Model Answer

India's Direct Benefit Transfer (DBT) system has expanded significantly, covering food, fertilizer, LPG and income support schemes. While it has improved welfare delivery and reduced leakages, its growing fiscal burden raises concerns about long-term sustainability.

Cash transfers as an effective welfare tool -

1. Improve targeting and reduce leakages through Aadhaar-enabled DBT, e.g., PM-KISAN and LPG subsidy transfers.
2. Provide timely income support during economic distress, e.g., cash transfers during the COVID-19 pandemic.
3. Promote financial inclusion by increasing Jan Dhan account usage and strengthening the JAM trinity.

Concerns over fiscal sustainability -

1. Rising subsidy expenditure limits fiscal space for capital investment and social infrastructure.
2. Growing beneficiary base creates long-term budgetary commitments, especially for states introducing cash transfer schemes.
3. Risk of welfare dependency if transfers are not complemented by employment generation and human capital development.

Way Forward

1. Improve targeting through periodic beneficiary verification and rationalisation of subsidies.
2. Balance cash transfers with productive public investment in health, education and infrastructure.
3. Strengthen outcome-based monitoring to ensure transfers improve livelihoods rather than merely consumption.

Cash transfers have strengthened India's social protection architecture, but their expansion must be fiscally prudent. A balanced approach combining targeted welfare with productive public investment will ensure both inclusion and sustainable growth.