Prime Minister Manmohan Singh on Saturday handed over the government's unique identity number card for the purpose to a villager at a symbolic function in the western Indian state of Rajasthan.
Though no time limit has been set for covering all the 28 Indian states, the government already has started pilot projects for the electronic transfer of money in eight states.
Singh said nearly 240 million Indians have received the government identity cards in the past two years. The new policy will cover programs like grain supply, employment wages, student scholarships, pensions and health insurance.
At present, the poor beneficiaries have to visit government offices repeatedly in states to get benefits. They also are dependent on government-approved shops to get grain, sugar and kerosene and are often cheated by shop owners.
"It will help the government in ensuring that subsidy reaches its intended beneficiaries directly and the poor will not have to run from pillar to post to claim their rights," said Sonia Gandhi, the governing Congress party's leader.
The annual federal government spending on subsidies run into 3,000 billion rupees ($57 billion), according to the prime minister's office.
One of the main targets will be the public distribution system, a $15 billion food subsidy program where the government is estimated to be losing an estimated 58 percent of its subsidized grain, sugar and kerosene to so-called leaks.
Ration shop workers often claim the month's shipment never arrived and then sell it on the open market at as much as 10 times the subsidized price. They'll give confused and poorly educated recipients less than their full entitlement or substitute lower quality grain. There are ghost ration cards given out under fake names.
Under the new systems, these beneficiaries will receive cash in their bank accounts and will be able to buy their requirements.