How the Indian government is giving more benefits to the poor, without increased spending of tax payer’s money

India’s Direct Benefit Transfer (DBT) initiative, which was launched in 2013, has transformed the nation’s welfare distribution system, creating a global model for effective and inclusive assistance. The transformative system has generated cumulative savings amounting to ₹3.48 lakh crore and has halved the subsidy allocations from 16% to 9% since it was introduced, owing to its high efficiency. Furthermore, it has fostered improved transparency, mitigated leakages and facilitated the accurate distribution of funds.

The program has successfully expanded its reach sixteen times during this period, from 11 crore beneficiaries to 176 crore, while ensuring both fiscal and social benefits. The newly created Welfare Efficiency Index (WEI), which quantifies fiscal and social gains, saw an increase from 0.32 in 2014 to 0.91 in 2023, reflecting substantial improvements within the system.

Dr. Shakil Bhat, a researcher, conducted an evaluation of ten years of data (2009–2024) to analyse the effects of DBT on budget efficiency, subsidy rationalisation, and social outcomes for the BlueKraft Digital Foundation.

According to the policy paper, which was published on 16th April, the DBT system was aggressively rolled out following governmental transition in 2014 when Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) stormed to power at the centre. The new administration prioritised transparency and digitalisation through the JAM Trinity (Jan Dhan accounts, Aadhaar authentication and Mobile connectivity), which became integral to its success.

DBT revolutionised a rotten system

Long-standing systemic inefficiencies in India’s welfare ecosystem, such as leaks, phantom beneficiaries and misallocated resources, weakened the effectiveness of public spending. According to the Economic Survey (2017-18), until 2013 about 85% of welfare monies did not reach their intended users. Likewise, subsidies accounted for 16% of the national budget with negligible social returns. The financial burden highlighted the pressing necessity for structural reforms to synchronise welfare provision with the ideals of equity, transparency and efficiency.

The launch of the DBT system in 2013 represented a key transformation as it revolutionised the distribution of welfare by substituting unclear subsidy channels with direct and targeted financial transfers via the JAM Trinity. There has been a notable rise in welfare budgets, escalating from ₹2.1 lakh crore in 2009-10 to ₹8.5 lakh crore in 2023-24.

However, the proportion of subsidy allocations has fallen, highlighting the efficiency resulting from Direct Benefit Transfers (DBT). The removal of ghost beneficiaries confirmed that subsidies are delivered to those who truly need assistance. This advancement has not only reduced leakages but also reshaped the connection between fiscal accountability and social inclusion, in the following ten years.

This policy document integrates empirical data sourced from Union Budgets, reports from the Ministry of Finance and the DBT portal. It utilised sophisticated analytical methods such as correlation analysis, Granger causality tests and the exclusive Welfare Efficiency Index (WEI). It is a composite index that assigns weights of 50% to DBT savings, 30% to subsidy reductions and 20% to beneficiary growth. The results emphasised DBT’s promise as a framework for welfare systems that are equipped for the future, striking a balance between fiscal responsibility and inclusive growth.

The research presented a thorough evidence base for policymakers and uses a robust mixed-methods approach to analyse the influence of India’s Direct Benefit Transfer (DBT) system. It integrated quantitative data analysis, econometric modelling and a unique composite index to offer a detailed assessment of DBT’s effectiveness over a 15-year timeframe (2009-2024).

The primary data sources for the quantitative assessment are Union Budgets from 2009 to 2024, records from the DBT Portal and reports from the Ministry of Finance, among others. The secondary data was derived from the Economic Survey of India (2017-18), studies conducted by the National Institute of Public Finance and Policy (NIPFP) and various academic literature.

Crucial findings

Subsidy Allocation: On average, subsidies constituted 16% of total spending (₹2.1 lakh crore per year) from 2009 to 2013, with notable leakages. However, this percentage fell to 9% by the fiscal year 2023-24, despite a substantial rise in the number of beneficiaries from 11 crore to 176 crore. Emergency fiscal measures during the pandemic caused a brief increase in subsidies (2020–21), but efficiency recovered after the outbreak. This reduction in the subsidy burden, despite broader coverage, underscores the critical role of Direct Benefit Transfers (DBT) in optimising fiscal management.

Sectoral Impact: The implementation of Aadhaar-linked ration card verification in food subsidies has resulted in savings of ₹1.85 lakh crore, which accounts for 53% of the total savings. Moreover, the Direct Benefit Transfer (DBT) system ensured that 98% of wage payments are made promptly. It resulted in the savings of ₹42,534 crore under the MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) program. Moreover, the removal of 2.1 crore ineligible beneficiaries from the PM-KISAN (Pradhan Mantri Kisan Samman Nidhi) initiative has saved ₹22,106 crore. Targeted distribution has also decreased fertiliser subsidy sales by 158 lakh metric tons, resulting in an additional saving of ₹18,699.8 crore.

Aadhaar-linked authentication has effectively eliminated the presence of ghost beneficiaries, which allowed for the expansion of coverage without a proportional impact on fiscal spending. Savings that are specific to certain sectors underscore the significant effect of Direct Benefit Transfers (DBT) on programs with high leakage rates. Food subsidies, which have a long history of being misappropriated, experienced the greatest advantages from biometric authentication, whereas wage initiatives, including MGNREGA, improved their efficiency through direct transfers.

There is a significant positive correlation of 0.71 between beneficiary coverage, contrasted with a negative correlation of -0.74 between the subsidy percentage of total expenditure and efficiency. This implied that Direct Benefit Transfers (DBT) have played a crucial role in decreasing waste and leakages while simultaneously increasing coverage. The correlation heat map below measures the relationship among budget allocations, DBT savings and the efficiency of welfare programs.

As savings from Direct Benefit Transfers (DBT) rose, there was a corresponding decrease in subsidy allocations, indicating that DBT has successfully reduced leakages and improved targeting. The increased savings from DBT allowed the government to enhance welfare programs, effectively reaching a greater number of beneficiaries. Even in the face of stable or reduced budgets, beneficiary coverage grew due to improved fund utilisation through DBT.

The negative correlation between subsidy expenditure and efficiency contradicts the critiques regarding “declining welfare spending.” DBT’s relevance, instead, as a fiscal optimisation tool has been validated by its ability to provide wider coverage with lower fiscal outlays due to its precise targeting.

The spike in the WEI measured systemic changes and demonstrated that efficiency gains have been caused by a variety of variables, not only budget reduction. This index gave international policymakers a reproducible structure for assessing welfare changes. The WEI underwent a vital increase from 0.32 in 2013 to 0.91 in 2023, primarily influenced by DBT Savings, which accounted for 50% of the weight, resulting in a cumulative reduction of ₹3.48 lakh crore in leakage.

Additionally, Subsidy Reduction, representing 30% of the weight, witnessed a fall in expenditure from 16% to 9%. Furthermore, Beneficiary Growth, which contributed 20% to the overall weight, conveyed a remarkable 16-fold increase in coverage.

Challenges and recommendations

The paper also pointed out certain limitations and contextual challenges, noting that data on beneficiaries for scholarships and pensions prior to 2013 were limited, which hindered longitudinal analyses. Additionally, the COVID-19 pandemic (2020–21) caused temporary disruptions in subsidy trends, requiring adjustments for outliers. Furthermore, ongoing gaps in digital infrastructure in rural areas continue to impact the consistent implementation of Direct Benefit Transfers (DBT).

DBT has maximised resource usage, allowing for a wider beneficiary reach with lower fiscal outlays, in contrast to criticisms of reduced welfare spending. Measurable improvements in welfare efficiency have been made in India by substituting targeted payments for ineffective subsidies. Future initiatives should prioritise expanding the reach of DBT, leveraging technology, and promoting inclusive growth to guarantee fair welfare governance.

The analysis proposed to broaden the coverage of Direct Benefit Transfers (DBT) by transitioning the remaining subsidy-based schemes into direct transfers, to focus on strengthening digital infrastructure and ensure that banking access is prioritised in rural and semi-urban regions, thereby closing inclusion gaps. Additionally, it suggested incorporating AI-driven fraud detection, further reducing financial leakages. Furthermore, it emphasised the need to improve grievance redressal by establishing strong mechanisms and tackling issues of exclusion.

Conclusion

India’s Direct Benefit Transfer (DBT) system, which was established in 2013 and significantly expanded following 2014, has fundamentally changed the landscape of welfare governance by merging fiscal discipline with social equity. This initiative has revamped the country’s welfare system from one plagued by leaks and heavy subsidies to a more precise and efficient model. The pivotal shift in government in 2014 was instrumental, as it placed a strong emphasis on transparency and digital initiatives through the JAM Trinity, which served as the foundation for the success of DBT.

As we look to the future, the success of Direct Benefit Transfer (DBT) positions India to realise its vision of Viksit Bharat 2047, aiming for a developed and inclusive nation. DBT links welfare delivery with sustainable development goals by rerouting savings into rural employment (MGNREGS), agriculture (PM-KISAN), and healthcare (Ayushman Bharat). The analysis provided an insight into practical ideas to improve targeting, fortify digital infrastructure and leverage emerging technologies for transformative governance as India moves closer to the “Viksit Bharat” goal.

On the other hand, problems including the rural digital divide, exclusion errors, and the development of sophisticated fraud tactics require persistent innovation. Future actions must emphasise AI-powered fraud detection, improving last-mile banking systems, and implementing strong grievance redressal processes to ensure that no beneficiary is overlooked.

More importantly, DBT illustrates the unification of technology and governance in establishing a welfare model that is both financially prudent and socially equitable. This program serves as a pillar of India’s growth targets as it advances toward 2047, demonstrating that effectiveness, openness and inclusivity are not mutually incompatible but rather necessary components of a Viksit Bharat.

News