In India, tens of thousands of farmers commit suicide every year. An overarching cause in majority of the cases is they are heavily indebted and inability to pay back to money lender forces them to the extreme step as they can’t bear consequential torture and exploitation.
The agony is palpating in instances whereby even a small loan taken by farmer or a landless laborer from money lender gets transformed in to mountain of debt as interest charged by latter is exorbitant – 4-5 times higher than what the banks charge.
At another level, consider a woman at home who struggles hard to keep her earnings safe even as her die-hard alcoholic husband looks for every possible opportunity to pounce. Eventually, the cash gets frittered in giving vent to dastardly habits of latter.
Think of the only earning person of a poor family – a factory worker or landless worker on field – who dies in an accident. In the absence of financial security, the dependent members are forced in to persistent misery for their entire life span.
Those who are a shade better-off and in a position to save some amount – after meeting their expenses – have no avenue available to invest for a reasonable return. They are neither able to contribute nor benefit from economic activities.
Government extends financial support to vulnerable sections through a host of welfare schemes and subsidies. Under existing arrangements, a lot of this money gets pilfered. The beneficiaries also face lot of hassles and even harassment at the hands of officials in getting their entitlement released.
The financial miseries of a vast majority of people can be traced to absence of banking facilities in large parts of India. Nearly 40% of population or 500 million do not have a bank account. More than 6 decades since independence, they continue to be condemned to ‘financial exclusion’.
Speaking from the ramparts of historic Red Fort on Independence Day August 15, prime minister, Modi lamented ‘we may have got rid of social untouchability, but a vast majority of people of India continue to be afflicted by evil of what he termed as ‘financial untouchability’.
To make a dent on this pernicious problem, he announced ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’ and in less than a fortnight thereafter launched it on August 28. PMJDY is a mammoth nation-wide financial inclusion project that seeks to bring every household in India within the ambit of the banking system.
Under it, 75 million families will open an account each with ‘zero’ balance and get a RuPay debit card. It will come with an overdraft facility of Rs 5000/- and an accident insurance cover of Rs 100,000/- . Persons opening account before January, 2015 will also get life cover for Rs 30,000/-. In second phase, number of accounts will be increased to 150 million.
On the day of launch itself, 15 million accounts were opened. By September 8, this figure had already doubled to 30 million thereby demonstrating huge success of the scheme. Banks are pretty confident that the 75 million target will be reached by January, 2015.
The project will create sustainable opportunities for improving economic well being of poor. By making loans available at affordable interest rates, this will liberate them from the shackles of money lender. The lady at home need not fear and can keep her money safe in the bank. She can leverage this to boost her savings for contingencies.
The green shoots are already visible. People have put in around Rs 1500 crores in these ‘no-frills’ accounts. Based on feedback received from banks, financial services secretary exudes confidence that within a year, total collections will touch Rs 15,000 crores.
Any apprehension that Rs 5000/- overdraft could be drain on banks resources is without basis. How much an account holder will get? This has been left to discretion of bank. Moreover, fresh loan will be given only after previous drawl has been repaid.
Given initial trends, majority of accounts will have some balance. So, a person will be drawing his own money. Far from making a dent on their balance sheets, banks will have access to cheap money thereby opening up new window for increasing their profits. It will be a win-win for both the poor and banks.
The RuPay card which has all the features of widely used international credit/debit card, will give to the poor much needed safety and flexibility in conducting their purchases and availing various services. This will also reinforce their confidence.
When, life is at serious risk every moment, accident cover of Rs 100,000/- available at no cost will be a big boost to financial security of the poor. For millions of workers in ‘informal’ sector who have no social security cover, this offers unprecedented comfort.
Government gives huge amounts of subsidies (around Rs 300,000 crores annually on food, fertilizers and fuel alone) besides welfare entitlements like scholarships, educational allowance, pension etc . Thanks to the leakages, inefficiency and corruption in our governance structures, a major slice of the subsidies does not even reach the beneficiaries.
PMJDY will create the much needed foolproof financial architecture to ensure that subsidies and other forms of financial assistance reach in full to the target beneficiaries. Modi himself is taking keen interest and has already ordered a public financial management system (PFMS) to be put in place for this purpose. PFMS will track money flow and ensure that it gets credited to beneficiary’s account.
Finance minister, Arun Jaitely has given a clear indication of government’s intention to transit from extant dispensation to a system of direct cash transfer to poor. The expenditure management commission (EMC) under Dr Bimal Jalan is expected to come out with a road-map before end of current fiscal.
Such humongous amounts channeled through banks will give more incentive to them for expanding their reach thereby contributing to economic empowerment of millions who have thus far been treated as financial un-touchable.
The economy will also gain by way of elimination of pilferage and a lot of subsidy amount that is currently mis-directed. Resultant savings in expenditure will help in lowering fiscal deficit, government borrowings, interest rate and inflation.
In a nutshell, PMJDY is a historic ‘financial inclusion’ scheme that will unfold numerous opportunities for millions of weaker sections of society to improve their economic status and contribute to enhancing GDP growth.