The Indian government is handing out cash to the poor as part of a phased rollout of a scheme designed to replace some 30 welfare programmes. Initially 200,000 people in 20 districts will receive the money, but the government plans to cover the whole country by the end of 2013.

"Nothing less than magical, and a game changer for governance" is how India is selling the ambitious scheme in which an estimated 90 million households stand to receive around $58bn in cash.

Those living below the poverty line will receive between $542 and $723 a year.

Palaniappan Chidambaram, the Indian finance minister, told a news conference that the money is to be paid directly into people's bank accounts, cutting down on bureaucracy and cutting out corruption: "We are confident that the monies under these schemes will be successfully credited to the bank account of the beneficiaries. As far as bank accounts are concerned, our assessment is that by-and-large all the beneficiaries under these schemes in these districts have a bank account."

At this stage cash transfers will cover things like scholarships and pensions. It is seen as more efficient and less susceptible to corruption than subsidies.

But critics accuse the government of bribing voters ahead of next year's general elections and are worried the scheme could replace crucial food handouts and fuel subsidies.

Many of India's 1.2 billion people lack proper identification, let alone bank accounts, and there are fears they may not spend the money wisely.

The areas blamed for much of the fraud and lost money in India's welfare programme – that is food, fertiliser and fuel subsidies – will not be replaced.

Plus, what are the parametres for deciding who is eligible? Will millions end up missing out – stripped of subsidies and handouts and ineligible for cash? Is this just a government ploy ahead of next year's elections? And will the plan work?

Joining Inside Story for the discussion with presenter Hazem Sika are guests: Parth Shah, the director of the Centre for Civil Society, an organisation devoted to improving the quality of life for all citizens of India, and Reetika Khera, an economist, social activist and associate professor at the Institute of Economic Growth, a leading research institution in New Delhi.