Dry accounts

The Jan Dhan Yojana, the government’s flagship scheme that, along with Aadhaar and the mobile, aims to achieve financial inclusion of the poor has run into trouble because of zero-balance accounts and low incomes of the account holders.

Arun Jaitley, Finance Minister.

IN late 2014, Prime Minister Narendra Modi officially launched the Pradhan Mantri Jan Dhan Yojana (PMJDY), which was among the select flagship schemes he announced in his first Independence Day address from the Red Fort. At its official launch some days after the announcement, 1.5 crore bank accounts were opened for people living below poverty line.

The Prime Minister said about the first welfare programme of his government: “The one and half crore families and individuals who have joined [opened their bank accounts] are keeping their first steps into the mainstream economy. This is, in itself, a significant victory which will provide momentum to the country’s economic system. Economy is the most important unit in the battle against poverty. If [the poor] remain untouched from it [economy] then, I don’t like using this expression, but I feel I should say that this is financial untouchability. Forty per cent of the people, who can’t become stakeholders in the country’s economy, cannot benefit from it, then how can we be successful in our work of removing poverty?”

He even compared it with Mahatma Gandhi’s battle against social untouchability. He said, “So, it is our goal that if Mahatma Gandhi tried to eradicate social untouchability we have to [strive to] achieve freedom from financial untouchability. Every person will have to be connected with the financial system and, keeping this in mind, we have put all our strength into this campaign.”

Subsequent to the scheme’s launch, the government started a “national mission on financial inclusion”. Finance Minister Arun Jaitley, writing in a “mission document” on Jan Dhan Yojana, said the intended goal was “to provide all households in the country, both rural and urban, with access to the financial services, like bank account with RuPay debit card, access to credit, remittance, insurance and pension. Thus, the mission not only brings the excluded sections into the financial mainstream but makes the transfer of benefits of various subsidy schemes of the government more efficient.” Eventually, this effort was to serve as the enabler for the government’s Jan Dhan-Aadhaar-Mobile (JAM) policy, which seeks to use technology to deliver welfare and cut down leakages.

Much of the initial attention of the government system seemed to be focussed on opening a large number of bank accounts, a focus that earned it a place in the Guinness Book of World Records at the time of the scheme’s official launch in August 2014.

The world record was registered under the title, “Most Bank Accounts Opened in one week in a financial inclusion campaign”. The company’s website states: “[T]he bank accounts were opened under the PMJDY by 36 banks across India. During the week of 23-29 August 2014, 18,096,130 bank accounts were opened, being the highest number of bank accounts in seven consecutive days between 16-29 August 2014. The evidence for the number of bank accounts opened is based on the data obtained from the core banking system (CBS) of various banks.”

Speaking with journalists in early 2015, Arun Jaitley described the efforts taken at enumeration and reaching out to 21 crore of the total 25 crore households in the country by bank employees. The remaining 4 crore-odd households could not be reached since they were located in left-wing and other kind of extremism-affected areas, he said. But, by and large, these efforts yielded good results, he said and claimed, “Most of India today is included in the banking system.” However, he conceded that only 28 per cent of these accounts were “operational” and had some money. To ensure that the remaining accounts were active, the government planned to transfer money to beneficiaries of various welfare schemes in their bank accounts.

Many efforts to reflect a higher number of active accounts have been made since then. By December 2016, government data show, only around 24 per cent of the accounts were of zero balance. But there is no official data made available after this on the scheme’s website.

In fact, in the past three years of the scheme’s existence, available evidence suggests that its performance has been, at best, mixed and certainly far from realising the lofty ambition of comprehensive financial inclusion that it set out to achieve. This measure started as an initiative of the Reserve Bank of India (RBI)— Basic Savings Bank Deposit Account—in 2005 under the United Progressive Alliance (UPA) government. It involved opening a “no frills” bank account with an ATM card for account holders, most of whom were poor. Jan Dhan added “incentives” such as accident insurance cover of Rs.1 lakh, overdraft facility of up to Rs.5,000 after six months and life insurance cover of Rs.30,000.

Duplicate accounts Even these incentives did not end the controversial practices banks followed to overcome the two significant problems in the scheme: dormant accounts and duplicate accounts. Dormant implied accounts without any activity and with zero balance. Duplicate implied that the Jan Dhan account holder had a second bank account in his name. Former Rural Development Minister Jairam Ramesh, in an interview with The Hindu Business Line last year, claimed that 40 per cent of Jan Dhan accounts were “second accounts”. The suggestion was that accounts were opened just to show high numbers in official records. The biggest controversy of Jan Dhan centred on the “1 rupee trick” followed by several banks. First exposed in a journalistic investigation by The Indian Express in September 2016, it showed that in order to cut the number of “zero balance” accounts and show some activity in them, bank officials themselves deposited Re.1 in these accounts. At least two public sector banks reportedly acknowledged the existence of the practice. The scale of this practice was also significant. The newspaper’s investigation, conducted through the Right to Information applications, showed that 1.05 crore accounts in 18 public sector banks had Re.1 deposits.

Several recent academic research papers have also been less than enthusiastic about the scheme for the above described reasons. One of the most recent and original research papers is by a group of four researchers affiliated with the RBI, Reserve Bank Staff College, and Indian Institute of Technology Kharagpur. It was published in the Economic & Political Weekly in September. The study was done in 25 slum locations spread across nine districts of the national capital and had a sample of 600 slum dwellers. The researchers sought to understand the constraints that caused “involuntary exclusion” of the poor from banking services and estimate what could be the “incremental increase” if these constraints were addressed.

They observed: “Much ground has been covered with regard to calibrating the supply-side of the financial inclusion drive, especially in the form of the RBI’s financial inclusion plan and Government of India’s Pradhan Mantri Jan Dhan Yojana. Given its relevance, however, there is a need to assess the use of banking services among the people, especially at the bottom of the pyramid, to be able to understand the constraints that prevent them from using the formal banking/financial services on offer.”

The researchers found “econometric evidence that there are constraints—in terms of income and occupation—that are holding Delhi slum dwellers back from using banking services. In order to enable effective financial inclusion, we recommend the removal of constraints on demand for financial services by enabling the lower strata of society to earn more. We also recommend customising financial products for identified occupations, improving financial literacy and being agnostic about gender.”

While the poor in Delhi appeared less eager to adopt robust use of the formal financial institutions, the top leadership of the government seemed to take refuge in data to celebrate the policy’s “success”. In a blog written on the third anniversary of the PMJDY, Arun Jaitley announced the arrival of a veritable revolution in financial inclusion. He wrote, “…as it turned out, PMJDY and the other schemes were only the first step because in turn they have unleashed the ‘JAM’ revolution. JAM, a term coined, and a vision conceptualised, by our Chief Economic Adviser, is nothing short of a social revolution because it has brought together financial inclusion (PMJDY), biometric identification (Aadhaar) and mobile telecommunications. Today, about 52.4 crore unique Aadhaar numbers are linked to 73.62 crore accounts in India. As a result, the poor are able to make payments electronically. Every month now, about 7 crore successful payments are made by the poor using their Aadhaar identification.”

Further to his description of the “JAM Revolution”, Jaitley wrote, “The JAM social revolution offers substantial benefits for government, the economy and especially the poor. The poor will have access to financial services and be cushioned against life’s major shocks. Government finances will be improved because of the reduced subsidy burden; at the same time, government will also be legitimised and strengthened because it can transfer resources to citizens faster and more reliably and with less leakage. Within reach of the country is what might be called the 1 billion-1 billion-1 billion vision. That is 1 billion unique Aadhaar numbers linked to 1 billion bank accounts and 1 billion mobile phones. Once that is done, all of India can become part of the financial and digital mainstream. Just as GST [Goods and Services Tax] created one tax, one market, one India, the PMJDY and the JAM revolution can link all Indians into one common financial, economic, and digital space. No Indian will be outside the mainstream. This is nothing short of a social revolution.”

The disconnect from ground reality could not perhaps get starker than this.