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JAM – Jan Dhan, Aadhaar and Mobile
The law of economics says that financial inclusion is a must to trigger savings and, in turn, investments by the household sector. Financial inclusion means each family has at least one bank account, and has access to cashless transactions.

Take a simple example. A farmer in India may not have access to a bank account. He sells his produce and gets cash in return. He uses that cash to meet his daily needs. Cash is liquid, which implies he ends up spending most of it. He struggles to keep his cash at home, as there is danger of theft. By the time he realises, he hardly has saved anything after 12 months and he has no reserves in case of an emergency!

In India, only 53 per cent of the population had access to bank accounts in 2014, which means they perhaps did not save, did not receive subsidies directly and perhaps did not take insurance.  Further, many of them did not have access to bank loans and hence approached local moneylenders at heavy interest rates – leading to a large number of suicides. Financial inclusion implies banks will find it easier to lend to the rural class.


Pradhan Mantri Jan-Dhan Yojana


Financial inclusion has to be done step by step. The first step in the new Modi government was introduction of Pradhan Mantri Jan Dhan Yojana on 28 August 2014.  This scheme aimed at opening up banking for every family in the country. So successful was this initiative that it entered the Guinness book of world records for the highest number of bank accounts (1.80 crore) opened in a week! As on December 2015, 19.52 crore accounts were opened under this scheme. That many of them have nil balance is another matter. Bank account holders receive RuPay debit cards so that they get access to branchless banking. These accounts had outstanding balance of Rs 28,000 crore as cash deposits and Rs.131 crore a overdraft facilities. The number of RuPay debit cards touched 17.19 crore in January 2016.

The rural households have benefitted largely from this. Banking penetration to rural areas increased by 91 per cent within a year. SBI has been opening 60,000-70,000 accounts daily, indicating that more than one account is being opened per family.


Integrating bank accounts with Aadhaar cards


The next step was to bring accounts of underprivileged and rural areas covered under food and fertiliser subsidies, cooking gas subsidies and scholarships through direct benefit transfers and give them access to insurance coverage with affordable premium. These people only have ration cards as identity proof. KYC norms demand more. So, to get additional information and classify the poor from the rich, the government decided to integrate bank accounts with Aadhaar cards under the Pradhan Mantri Jan-Dhan Yojana Scheme. The government deployed Bank Mitras in rural areas who were capable of opening accounts on-line with e-KYC and interoperable payment facility. Aadhaar cards are issued to people in rural areas, after which these are linked to their bank accounts and mobile numbers so that subsidies can be easily availed. Their Unique Identification number (UID) ensures that details are not duplicated. The basic idea is to curb leakages in the Public Distribution System and put an end to corruption, so that the targeted get their dues.

The Aadhaar (Target Delivery of Financial and other Subsidies, Benefits and Services) Bill, 2016 that was passed this month targets to plug leakages of a whopping Rs 50,000 to Rs 70,000 crore every year. Village level camps plan to be set up to match Aadhaar numbers and Jan Dhan bank accounts to remove duplication of data at village and block levels.

PAHAL Yojana was introduced for direct transfer of LPG subsidies into bank accounts. The LPG subsidy through Aadhaar saved Rs 15,000 crore for the Centre and Rs 2300 crore for the states, as well as helped identify and block duplicate accounts. However, this scheme faced hiccups. According to a survey in December 2015, only 62 per cent of the respondents with Aadhaar numbers felt it was easier to transact while 38 per cent said it is not helping them. The accounts opened through e-KYC using Aadhaar number through biometric identification face frequent authentication issues and the signatures were rejected.

The government then rolled out direct transfer benefits for its various programmes, including Mahatma Gandhi National Rural Employment Guarantee Scheme in 300 districts. This scheme was expected to cover 4.3 crore beneficiaries with a fund flow of Rs. 12,000 crore per annum in January 2015. The full scheme rollout would ensure 10 crore beneficiaries with Rs. 33,000 crore funds flow per annum.


Pradhan Mantri Suraksha Bima Yojana


The government introduced insurance schemes for the poor which includes Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jivan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Fasal Bima Yojana (PMFBY) along with the Unified Package Insurance Scheme for farmers. PMSBY provides accident insurance worth Rs. 2 lakh with a premium of just Rs. 12 per annum, while PMJJBY provides life insurance at a premium of Rs 330 per year. This scheme covers hospitalisation expenses upto Rs.100,000 with additional Rs.30,000 for senior citizens. PMSBY has attracted more than 9.2 crore people while PMJJBY has attracted more than 3 crore people.

The PMFBY is a crop insurance scheme exclusively for farmers to be introduced on 1 April, 2016. This scheme is unique as farmers get more coverage with less premium leading to efficient protection of crops against natural calamities. The scheme covers crop insurance and accidental insurance coverage for farmers as well as insurance for tractors and farm equipment. During launch, 50 per cent of the farmers were targeted to be covered under the scheme. The government plans to spend Rs 5500 crore for this scheme. The premium payable is 2 per cent for all kharif crops, 1.5 per cent for all rabi crops and 5 per cent for annual commercial and horticultural crops. The unified package scheme covers crop, tractors, pump-sets, self and accidents.

Atal Pension Yojana

Another programme introduced is the Atal Pension Yojana (APY) aiming to provide pension of Rs.1000 to Rs.5000 per month after the individual turns 60 depending on his contribution. This scheme is aimed at people working in unorganised and private sectors having no access to any retirement benefits otherwise and fall below the income tax exemption limit. The scheme also attracts tax benefit on contribution to APY of upto Rs. 50,000 u/s 80CCD(1). This scheme received 15.85 lakh contributors by December 2015.

A salient feature of this scheme is that the Central government will contribute 50 per cent of user’s contribution or Rs. 1000 per year. The minimum period for contribution is 20 years, which means it is available for those who are 18 - 40 years. The monthly premium is a nominal sum. The government added a new clause that in case of premature death of the contributor, the spouse can continue contributing to the scheme. The spouse is eligible to receive the same pension as the original contributor on attaining 60 years of age. On death of both the subscriber and spouse, nominee will receive the pension that is accumulated when the subscriber would have attained 60 years of age.

This scheme did not take off very well initially due to lack of awareness, late returns, diminishing value of rupee, etc. The earlier deadline of 31 December 2015 for availing 50 per cent contribution from the government has been extended to 31 March 2016.

Although most of the country’s population has been included in the banking system, challenges still remain, the core challenge being consumer literacy relating to these schemes. There seems to be a lot of confusion relating to how the insurance and pension schemes work. The first one is that each individual has to be educated on the need for a bank account. Secondly, he/she may not be aware that financial inclusion gives easy access to bank loans. They need to be educated about how they can approach their banks to avail loans. Thirdly, hiccups relating to linking of Aadhaar cards with insurance schemes need to be overcome.

In conclusion, the financial inclusion scheme is a good and comprehensive effort by the government to plug leakages in the system and ensure every family is able to get what they deserve. It serves as a medium for increased household saving leading to increased household investment, in turn contributing to overall economic growth.

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