polity : good governance : What are the pros and cons of the Indian Government's Jan Dhan Yojna -1
Answer by Rohit Shinde:
Before I explain the scheme, I would like to explain its salient features:
- It intends to accomplish the objective of housing for all by providing basic bank account with a debit card with inbuilt accident insurance.
- It includes a Rs. 5000 overdraft facility for Aadhar linked accounts.
- RuPay debit card with Rs. 1,00,000 accident insurance cover.
- After remaining active for 6 months the account holder will become eligible for an overdraft of up to Rs 2,500, which will be further enhanced to Rs. 5000 over time by the bank.
- This scheme's target is to bring 7.5 crore unbanked families into the banking fold, by opening 15 crore banking accounts (2 per family).
- 60,000 enrolment camps will be held in rural areas to raise awareness regarding the importance of bank accounts.
Now, the reasons why this scheme is important are enlisted below.
In India, banks were nationalised in 1969. This was done to bring about financial inclusion. Banks were nationalised to bring about social development, induce priority sector lending and develop banking habits.
However, 45 years later, we are nowhere near these goals! Almost 68% of the Indian population is out of the banking system and they depend on moneylenders for loans. This means, a rich person gets a loan at a cheaper rate while a poor person living in the village will get a loan at twice the interest rate from the local moneylender. Here the debt trap starts, eventually leading to suicides.
This scheme is a mega financial inclusion plan. If the lowest rung of society cannot get loans at an affordable rate, how will the country develop? It will provide an insurance cover of Rs. 1,00,000 to crores of people without bank accounts.
If you look at this map from the World Bank (showing financial inclusion), only 35% of adults in India have a bank account. Now, look at other developed and developing countries.
China-65% adults have a bank account
USA-87% adults have a bank account
Canada-95% adults have a bank account
Out of the BRICS countries, India has the lowest percentage of financial inclusion.
If you see, all developed countries have a high percentage of individuals in the banking system. The benefits are two-fold:
- Lesser amount of black money circulates in the economy.
- It is easier to get loans, which help in the development of any economy. Loans will be used for setting up a business which will in turn generate jobs.
This is the core vision behind this scheme. Get the people in the banking system, reduce their dependence on informal (and tortuous) credit and watch the country grow.
The poorest people in our country often survive on agriculture. Because of this scheme these people will benefit the most.
If a farmer wants a loan, he would generally go to a money lender, who would charge him exorbitant rates. Generally to the tune of 20% or more. This is simply unaffordable. The interest quickly climbs up leaving the farmer in debt. This debt then becomes a vicious circle. This leads to many farmer suicides.
However, if the same farmer has a bank account, he will get loan from the bank at less than half the rate. Not only will he have less interest to pay, he can also save money. One more thing, due to less debt, he might invest in more productive agricultural technologies, which reduce the ecological burden on the land.
Have you ever wondered why our PDS system are so inefficient? It is due to lack of accountability. Cash transfers do not induce accountability. You can never enforce accountability through a cash transfer. However, a bank account will remedy this. The banking system leaves a trail of money which can easily be traced.
This vastly reduces the amount of black money which can circulate in the economy. These accounts can be used for cash transfers, handing out subsidies and other stuff. They will minimize leakage and ensure that subsidies reach beneficiaries.