering transparency, equity, and efficiency. A comprehensive literature review highlights the multifaceted impact of DBT on financial inclusion and social sector schemes, emphasizing its transformative potential. The paper concludes by offering policy recommendations to improve DBT implementation, focusing on enrolment, cash-out, information dissemination, beneficiary records, accountability, grievance redress mechanisms, infrastructure, transparency, and capacity building.


The Direct Benefit Transfer (DBT) initiative in India stands as a testament to the power of innovation in transforming welfare delivery systems. Acknowledged by the International Monetary Fund (IMF) as a “logistical marvel,” this monumental program has been commended for its efficacy, especially given the immense scale and diversity of India. To ensure the success of Direct Benefit Transfer (DBT) in India, key enablers include leveraging the JAM Trinity (Jan Dhan, Aadhaar, and Mobiles) for secure and targeted benefit delivery, utilizing Business Correspondents (BCs) to provide last-mile connectivity, establishing Payments Banks to expand financial services in remote areas, and promoting mobile money for convenient cashless transactions, using Aadhaar as identification. It reflects the government’s commitment to reforming delivery processes, leveraging Information & Communication Technology (ICT) to ensure the efficient and timely provision of benefits.

DBT encompasses an extensive array of schemes, ranging from cash transfers to in-kind benefits and subsidies, with a focus on targeted and accurate beneficiary identification. Cash transfers, for instance, involve the direct transfer of monetary benefits to individuals, facilitated by various means, including direct transfers by the Union Government, transfers through State Treasury Accounts, or cash transfers by government implementing agencies. Notable examples include the PAHAL initiative for LPG subsidy under the Ministry of Petroleum & Natural Gas and MGNREGA payments administered by the Ministry of Rural Development.

In parallel, DBT extends its reach through in-kind benefit transfers, where the government procures goods and disburses them to beneficiaries either directly or through implementing agencies. This process ensures that essential goods are provided to the intended recipients at subsidized or no cost, exemplified by initiatives like the Public Distribution System and the Mid-Day Meals Scheme.

Beyond these, DBT plays a crucial role in enabling non-governmental functionaries to participate in the last-mile implementation of government policies and schemes. These individuals, such as ASHA workers, Anganwadi workers, teachers in aided schools, and sanitation staff in Urban Local Bodies (ULBs), receive training, wages, and incentives to serve their communities, further strengthening the welfare ecosystem.

Since its inception on January 1, 2013, the DBT mission has evolved significantly, transitioning from the Planning Commission to the Department of Expenditure, and currently finding its place in the Cabinet Secretariat. As of the present, DBT has been implemented across 310 schemes spanning an impressive 53 ministries and departments, facilitating a total Direct Benefit Transfer of 3.34 Lakh crore in the fiscal year 2022-23.

Figure: Yearwise DBT Beneficiaries from 2013 to 2023.

This research paper delves into the nuances of DBT, exploring the challenges encountered during its implementation and proposing innovative solutions. It aims to shed light on how DBT has revolutionized welfare delivery and its potential for driving efficient, transparent, and equitable benefit distribution in India and beyond.

Direct Benefit Transfer (DBT) has emerged as a transformative mechanism for delivering government subsidies and welfare benefits directly to the bank accounts of beneficiaries. In recent years, DBT has played a pivotal role in reshaping the landscape of financial inclusion in India. This article provides a comprehensive literature review, drawing from various studies and research findings, to elucidate the multifaceted impact of DBT on financial inclusion and social sector schemes in the country. 

Overview of DBT

Figure: Overview of Direct Benefit Transfer

Direct Benefit Transfer (DBT) represents a modern paradigm shift in the delivery of social welfare benefits and subsidies. At its core, DBT leverages technology to streamline and enhance the process of providing financial assistance to eligible beneficiaries. This approach centers on the electronic transfer of funds directly into individuals’ bank accounts, circumventing intermediaries and aiming to mitigate inefficiencies, leakages, and corruption. The primary objectives of DBT encompass a broad spectrum of socio-economic challenges that have long hindered traditional benefit distribution mechanisms.

One of the primary objectives of the Direct Benefit Transfer (DBT) program is to address the widespread issue of leakages in welfare schemes. Over time, we’ve witnessed various forms of misallocation, including middlemen taking a cut and outright fraudulent activities, which have denied rightful beneficiaries their entitled support. DBT aims to mitigate these problems by creating a direct channel for the transfer of funds. This means that financial assistance is directly sent to the intended recipients, greatly reducing the chances of diversion and ensuring that the aid reaches its intended destination. In his Independence Day address, Prime Minister Narendra Modi mentioned that the government has saved a substantial amount of Rs 2 lakh crore over the past eight years by leveraging modern systems like Aadhar and mobile technology through the Direct Benefit Transfer program, preventing these funds from ending up in the wrong hands.

Transparency plays a pivotal role in building trust between governments and citizens. DBT leverages technology to create a transparent and traceable trail of financial transactions. This transparency not only empowers beneficiaries to monitor their benefits but also holds authorities accountable for the efficient disbursement of funds, reducing room for discretionary decision-making.

Financial inclusion is a critical aspect of DBT’s impact. In many developing nations, a significant portion of the population lacks access to formal banking systems. DBT serves as a catalyst for financial inclusion by encouraging beneficiaries to establish bank accounts to receive direct transfers. A recent report from the Reserve Bank of India titled “Deposits with Scheduled Commercial Banks – March 2023” confirms that women in India are exhibiting greater savings behavior. The report highlights that the proportion of bank accounts owned by women has risen from 19.8 percent in the previous year to 20.5 percent in 2023. Furthermore, nearly 55 percent of the accounts within the Pradhan Mantri Jan-Dhan Yojana (PMJDY) are held by women, contributing significantly to narrowing the gender gap in access to banking services. This increase in women’s savings can be attributed, in part, to the positive impact of the Direct Benefit Transfer (DBT) program, which has been expanded since the onset of the pandemic and now encompasses nearly all welfare schemes in India.

Accuracy in targeting beneficiaries is another key aspiration of DBT. Traditional welfare programs often struggle with inclusion and exclusion errors, leading to resources being misallocated. DBT adopts rigorous identification mechanisms, such as biometric Aadhaar IDs, to precisely direct benefits to those who qualify. This enhanced targeting ensures that assistance reaches those most in need, optimizing the allocation of resources.

Efficiency is another hallmark of DBT. By reducing paperwork, administrative burdens, and the time taken for funds to reach beneficiaries, DBT optimizes the distribution process. This efficiency is particularly crucial in emergency situations or when swift responses are required to address socio-economic challenges. India has realized substantial savings of over USD 27 billion in key central government schemes by implementing Direct Benefit Transfer (DBT), which is lauded for its swiftness and ability to combat corruption, according to Ajay Seth, Secretary of the Department of Economic Affairs. Pankaj Chaudhary, Union Minister of State for the Ministry of Finance, highlighted in response to a Lok Sabha query the significant cost savings achieved through DBT and governance reforms in major central sector and centrally sponsored schemes. The savings figures for different fiscal years demonstrate this success: ₹32,983.41 crore in 2017-18, ₹52,157.19 crore in 2018-19, ₹36,226.74 crore in 2019-20, ₹44,571.78 crore in 2020-21, and an impressive ₹50,125.37 crore in 2021-22. These numbers reflect the progressive enhancement in the efficiency and effectiveness of DBT in curbing financial misappropriation.

In the March 2022 DBT report, several ministries and departments highlighted the success of governance reforms aimed at removing duplicate and fake beneficiaries while plugging leakages. These measures have allowed the government to effectively target deserving beneficiaries. Notable achievements include a reduction of 158.06 Lakh Metric Tonnes of fertilizer sales to retailers by the Department of Fertilizers, estimated 10% savings on wages through the deletion of duplicate, fake, and ineligible beneficiaries in the Department of Rural Development, and the removal of 98.8 lakh duplicate and fake/non-existent beneficiaries by the Ministry of Women and Child Development. The Department of Social Justice and Empowerment eliminated 1.98 lakh such beneficiaries, while the Department of Food and Public Distribution deleted 4.2 crore duplicate and fake/non-existent Ration Cards between 2013 and 2021. The Ministry of Petroleum and Natural Gas successfully eliminated 4.11 crore duplicate, fake, and inactive LPG connections and identified 1.79 crore non-subsidized LPG consumers, including 1.08 crore ‘Give It Up’ consumers. These efforts reflect a significant stride toward efficient and targeted benefit delivery in India.

Perhaps most importantly, DBT empowers beneficiaries. It places financial control in the hands of those receiving assistance, enabling them to make informed decisions based on their unique circumstances. This empowerment is a catalyst for poverty reduction and social development, fostering self-reliance and dignity among recipients.

In summation, DBT represents a transformative approach to the delivery of social welfare benefits, underpinned by technology and an array of strategic goals. By reducing leakages, enhancing transparency, promoting financial inclusion, improving targeting accuracy, enhancing efficiency, and empowering beneficiaries, DBT contributes to more equitable, accountable, and effective welfare programs, ultimately striving to uplift marginalized communities and foster inclusive socio-economic growth.

Literature Review

The nexus between financial inclusion and Direct Benefit Transfer (DBT) has been a subject of considerable scholarly exploration. Singh & Nisha (2014) illuminated a compelling correlation between human development and financial inclusion. They underscored the pivotal roles played by physical infrastructure and government policies in fortifying financial inclusion. In this context, DBT emerges as a linchpin, leveraging the existing banking infrastructure to advance financial inclusion. Abhijit Vinayak Banerjee and Esther Duflo, Abdul Latif Jameel Professors of Poverty Alleviation and Development Economics (2010), conducted a study on “Improving Immunization Coverage in Rural India.” Their research revealed that enhancing the reliability of healthcare services contributes to increased immunization rates, albeit with relatively modest effects. Interestingly, the study found that offering small incentives in resource-poor areas had a significantly positive impact on the utilization of immunization services. Importantly, these incentives were more cost-effective than solely focusing on improving the supply side of healthcare services.

Paramasivan C and Ganeshkumar V (2013) contributed to this discourse by emphasizing the potential of microfinance institutions, business facilitators, and business correspondents in extending financial services, with a particular focus on rural areas. Their research underscored the instrumental role of post offices as ideal channels for agency banking, further broadening access to financial services.

Government initiatives have been pivotal in propelling financial inclusion, as highlighted by Santosh, Subrahmanyam, and Narayana Reddy (2016). They accentuated that financial inclusion is an ongoing process that demands collective endeavors from diverse stakeholders. Notably, they pointed to two prominent government initiatives—the Self Help Group (SHG) Bank Linkage Programme and Pradhan Mantri Jan Dhan Yojana (PMJDY)—as pivotal contributors to financial inclusion. These programs are designed to furnish essential financial services to segments of society previously excluded from such opportunities.

Nonetheless, challenges persist, as elucidated by Kumar Bijoy (2018). He emphasized the imperative of job creation and the strengthening of the financial infrastructure as indispensable components for effective financial inclusion. It was underscored that merely opening bank accounts for the economically disadvantaged is insufficient without addressing income disparities. Neha Sharma (2017) acknowledged the pro-poor nature of DBT while concurrently highlighting areas in which its implementation and financial awareness could be improved. Assocham (2017) brought attention to the successful integration of biometric cards, which have significantly reduced leakages in DBT schemes, resulting in substantial savings. They also anticipated an upsurge in cash subsidy payments through DBT.

The realm of innovations and progress within DBT was not left unexplored. Rajasekaram N (2018) accentuated the pivotal role of Basic Savings Bank Deposit Accounts (BSBDA) and the utilization of Aadhaar as a legal document in amplifying financial inclusion. Aman Sharma (2018) showcased significant cost savings realized through DBT by eliminating fake accounts. Meanwhile, Sakthivel N and Mayilsamy R (2018) proffered recommendations, advocating for increased subsidy amounts and a heightened focus on the payment processes of gas agencies to enhance the delivery of benefits.

However, challenges in the implementation of DBT have been a recurrent theme, as noted by Korde (2015). Hindrances such as the low penetration of Aadhaar-enabled accounts, limited banking accessibility, and a dearth of awareness among rural populations need to be effectively addressed to ensure the secure and successful execution of transactions.

The significance of financial literacy was a resounding theme in this discourse. Mani Goswami (2016) underscored the importance of financial literacy in tandem with financial inclusion, emphasizing that stakeholders must grasp both the benefits and risks associated with these initiatives. Selvam V and Velmurugan G (2015) reinforced the need for well-structured awareness programs at the grassroots level to dispel misconceptions about DBT.

In conclusion, the extensive body of literature surrounding Direct Benefit Transfer in India highlights its profound impact on promoting financial inclusion and enhancing the efficiency of social sector schemes. While remarkable strides have been made, persistent challenges related to implementation, awareness, income disparities, and the imperative for financial literacy remain. It is evident that ongoing efforts and innovations are indispensable to fully harness the benefits of DBT, ultimately improving the lives of marginalized communities and fostering inclusive economic growth throughout India.

Challenges in DBT Implementation

In the realm of Direct Benefit Transfers (DBT), a multitude of challenges have been identified, creating a complex landscape of obstacles.The DBT scheme, covering 314 schemes across 53 ministries, has disbursed Rs 24.3 lakh crore digitally. However, recent years have seen a decline in beneficiaries and amounts transferred. Researchers point to exclusion factors preventing some from accessing scheme benefits.

Aarushi Gupta’s research, titled ‘Proposing a Framework to Document Exclusion in Direct Benefit Transfers’ (Dvara Research, February 2021), categorizes these challenges into four layers of exclusion, providing valuable insights into the hurdles faced during DBT implementation.

First Layer of Exclusion: The initial layer spotlights concerns regarding the reliability of data sources, specifically the Below Poverty Line (BPL) and Socio-Economic Caste Census (SECC) lists. This layer underscores issues tied to Proxy Means Testing (PMT), data accuracy, and the outdated nature of SECC data, shedding light on the foundational challenges of DBT.

Second Layer of Exclusion: Progressing to the second layer, we delve into the challenges encountered during the enrolment process. This phase highlights the stringent eligibility checks and extensive documentation requirements, emphasizing the bureaucratic complexities that beneficiaries must navigate. Additionally, it draws attention to the financial costs incurred by beneficiaries, including the loss of wages and the need for multiple visits due to enrolment complexities and errors in the digitized system.

Third Layer of Exclusion: The third layer directs our focus to the back-end processing and the critical step of transferring funds to beneficiary accounts. Challenges in this stage include transaction failures stemming from improper Aadhaar seeding, invalid account statuses, and pending Know Your Customer (KYC) requirements, which can disrupt the timely delivery of benefits.

Fourth Layer of Exclusion: Finally, the fourth layer addresses the challenges faced by beneficiaries when attempting to access and withdraw their entitled benefits. This stage encompasses issues such as the unavailability of cash-out points, network failures, biometric authentication difficulties, overcharging, and potential fraud, all of which hinder the effective utilization of DBT benefits.

Furthermore, a study on DBT implementation challenges for tuberculosis patients reveals additional barriers. Among these are patient-related obstacles, such as the absence of bank accounts, particularly prevalent among migrant laborers. Additionally, complications arise due to the mandatory Aadhaar card requirement, and some financially stable patients decline DBT benefits due to perceptions of insufficient amounts. A lack of awareness among certain individuals further complicates the distribution process.

The challenges within the health system emerge as substantial barriers to DBT effectiveness, encompassing difficulties arising from unclear operational guidelines and delayed training. The inherent complexity and time-consuming nature of DBT processes pose significant hurdles, further exacerbated by staffing issues, particularly the absence of dedicated data entry operators.

On the technological front, DBT grapples with issues related to system interfaces, connectivity problems, and slow internet speeds, hampering the seamless flow of benefits. Challenges during system updates transition phases create additional points of friction, while monthly batch processing often results in errors and delays.

The diverse performance of states in DBT implementation underscores disparities rooted in administrative capacity, urban versus rural dynamics, technology adoption, and variations in policy and governance structures.

 The Direct Benefit Transfer (DBT) scheme has become a potent political tool, influencing election outcomes in states like Uttar Pradesh and Odisha. In UP, DBT transfers in 2021-22 reached Rs 91,510 crores, positioning the state at number two in the DBT index. Odisha received substantial DBT transfers too, with central transfers amounting to Rs 21,769 crores. This highlights the role of DBT in shaping election dynamics and underscores significant financial transfers involved in these political maneuvers.

In the recent ranking of states and Union Territories based on the performance of the Direct Benefit Transfer (DBT) scheme, Haryana emerged as the top-performer, securing the 1st rank. This achievement highlights Haryana’s exceptional efforts in efficiently implementing the DBT scheme, ensuring the seamless transfer of subsidies and benefits to the intended recipients.

Uttar Pradesh (UP) secured the 2nd rank, signifying significant progress in the implementation of the DBT scheme and effective delivery of welfare benefits. Gujarat followed closely, achieving the 3rd rank, and demonstrating commendable performance in fund transfers.

Punjab, while not among the top performers, secured the 15th rank, indicating some progress in DBT scheme implementation. Delhi obtained the 17th rank, signifying moderate progress in fund transfers. Assam, at the 35th rank, showcased efforts to implement the DBT scheme and enhance subsidy delivery. However, West Bengal faced challenges, ranking 36th, suggesting difficulties in implementing the scheme and ensuring efficient fund transfers.

Moreover, the Comptroller and Auditor General (CAG) report on DBT irregularities identifies specific issues such as multiple applications linked to a single mobile number, the submission of fake caste certificates, and scholarships disbursed to ineligible students. To address these concerns, a recommendation is made for the implementation of a biometric attendance system.

In rural and tribal areas, DBT implementation challenges include a lack of awareness among tribal communities, infrastructure deficiencies, limited banking facilities, digital advancement barriers, language differences, and the imperative need for stakeholder participation and effective grievance redress mechanisms.

Notably, only 3% of the Indian population currently pays income taxes, presenting a challenge in accurately assessing the income levels of the remaining citizens. This complicates the determination of eligibility for various government benefits and raises concerns about potential misuse of funds, diverting them from their intended purposes.

Furthermore, the skewed allocation of funds, often directed towards non-essential expenditures rather than critical needs like food subsidies, poses a gender-related challenge. With a significant proportion of beneficiary households headed by men, there’s a risk that funds may not be allocated equitably, further exacerbating gender disparities in resource access. 

The “Rethink Aadhaar” campaign’s report (2021) raises significant privacy concerns regarding the Aadhaar system. It highlights how the Aadhaar Payments Bridge System (APBS) in Direct Benefit Transfers (DBTs) lacks transparency and accountability checks. Unlike the old system with the Reserve Bank of India as the sole intermediary, APBS involves a private entity, the National Payments Corporation of India (NPCI), as a clearinghouse. This shift also replaces bank accounts with Aadhaar numbers as beneficiaries’ “financial addresses” without their consent. This lack of transparency leaves beneficiaries unaware of linked accounts, and only NPCI has access to this information, raising privacy and tracking concerns.

DBT implementation faces challenges due to data breaches, notably in India. According to the WEF’s Global Risks Report 2019, India had a massive data breach involving Aadhaar, the government ID database. Criminals sold access for Rs500 for 10 minutes, potentially compromising records of all 1.1 billion citizens. A state-owned utility company leak in March allowed public access to names and ID numbers.

Finally, the DBT model’s transition to a more transactional approach raises several overarching challenges. Cash transfers may not effectively shield vulnerable populations from inflation, posing risks to the real value of benefits over time. The shift towards private benefits over public goods, like education and healthcare, raises concerns about societal development. The absence of a rights-based approach may foster dependency on the state, while shifting accountability from the government to citizens can create barriers to accessing assistance. Additionally, closely tying welfare benefits to party leadership raises questions about democratic processes and power consolidation.

In conclusion, addressing these multifaceted challenges is imperative for the successful implementation of DBT programs and ensuring equitable access to benefits for all citizens while safeguarding the principles of good governance and democracy.

Click Here To Download The Paper

Author: Kaustubh Shanker Mishra