1) Challenges of Direct Benefit Transfer (DBT)

What it is: DBT is the system where government subsidies or welfare payments are sent directly
to a person’s bank account.
Why it matters: It reduces leakages, ensures money reaches intended people, and speeds up
delivery — but it has problems too.
Key challenges (simple):
Aadhaar authentication issues: If Aadhaar data has errors, duplicates, or authentication fails,
payments can be delayed or blocked.
Lack of awareness: Many people don’t understand DBT, so they don’t enroll or resist digital
transactions — especially marginalized groups.
Infrastructure constraints: Remote areas may lack bank branches, mobile networks, internet or
reliable electricity — so transfers or cash-outs are hard.
Last-mile delivery problems: Physical issues (transport, storage) can delay cash transfers or
delivery of perishable goods.
Data security & privacy: Storing Aadhaar and other data risks breaches, identity theft, and loss of
trust in DBT if data is misused.
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2) JAM Trinity
What it stands for: Jan Dhan (bank accounts) + Aadhaar (biometric ID) + Mobile (digital access).
Purpose / Why used:
Bring more people into the formal financial system.
Make direct benefit transfers (DBT) easier and more reliable.
Improve service delivery (faster, lower leakages).
Benefits (simple):
Makes authentication and transactions simple and secure.
Reduces fraud and leakages in welfare schemes.
Helps fast transfers directly to beneficiaries.
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3) Universal Basic Income (UBI)
What it is: A policy where the government gives every citizen a regular, unconditional cash
payment — regardless of income or job status.
Why people propose it: To ensure everyone has a basic level of financial security, reduce
poverty and inequality.
Key features (simple):
Unconditional: No paperwork or proof of need — everyone eligible gets it.
Regular: Payments come at steady intervals (e.g., monthly) so people can plan.
Universal: Offered to all citizens, no exclusion.
Basic amount: The payment is meant to cover essential living costs (may differ by region).
Pros: Reduces poverty quickly, simplifies welfare systems, gives people freedom to use money
as they need. Cons/concerns: Costly for government; might reduce work incentives (debatable);
needs careful design to avoid inflation or crowding out other welfare.
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4) Fiscal Responsibility and Budget Management Act (FRBMA), 2003
What it is: A law passed in 2003 to make government finances more disciplined, transparent, and
accountable.
Who runs it: Department of Economic Affairs (Ministry of Finance) administers it.
Main objectives (simple):
Ensure fairness across generations in fiscal policy (don’t pass huge debt to future generations).
Achieve long-term macroeconomic stability by reducing deficits.
Help monetary policy work better.
Promote prudent debt management for fiscal sustainability.
Key provisions (what the Central Government must do):
Limit fiscal deficit: (target was to move towards 3% of GDP — specific deadlines have been set
in different budgets).
Manage debt levels: Keep total central government debt under a certain limit (e.g., targets like
not exceeding 60% of GDP were proposed).
Limit guarantees: Avoid providing extra guarantees for loans beyond a small percent of GDP (to
control contingent liabilities).
Strive for fiscal targets: Work to meet targets and deadlines; but law allows limited deviations for
disasters or severe shocks.
Amendments: FRBMA was amended several times (2004, 2012, 2015, 2018) — the 2018 (4th)
amendment made significant changes.
N.K. Singh Committee recommendations (short):
Use debt-to-GDP ratio as main target (e.g., aim for 60% overall; 40% for Centre by certain year).
Set annual targets to reduce fiscal and revenue deficits gradually.
Create an Autonomous Fiscal Council to oversee fiscal policy and advise the government.
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5) Finance Commission (general)
Constitutional basis: Created under Article 280 of the Constitution — it is a constitutional body.
Purpose: To ensure fiscal federalism — recommend how tax revenues should be split between
the Centre and states and among states themselves.
Composition: Appointed by the President every five years; usually includes a Chairperson and
members with finance/economics/public administration expertise.
Key functions (simple):
Recommend how to share central tax revenues with states (vertical devolution).
Suggest grants-in-aid to revenue-deficient states.
Recommend measures to strengthen state consolidated funds (state finances).
Advise on disaster management financing and other fiscal matters referred by the President.
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6) 15th Finance Commission — key points (summary)
Timeframe: Recommendations cover 2021–22 to 2025–26 (the Commission was constituted in
2017, chaired by N.K. Singh).
Major recommendations:
Vertical devolution (Centre → States): Maintain 41% of the divisible pool to states (this is the
share of central taxes to be given to states).
Horizontal devolution (among states): The formula (weights) used to split that 41% among
states:
Income distance: 45% (measures how far a state is from highest per capita income — helps
poorer states)
Population (2011): 15%
Area: 15%
Demographic performance: 12.5%
Forest & ecology: 10%
Tax & fiscal efforts: 2.5%
Revenue deficit grants: Recommended around ■3 trillion over the award period to help states
with revenue shortfalls.
Performance-based incentives: Grants tied to outcomes in health, education, rural roads,
governance reforms, power sector — to encourage better performance.
Grants to local governments: Funds and incentives for rural and urban local bodies (e.g., health,
incubation of new cities).
Million-Plus Cities Challenge Fund (MCF): Grants for cities with >1 million population for air
quality, drinking water, sanitation and waste management.
Fiscal space for Centre: After transfers, about 34% of gross revenue receipts remain for central
priorities.
Criticism: Performance-based incentives can limit state autonomy and conditional borrowing
rules might hinder state development spending.
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7) Fiscal accountability & Union accountability (short)
Criticism noted: There’s limited mechanism to hold the Union (central) government fully
accountable for fiscal prudence — meaning joint fiscal responsibility between Centre and states
can be diluted if Centre is not restrained.
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8) 16th Finance Commission (short)
What it is: The next Finance Commission (for five years starting April 1, 2026).
Constitutional role: Like earlier Commissions, it will recommend tax sharing, grants, and fiscal
measures for its five-year award period.
Composition (as in your notes):
Chairperson: Dr. Arvind Panagariya.
Members: Ajay Narayan Jha, Annie George Mathew, Manoj Panda, Soumya Kanti Ghosh
(part-time), etc.
Secretary: Ritvik Ranjan Pandey.
Mandate & Responsibilities (what they’ll do):
Propose how to divide net tax proceeds between Centre and states.
Define principles for grants-in-aid to states.
Recommend measures to strengthen state consolidated funds.
Review and suggest improvements in disaster management financing framework (under Disaster
Management Act, 2005).