The programme covers schemes like educational scholarship for the Scheduled Castes and the Scheduled Tribes and pensions to widows.
Food, fertilisers, diesel and kerosene have been kept out for the present.
Finance Minister P. Chidambaram has described the step as "nothing less than magical" that would plug loopholes in the delivery mechanism and ensure that the poor get complete benefits of the government's welfare schemes.
"This is a game-changer for governance...this is a game-changer in how we account for money, it is game-changer in how the benefits reach the individual," Chidambaram said Monday.
India's welfare spending is a major contributor to its fragile public finances. The country's budget deficit was 5.8 percent of gross domestic product in the financial year ended March 2012.
The government says the programme can generate much-needed budget savings by eliminating corruption.
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"We have a chance to ensure that every rupee spent by the government is spent truly well and goes to those who truly deserve it," Prime Minister Manmohan Singh said at the first meeting of the National Committee on Direct Transfers in November.
The prime minister has set up a three-tier architecture for monitoring the scheme. This includes a national ministerial committee, a national executive committee and implementation committees.
The seven schemes that will now employ direct cash transfers to beneficiaries' accounts are mostly related to student scholarships and stipends, the Indira Matrutva Yojna and the Dhanalakshmi schemes.
It is estimated that at least two lakh beneficiaries will receive cash benefits from Jan 1.
Cash benefits in the remaining 19 schemes will be available from February and March when the government will cover 23 other districts across the country.
The government had originally identified 51 districts across 16 states to be covered by the programme under which cash subsidy benefits will directly go to the bank accounts of beneficiaries with mandatory requirement of Aadhaar number.
Subsequently, four districts each of Himachal Pradesh and Gujarat were exempted from the roll-out because of the assembly elections.
The states being covered in the initial phase are Karnataka, Maharashtra, Delhi, Rajasthan, Madhya Pradesh and Punjab and UTs of Puducherry, Chandigarh and Daman and Diu.
This will be extended to 11 more districts from February 1 in states including Kerala, Haryana, Sikkim, Goa, Andhra Pradesh and Jharkhand and 12 more districts in states including Tripura from March 1.
The programme, now called direct benefit transfer (DBT) has been scaled down as gaps in infrastructure, like beneficiary lists and bank accounts, have been noticed and are yet to be fixed.
Many also fear that the scheme too could throw up stories similar to the Nahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) which has failed to deliver in several places. For example, pilot programmes in Rajasthan and Jharkhand showed glitches with payments not reaching those these were meant for.
Critics say the government has been too quick in pushing forward the project and is bound to face enormous implementation problems because of the complex technology and public administration required.
They say the government's plan for accelerated mass conversion of welfare schemes to Aadhaar-based cash transfers could cause massive social exclusion. In which case it may not be the game-changer for the Congress-led UPA in the next general elections.