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Home / Opinion / Views /  Mint Explainer: Why Modi’s Jan Dhan Yojana is still a work in progress

“The first step is to provide every adult with a bank account, which PMJDY has nearly completed," says the Ministry of Finance in its recent report on the PM Jan Dhan Yojana. The World Bank still believes only 78% of Indian adults have bank accounts. But, without doubt, the financial-inclusion scheme has been audacious in its sweep, opening 460 million bank accounts over eight years, and can potentially seed a micro-finance culture deep inside India. As a proxy, think of Muhammad Yunus and the Grameen Bank in Bangladesh. Only the scale–in sheer numbers–is exponentially higher in India. Indeed, it can be a game-changer for women’s social and economic empowerment in India, as the global experience informs us. But it’s still a long haul, and there are many loose ends to be tied up.

What is the PM Jan Dhan Yojana (PMJDY) all about?

The PMJDY wants to take banking to the masses in a country where the penetration of banking services has been poor over the decades.

PMJDY initially targeted one bank account for every household, but that goal was scaled up in 2018. Now, the focus has shifted from ‘Every Household’ to “Every Unbanked Adult" and aims to give all Indians access to a gamut of financial services such as a basic savings bank account (zero-balance), need-based credit, remittances facility, insurance and pension.

PMJDY plans to usher in comprehensive financial inclusion and provide banking services to all households in the country. It aims to boost financial literacy in India, promoting savings use of ATMs and mobile banking.

Among other benefits, PMJDY offers a free accidental insurance cover of 2 lakh on RuPay cards and an overdraft facility, which has been raised from 5,000 to 10,000.

And then the JAM trinity–Jan Dhan, Aadhaar and Mobile–is transforming subsidy transfers to the poor by the government.

The government runs a massive subsidy regime, but the benefits in the past only reached the poor through indirect, long-winded channels that encouraged graft and leakages. The Public Distribution System (PDS) that provides subsidized food and employment guarantee scheme MNREGA are obvious examples. Also, think of power and fertilizer subsidies.

By harnessing the JAM trinity, the government has begun direct subsidy transfers to bank accounts. Aadhaar allows biometric identification, and money can be routed directly to the Jan Dhan bank accounts through mobile phones. MNREGA, PM-AWAS, PM-KISAN, etc., are a few of the flagship government schemes where a direct benefit transfer (DBT) is being rolled out by the government, eliminating intermediaries as much as possible.

About 9 million DBT transactions are being processed daily, with the money flowing directly into the accounts of the beneficiaries, says the government. Total subsidies account for about 4% of India’s GDP.

What has been the impact of PMJDY?

The PMJDY numbers certainly seem to be encouraging. Sample this recent data compiled by the Centre

PMJDY accounts have grown threefold, from 147.2 million in March 2015 to 462.5 million in August 2022. About 80% of the accounts are operational, and women hold about 56% of the accounts (310 million). Total deposits have soared 7.6 times to 1.73 trillion between August 2015 to August 2022. And average deposits have climbed three times to 3,761 per account.

Above all, only 8.2% of the accounts are zero-balance accounts, a sharp drop in recent years. In September 2014, the figure was 76%, but the zero-balance account figure has since been dropping steadily.

Now, a reality check. No doubt, Jan Dhan has given millions of Indians access to a banking account, it still may not have helped many build a better future for themselves, as World Bank data informs us.

Most Indians still find it difficult to access bank credit, analysts say. Poor financial literacy has meant many Indians are unaware of the possible benefits of owning a bank account. This is obvious from the extremely limited number of people using the 10,000 overdraft facility extended to them by the government–till last year, the figure was less than 1% of PMJDY account holders. Even small loans to the disadvantaged by banks can trigger a micro-finance revolution. This has been demonstrated in other countries, including Bangladesh, where Muhammad Yunus and Grameen Bank seeded a micro-credit revolution.

Also, most Jan Dhan customers are poor and have little savings. Most banks find it unprofitable to cater to them. Many Indians still approach local money lenders for credit at exorbitant interest rates, defeating the purpose of access to the formal banking system.

Also, while the number of operational accounts is rising and there has been a sharp drop in zero-balance accounts, it may not necessarily reflect greater financial inclusion. Savings in active bank accounts may simply be a consequence of direct benefit transfers (DBT) to them by the government, point out analysts.

Recent World Bank data seems to indicate these trends as well. In its recent Global Findex Database 2021, the World Bank says about one-third of account owners in India had inactive accounts in the past year.

And while, globally, 1 billion adults who have an account made no digital payments, more than half of these, 540 million, were in India, it says.

Account inactivity in India was a consequence of “distance to financial institutions, lack of trust, and lack of need", says the World Bank in its study.

Can PMJDY empower women in India?

A few days ago, Prime Minister Modi asserted in his August 15 speech that “gender equality is key to a united India". A scheme like Jan Dhan is an opportunity for the Modi regime to push ahead with its agenda of female empowerment.

Women save in consistent small amounts and can be encouraged to tap credit, insurance and other financial products, studies show. Already, 56% of Jan Dhan account holders are women.

The World Bank, in its recent report, also asserts that there is considerable evidence in developing countries that access to bank accounts “can enable financial independence and strengthen economic empowerment" of women". It gives examples to build on this argument.

In the Philippines, “women who used commitment savings products that encouraged regular deposits into a personal bank account increased their household decision-making power and shifted their spending to household goods relevant to their needs, such as washing machines," says the World Bank. Another study in Kenya showed “women-headed households spent 15% more on nutritious foods after receiving free savings accounts", it says.

And in India, too, it says that “paying women their benefits directly into their account (and not into the account of a male household head) increased women’s financial control, influenced gender norms preventing women from working, and incentivized women to find employment, compared with those paid in cash."

Jan Dhan, then, can turn out to be the game changer for female empowerment in India. But it still remains very much a work in progress.

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