From Rations to Choices: Redesigning India’s Welfare System for Market Empowerment

India’s welfare state today faces a paradox. Its vast in-kind schemes — especially the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) — have succeeded in ensuring food security, yet they have also unintentionally stifled the growth of free and competitive retail markets. With over 80 crore beneficiaries receiving free staples every month, large sections of the population have effectively exited the basic groceries market.

At the same time, many state governments distribute bicycles, sanitary pads, school bags, uniforms, and medicines free of cost to target specific groups — again locking those consumers out of corresponding retail markets. These programs are well-intentioned, even though politically entrenched, and will not (and perhaps should not) be withdrawn. The real question, therefore, is: How can India preserve the welfare promise while ensuring consumer choice and market empowerment?


The Problem: Welfare Without Markets

In-kind delivery of welfare — distributing goods instead of money — has created a form of economic exclusion within social inclusion. Beneficiaries are protected from hunger or deprivation, but they are also denied the right to choose where and how to buy what they need.

This has several consequences: -

- Retail contraction: Local grocers, small traders, and logistics players lose out on staple demand.

- Innovation stagnation: With prices and supplies centrally fixed, private efficiency gains find no incentive.

- Community disconnect: Welfare benefits bypass local economies instead of circulating within them.

India’s welfare system, thus, ensures social stability, but at the cost of economic dynamism.


The Solution: Direct Benefit Transfers with Digital Nudging

The alternative lies not in cutting welfare, but in changing its mode of delivery. Instead of giving goods, the government could give cash equivalents via Direct Benefit Transfers (DBT) — but with strong digital nudges ensuring that welfare funds are used for their intended purposes.

How It Would Work:-

1. Cash, not commodities: Each welfare scheme — food, nutrition, bicycles, medicines — converts its benefit value into a cash transfer to the beneficiary’s account.

2. Digital nudging: Beneficiaries, especially women (as primary household decision-makers), receive visual prompts on a unified welfare app — pictures, GIFs, short videos — gently guiding them to spend on the items the transfer covers.

3. App ecosystem: The Central and State governments should, each, run a single welfare app, integrating all schemes under their respective jurisdictions.

4. Behavioral tracking: Spending patterns (voluntary, anonymised) can inform better policy design and help refine nudging strategies.

This model retains welfare spending quantitatively, but redirects it qualitatively — empowering citizens to participate in open markets.


The Procurement Puzzle: Why FCI Must Expand, Not Shrink

Critics might ask: If PMGKAY stops distributing food grains, what will the Central government procure from farmers, through the Food Corporation of India (FCI)?

The answer lies in an earlier blogpost of mine where I argued that India needs a bigger, not smaller, FCI. Instead of limiting procurement to buffer stock for ration distribution, the FCI (and FCI-equivalent state agencies) should: -

- Procure all major crops at remunerative prices from all farmers.

- Distribute to mandis, retailers, restaurants, and event organizers, becoming a price stabilizer like RBI for food.

- Coordinate with state food corporations and FPOs, to balance perishables and smallholder inclusion.

- Use tech and rotating procurement baskets to maintain crop and food diversity and land resources balance. 

To put it broadly, the FCI should function as a national food-logistics backbone and food-price stabiliser, not a ration shop supplier.

This would ensure that farmers are protected from market shocks, while welfare consumers still buy from the open market — using their DBT funds. The government would remain the guarantor of stability, not the monopolist of distribution.


Pilot Testing: Starting with Non-Staple Welfare

Before transforming PMGKAY itself, India could test this DBT + nudge model in smaller, non-staple welfare schemes — such as bicycles, sanitary pads, school bags or uniforms.

States like Tamil Nadu, Odisha, Madhya Pradesh or Gujarat could serve as testbeds, each experimenting with variations in:

Frequency and quantum of transfers,

Type of digital nudges, and

Integration with local women’s Self-Help Groups (SHGs) as on-ground welfare guides.

SHGs, with their social trust and community reach, can make digital nudging socially embedded rather than purely app-driven.


Ayushman Bharat: A Working Precedent

The Ayushman Bharat–Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) offers a powerful proof of concept. It is a welfare scheme that provides social protection through market participation.

Instead of restricting beneficiaries to government hospitals, Ayushman Bharat allows treatment at both public and private (NHA-empanelled) hospitals. As a result, some of India’s poorest citizens now access private healthcare — and in doing so, they expand the market for private hospitals.

The same principle can be extended to food, education, and daily essentials:

The government ensures welfare coverage, but lets markets deliver welfare outcomes.


Repositioning Welfare Franchisees as Entreprises

India already has tens of thousands of state-franchisee welfare outlets — Fair Price Shops, Jan Aushadhi Kendras, and others. Today, they operate as administrative distributors with fixed margins and limited autonomy. But under a DBT-based model, they could evolve into true micro-enterprises:

Competing for customer loyalty,

Diversifying their offerings, and

Investing in better service and efficiency.

This transition — from bureaucratic to entrepreneurial retail — would re-energize local economies while preserving the state’s welfare reach.


The Bigger Idea: Subsidising Agency, Not Goods

Broadly put, this proposal envisages a sociological shift — from paternalistic welfare to empowering welfare.

India’s welfare state has long told its citizens:
“We give you what you need.”

It now needs to say:
“We trust you to choose what you need.”

By subsidising agency instead of goods, the state not only uplifts the poor but integrates them into the everyday rhythm of economic life — as consumers, participants, and decision-makers.


Conclusion

India cannot (and should not) abandon large-scale welfare programs. But it can restructure their delivery models to unlock market energy and consumer freedom.

A DBT + nudge model, combined with an expanded FCI that serves the entire food ecosystem, would ensure:

Stable incomes for farmers,

Choice and dignity for consumers, and

Vibrant demand for retailers and producers.

In short, welfare without stagnation and inclusion with enterprise.

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