Daily Current Affairs – 21st May, 2016

Daily Current Affairs – 21st May, 2016

PAHAL—Direct Benefit Transfer Scheme for (LPG)

PAHAL is the first major programme in India that provides subsidies through DBT—with nearly 150 million registered beneficiaries, it is probably the world’s largest DBT programme ever.


  • Accounts for only about 3.5% of the total annual flow of government subsidies
  • The provision of around Rs.20, 000 crore for the scheme is about 8% of the total provision of Rs.250, 433 crore for subsidies in the 2016-17 Union budget

Lessons learned from PAHAL


  • The goal of the government in subsidy reform is targeting them effectively so that they flow only to the intended beneficiaries.
  • Such targeting of subsidies is extremely problematic when the subsidy is embedded in the physical delivery of a product at a price that is below the open market price as this price gap—
  • Distorts the market,
  • Provides opportunities for arbitrage,
  • Diverts supplies
  • Leads to profiteering in the black market
  • Thus, maintenance of an elaborate administrative apparatus is necessary to manage the rationing of subsidized commodities; but despite this, there exists problems like—
  • Product adulteration,
  • Leakages,
  • Ghost ration cards
  • Harassment of beneficiaries by the rationing bureaucracy
  • Very often, the cost of maintaining this elaborate PDS bureaucracy is much higher than the amount of subsidy it is supposed to save by enforcing, unsuccessfully, the exclusion of this small group of non-poor consumers from access to subsidized commodities—Switching to DBT System would pave way for huge savings

Backbone of the DBT System—The Banking Network:

  • Subsidies are transferred to beneficiaries directly through their bank accounts—the scheme will not work without a bank account
  • Even post the Jan Dhan Yojana campaign, banking penetration among the target beneficiaries is still quite limited, especially in rural areas.
  • Also, bank staff is reluctant to cooperate in opening accounts, especially unprofitable ‘zero balance’ accounts, for poor customers



  • Villages can be served through the new payments banks and banking correspondents (not viable to have a commercial bank branch in every village)
  • Linking of Jan Dhan Yojana with Aadhaar, the unique biometric identification system, as Aadhaar is now backed by an Act of Parliament and is reported to have covered virtually the entire population—
  • The intended beneficiary receives the money in his account
  • Reduction in the government’s subsidy burden
  • Effective solution to leakages and mis-targeting problems
  • Linking Postal Account with Aadhaar
    • The Post Bank accounts should be Aadhaar seeded so that various Government schemes for Direct Benefit Transfer could be rolled out through the Post Bank.
    • Department should step up its efforts to ramp up its capabilities to book, process, transmit & deliver e-Commerce articles
  • An aggressive awareness campaign is an urgent need not just for beneficiaries but even more so for front-line commercial bank staff—need to be made aware that the humble act of opening an account for poor beneficiaries is, in fact, a critical link in what could become best practice for the largest welfare delivery system in the world.

A consumer-friendly delivery system—

  • Disincentive of travelling to other villages to fetch the LPG cylinders
  • The initial outlay required for getting an LPG connection, by way of deposit, cost of a burner, regulator, etc.—
  • To overcome this constraint, the Ujjwala Yojana scheme has been initiated to provide free or subsidized connections to some 50 million poor households over the next four years at a total cost of about Rs.8,000 crore.
  • Switching from 15kg cylinders to 5kg cylinders in rural areas will also help ease the cash-flow constraint for these households by reducing the outlay required for each refill

Exclusion of the ‘rich’:

  • The CEEW study estimates that the richest 15% of the population account for about 25% of the LPG consumer base.
  • ‘Give It Up’ campaign— Only 6% of consumers actually gave up their subsidy claim—only 14% of the rich consumers actually ‘gave it up’ (This attitude thus, calls for their enforced exclusion from subsidy)

Distinction between subsidies and income transfers—

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