Cash transfer or Subsidy : Which is better?

Cash transfer or Subsidy : Which is better?


The Direct Benefit Transfer scheme has been put to action as of recently and those that have committed to linking their Adhaar card with bank accounts have started receiving the LPG subsidy directly in their accounts. We are more than pleased with this practice with an ardent expectation that this would solve many problems that have long been delayed. However, the direct transfer system too seems to have hurdles before they are smoothly implemented. Some are unable to decide if this move is really going to bring about any change for good or is just another scheme for show-off yielding no result at the end.

Direct transfer is better:

1. Leakage prevention is one of the biggest benefits of the direct transfer system. With the former subsidy policy, there was illegal selling of LPG cylinders to those that needed more and could pay a higher price to them. The same happens to food and oil subsidy. The government provides wheat, sugar and kerosene oil to the poor via ration card but ultimately they sell off they excess of these subsidized products in the local market in exchange of other goods for simply for money to fulfil other needs.

2. Scams and corrupt practices involving the distributors and government agents ate up most part of the subsidy that was meant for the poor. Power is misused in the most unthinkable ways, especially when consumers have no real idea of the amount that is offered as subsidy. Rationing subsidies had controversies that both quality and quantity is compromised most of the time. The excess or better quality products are replaced by cheaper ones during the entire phase of distribution.

3. Unique identity system will ensure that the cash transfer is carried out in a rational way and since there would be not much involvement of middlemen, leakage can be prevented to a great extent. Bribing is one accusation that is being put to this system but let us accept that the system cannot be changed to no-corruption-zone all of a sudden. System of direct transfer must be open to amendments from time to time given the kind of threats and challenges that comes up.

4. Direct transfer system gives dignity to the poor and unprivileged; not to all that it also saves the burden to distribution. If implemented on food as well, the poor can decide what they want to utilize the money for: Food, clothes, education of children, business or any other individual necessity. Gone will be the days when poor men and women have to wait in queue to wait for their turn at getting low quality rice and wheat. They can utilize the direct transfer money to purchase the grocery of their preference from wherever they wish.

5. There are various government funded schemes that are meant to raise the living standard of the poor and to bring them what they lack but most of these funds never reach the poor at all. Either they are lost amongst the middlemen or given in a very meagre amount. Direct transfer system could prove to be a boon to fight this kind of malpractice.

Subsidy is better:

1. As agreed by the government, the direct transfer system cannot be applied to food and ration. While the government can provide 10 kg rice on a subsidized price, transferring the same amount to the bank account of the poor won't get them the ration of a month. There could be misuse of this amount for leisure and alcohol, especially in villages and slums.

2. A major disadvantage of the direct transfer system is the haste with which is government is implementing the program. The Aadhar card, which is to be the base of this system is yet to be completed. Most people, especially farmers and villagers have not received their unique identification number yet and the commencement has been declared out loud. The government should have continued with the subsidy system until the policy was thoroughly examined and checked for loopholes.

3. For the second most populated nation of the nation, transferring amount in bulk will be called for and that is something the government might not be prepared for. There could be some serious burning holes in the pocket if the government does not prepare itself to the huge demand that it will soon have to meet.

4. There would be lot of work involved in the transfer system and given the slow execution of work in India, this system could be lagging for the poor who have got used to the long implemented subsidy system.


Direct transfer can be a huge relief and new budget can see immense savings with the introduction of this system. However, hasty moves should be avoided by the government and steady moves should be adapted for implementing the same for fertilizer and food subsidy as well. Farmers are going to benefit greatly of fertilizer subsidy is also replaced by the direct transfer system. The scheme can go a long way in improving lives of poor given that they use the amount reasonably and rationally.
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  • RE: Cash transfer or Subsidy : Which is better? -Shikha Pandey (03/01/15)
  • As, a result of Direct Transfer Scheme introduced by government, almost 10 crore consumers have joined this scheme. They are more interested in getting LPG at the same price i.e. Market price. This will bring black marketing of cooking fuel to an end.

    This scheme is supported by the Modi government by introducing another scheme PAHAL (Pradhan Mantri Jan Dhan Yojana) Yojana where almost every Indian has a bank account. When the subsidy will be transferred to account, there will be record for every amount transferred and track black money at least at this sector.

  • RE: Cash transfer or Subsidy : Which is better? -Deepa Kaushik (02/28/15)
  • Cash transfer and subsidy both carry their own importance. Still, subsidy has got a better call over the cash transfer. There are few basic substances like the food, clothing, etc which should ideally be subsidized for the needy people. The cash transfer on account of these utilities usually goes unused on these basic facilities leaving the people with poor health and medical aids. This ill-health has a direct impact on the manpower, which affects the production and economic growth of the country.

    But, we cannot consider cash transfer a total loss. People require the basic nutrition, clothing, education etc which will reflect the growth of the individual along with the country. Needy people should be able to choose the other requirements like the mode of transport, funds for higher education etc. A deserving child is not necessarily belonging to a wealthy family. The deserving people require a upliftment and subsidy could help them overcome the obstacle.

    On the contrary, cash transfer mostly goes to the alcoholism and leaves the family economically backward. People fail to fulfil their main requirement and try to consolidate the wealth for other less meaningful purposes. Also, the cash transfer makes people lazy. They fail to attempt to work hard and earn more in the fear of losing their free cash transfer. This laziness and cunning behaviour indirectly affects the growth of the nation as well. Hence, the subsidy would be the ideal form of help to the needy people which will also help in the development of the nation.