Banking on inclusion

In launching the most ambitious plan ever to extend basic banking services across the country, the government is fulfilling a promise made by the Prime Minister in his Independence Day speech. The launch of the Pradhan Mantri Jan Dhan Yojana also marks the completion of 100 days in office by the NDA government. Many of the details of the scheme were made available in advance, but the official launch on Thursday was in itself historic. A record 1.5 crore accounts were opened on the day of the launch, and an upwardly revised target of opening 7.5 crore new accounts by January 26, 2015 looks achievable, given the high levels of enthusiasm seen on the opening day. There has been close coordination among the government, the States and the bankers, and it is hoped that this will continue in equal measure to ensure the success of the scheme. For the NDA government, there will be a large number of positive political and economic spin-offs from the successful implementation of the scheme. Apart from making available basic banking facilities to every household, it is designed to provide social security through insurance schemes, and in select cases, pension schemes. This will be no mean achievement, given the absence of even a rudimentary social security cover for a very large number of people. In due course, the government plans to route cash transfers in lieu of subsidies through these accounts. That would pave the way for a comprehensive reform of the subsidy regime for a number of essential commodities.

The sheer size and complexity of the logistics involved in executing the gigantic inclusion plan will continue to amaze long after the initial glitches are ironed out. To be executed in two phases — the first will be for a year, while the second phase will be between 2015 and 2018 — the Jan Dhan Yojana plans to extend financial services in a country where only 58.7 per cent of an estimated 24.67 crore households have access to banking services. The scheme targets households rather than individuals, and uses technology extensively to further inclusion. Since opening physical bank branches on such a large scale is out of the question, the scheme will rely on a large number of business agents or correspondents for the last mile. It is therefore important to provide incentives to this category of intermediaries to ensure their total involvement. Experience with mandated inclusion programmes suggests that the new account-holders need to be kept engaged for sufficiently long periods. TheRuPay smart card is probably an answer, as it will keep the account-holders connected with the banks. For the macroeconomy, the big benefit will be fewer physical cash transactions — a development that will aid in the implementation of official policies.