One of the flagship projects of PM Modi is Jan Dhan Yojana (JDY). Introduced on 28th August, 2014, it is a national scheme for financial inclusion to ensure easy, speedy and affordable access to finance, banking services, credit, pension and insurance. The seen side of this scheme is good as it facilitates people of all caste and class to open a bank account with public bank or private bank, with zero amount as a minimum balance, followed by a free insurance cover up to Rs. 1 lakh and overdraft facility for Rs. 5,000. Guinness World Records certifies that on the day of inauguration, around 1.5 crore bank accounts were opened through financial camps in 77,000 locations. PM Modi deems it as “a leap of financial freedom”, without publicising the unseen economics of JDY to the people of India.
Examining the cost of government apparatuses of JDY is rarely analysed because many so-called ‘good’ economists continue to ignore learning that the economic burden of the scheme falls inevitably on productive people. No doubt the scheme intends to deter poor from approaching usurious moneylenders, but it does not incentivise banks to open JDY accounts without essential documents. Insurance coverage of the account holder is linked with the transaction history. While JDY has inflated the number of account holders in a short span, it has done nothing to boost the volume of transactions. For example, as on March 24, 2017, public banks, regional rural banks and 13 private lenders reported that 92,52,609 accounts were frozen under JDY due to lack of transactions.
JDY intends to enrich the quality of monetary functions but it does not facilitate the parallel development of banking connectivity, ATMs, and other financial facilities in rural areas. By 1st February 2017, 27 crore accounts were opened. As on 15th March 2017, 23.80% of the accounts had zero balance (23.96% in public sector banks, 20.72% in regional rural banks, and 35.56% in private banks). Do these numbers indicate the success of this scheme? The interoperability problem is that, unlike in urban areas, where one can withdraw cash from ATMs, account-holders in the rural areas rely on a network of bank mitras and customer-service points to open accounts, make deposits and even withdraw cash. The issue stands unresolved till date. JDY may improve the status of ‘financial freedom’ of poor people, according to PM Modi, but it has degraded the scope of ‘economic freedom’ of the India’s economy. For example: JDY is not aligned with people’s personal choice of select banking services and facilities. Government determination of pushing people to adopt for the banking facilities has simply escalated the paper work of bankers.
On one side, PM Modi calls for ‘maximum governance, minimum government’. On the other hand, is it the business of the ‘minimum’ government to determine the balance amount of opening the bank account? This indicates that there is ‘maximum intervention’ by the government in the private banking space. JDY may intend to incentivise people to open the bank account but it is the bank which has to pay Rs. 50 for every account with zero balance, per annum. It continues to affect the profitability per se.
Then came the demonetisation wherein PM Modi claimed to fight ‘black money’ via cashless transactions, but unfortunately, in a major crackdown on laundering unaccounted money through JDY accounts, the Income Tax Department found that undisclosed amount of Rs 1.64 crore was deposited by people who never filed income returns. Is it a tip of the iceberg? A report by Indian Express found that in the first two weeks of demonetisation, the total balance under JDY increased by 60% to Rs 72,834.72 crore. That is a jump of Rs 27,198.11 crore in just 14 days. To put this in perspective, since its launch in August 2014, JDY took 16 months until December 2015 before it could accumulate a net balance of Rs 27,283.05 crore. Breaking News, isn’t it?
To conclude, JDY is good on paper but on field it is a manifesto of coercion and confusion. There are many important questions which remain unanswered. Will the government bail out the JDY accounts, on par with farm loan waivers, if poor people default? It is likely to do it because government cannot afford to lose vote bank here. Financial inclusion is the need of the hour but it should not be at the expense of everyone else. It’s better to leave the decision of banking to the people than to the planners because it’s ultimately the people who work hard to transact or to pay tax. Let them choose their own model of banking, at least.
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