Economics Project

Topic: Role of UID in Direct Benefit Transfers (DBT)

1. Introduction
India has always aimed to provide social security and welfare to its people, especially the
poor and vulnerable sections. However, one of the biggest challenges has been ensuring that
the benefits actually reach the right beneficiaries. For decades, subsidies meant for the poor
were lost due to corruption, leakages, middlemen, fake beneficiaries, and inefficiency in
delivery systems.

To solve this problem, the Government of India launched the Aadhaar programme in 2009,
which provides every resident with a unique 12-digit identification number based on
biometric and demographic information. Aadhaar became the foundation of a new model of
welfare delivery.

In 2013, the government introduced the Direct Benefit Transfer (DBT) system. This system
transfers subsidies and welfare benefits directly into the bank accounts of beneficiaries,
removing the need for intermediaries. Linking DBT with UID (Aadhaar) has transformed
welfare delivery in India by reducing leakages, improving transparency, and making
governance more citizen-centric.

2. History & Background

Before UID and DBT, India’s welfare schemes faced several challenges. The Public
Distribution System (PDS) is a clear example, where studies showed that a large portion of
food grains did not reach the intended families. Duplicate ration cards and ghost
beneficiaries were common.

In 2009, the Unique Identification Authority of India (UIDAI) was set up, and the Aadhaar
programme was launched. The aim was to give each resident of India a verifiable identity.
Initially, Aadhaar was voluntary, but over time it was increasingly linked to welfare
schemes.

In 2013, the Direct Benefit Transfer (DBT) programme was formally launched in selected
districts as a pilot project. Initially, it faced challenges such as low banking coverage, lack of
digital infrastructure, and resistance from intermediaries who lost their power.

The real breakthrough came after the Jan Dhan Yojana in 2014, which expanded financial
inclusion by opening millions of bank accounts. Together with Aadhaar and mobile phones,
the JAM Trinity (Jan Dhan–Aadhaar–Mobile) created a strong foundation for DBT.
3. Timeline
2009 – Aadhaar programme launched under UIDAI.
2011 – Pradhan Mantri Jan Dhan Yojana introduced to promote financial inclusion.
2013 – DBT pilot launched in 20 districts.
2014 – LPG subsidy brought under DBT through the PAHAL scheme.
2015 – MNREGA wages, pensions, and scholarships linked with Aadhaar-seeded bank
accounts.
2016 – JAM Trinity recognized as a cornerstone of digital governance.
2019 – PM-Kisan Yojana introduced with direct transfers to farmers.
Present – DBT covers more than 300 schemes across 50+ ministries, reaching crores of
beneficiaries.

4. Causes & Rationale

The linkage of UID with DBT was introduced to tackle long-standing issues:

1. Elimination of fake beneficiaries – Many subsidies were lost to duplicate or non-existent

beneficiaries.
2. Reduction of corruption – Middlemen often took a cut before benefits reached the poor.
3. Transparency and accountability – UID-based authentication ensured that benefits go to
genuine people.
4. Financial inclusion – Linking Aadhaar with bank accounts encouraged more people to
enter the formal banking system.
5. Efficient use of resources – Savings from reduced leakages could be redirected to other
development programmes.

5. Objectives
The main objectives of UID-enabled DBT include:

- Ensuring efficiency in welfare delivery.

- Reducing corruption and leakages.
- Guaranteeing inclusion of genuine beneficiaries.
- Promoting financial literacy and digital transactions.
- Supporting India’s transition to a transparent, technology-driven governance model.

6. Types of DBT Schemes

DBT today spans across many welfare schemes. Some key examples include:

1. LPG Subsidy (PAHAL scheme) – Cash subsidy for LPG is directly credited to consumer
accounts.
2. MNREGA – Wages are credited directly to workers’ bank accounts.
3. Pensions – Old-age pensions, widow pensions, and disability pensions are transferred
directly.
4. Scholarships – Students receive funds without delays or leakages.
5. PM-Kisan – Farmers receive ₹6,000 annually in three installments.
6. Health schemes – Benefits under schemes like Ayushman Bharat are being linked.

7. Modes of DBT
There are multiple ways in which DBT operates:

- Aadhaar-enabled Payment System (AePS) – Beneficiaries can access money using

biometrics at micro-ATMs.
- Direct transfers to bank accounts – Aadhaar-seeded accounts are credited directly.
- Mobile banking and Jan Dhan accounts – Help in rural areas with limited banking services.
- Business correspondents – Local agents who provide last-mile banking access.

8. Stakeholders & Their Impact

- Government: Saves resources and reduces corruption.
- Beneficiaries: Receive money directly without middlemen.
- Banks: Witness increased account holders and transactions.
- Society: Gains from more transparent and fair welfare systems.

9. Advantages
1. Reduction in corruption and leakage of funds.
2. Elimination of ghost and duplicate beneficiaries.
3. Faster and transparent transfer of funds.
4. Promotion of financial inclusion through Jan Dhan accounts.
5. Creation of digital records for monitoring and accountability.
6. Savings of lakhs of crores for the government over time.

10. Disadvantages & Challenges

1. Biometric authentication failures, especially for elderly and manual workers.
2. Exclusion of individuals without Aadhaar or bank accounts.
3. Poor internet and banking infrastructure in rural areas.
4. Privacy and data protection concerns around Aadhaar.
5. Dependence on technology, which may not always function smoothly.

11. Short-Term Implications

- Immediate reduction in fake and duplicate beneficiaries.
- Savings for the government in subsidy expenditure.
- Faster grievance redressal in some schemes.

12. Long-Term Implications

- Establishment of digital governance systems.
- Stronger financial inclusion.
- Sustainable reduction in corruption.
- Greater efficiency in welfare delivery mechanisms.
13. Case Study 1 – LPG Subsidy (PAHAL)
The PAHAL scheme is often cited as one of the most successful DBT implementations.
Before Aadhaar linkage, there were lakhs of duplicate LPG connections. Subsidized
cylinders were diverted and sold in the black market.

After Aadhaar was linked, each connection was verified, and subsidy amounts were
deposited directly into consumers’ bank accounts. This eliminated middlemen, reduced
misuse, and ensured that only genuine households received benefits.

According to official reports, PAHAL saved the government over ₹50,000 crore while
continuing to benefit poor households.

14. Case Study 2 – MNREGA

The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) provides 100
days of wage employment to rural households. Earlier, workers faced delays in payments,
and funds were often siphoned off by local intermediaries.

With Aadhaar-linked DBT, wages are now credited directly into workers’ accounts. This not
only ensures timely payments but also restores faith in the system. Workers reported
reduced dependence on corrupt officials and improved household incomes.

15. Other Notable DBT Cases

- PM-Kisan Yojana: Direct income support to farmers.
- National Scholarship Portal: Scholarships sent directly to student accounts.
- Social security pensions for widows, elderly, and disabled persons.

16. Latest Updates & Trends

- Expansion of JAM trinity (Jan Dhan, Aadhaar, Mobile).
- DBT now covers over 300 schemes in 52 ministries.
- Government reports savings of over ₹2 lakh crore due to DBT.
- Push towards 100% Aadhaar seeding in welfare schemes.

17. Remedies
1. Improve biometric technology to reduce authentication failures.
2. Provide alternative identification methods for vulnerable groups.
3. Strengthen rural banking and digital infrastructure.
4. Enact strong data protection and privacy laws.
5. Increase digital and financial literacy among the poor.

18. Conclusion
The integration of UID with Direct Benefit Transfers has been a turning point in India’s
welfare delivery. Aadhaar has enabled the government to target beneficiaries accurately,
reduce leakages, and promote transparency. Schemes like PAHAL and MNREGA show the
tangible impact of UID-linked DBT in improving governance.
While challenges remain, Aadhaar-enabled DBT has already saved the government huge
resources, eliminated fake beneficiaries, and ensured that the poor directly receive their
entitlements. In the long run, UID-linked DBT can become the backbone of India’s inclusive
growth model, combining technology, transparency, and financial empowerment to build a
more equitable society.

19. Bibliography
- NCERT Economics textbooks, Class XI & XII
- UIDAI official website: www.uidai.gov.in
- Ministry of Finance reports on DBT
- Ministry of Electronics & IT: www.meity.gov.in
- Economic Times, Business Standard, The Hindu articles on DBT
- World Bank reports on digital governance and financial inclusion