Sustain the spirit

The initial response to the Pradhan Mantri Jan Dhan Yojna, which was launched by Prime minister Narendra Modi last week, was very encouraging.

It is a scheme for financial inclusion of the entire population, to be effected with providing a bank account to every household in the country. The aim is to open 7.5 crore accounts by January 26 and cover the entire country by the next Independence Day.

On the first day, about 1.5 crore accounts were opened and this was beyond expectations. The enthusiasm shown by the government in the implementation of the scheme, in which the state governments are also involved, should continue.

The UPA government had also worked out a plan for financial inclusion with the help of Aadhaar cards and bank accounts but it could not implement it well. 

The Modi government has retained the Aadhaar cards and modified the bank account scheme by adding insurance cover and providing an overdraft facility of Rs 5,000 to account holders.

The additions have made the idea of opening bank accounts more attractive. Bringing everyone in the country within the formal financial system is very important because it reduces corruption and the role of officialdom in dealings between the government and people, enables direct transfer of welfare benefits and empowers people.

Banks were once reluctant to have many lean accounts in their books but technology has now eased the difficulties in maintaining and servicing such accounts.  There are also new methods of doing business with the help of business correspondents and mobile phones.

The RBI has already decided to create a mobile technology-based supplement to regular banking.  Ownership of accounts can also increase the financial literacy of people and boost their saving habits. The scope for success of a business model involving poor people, especially women, has been shown by micro-finance companies in Andhra Pradesh.  

But the initial enthusiasm should be sustained and supported by follow-up action. After the accounts are opened, people should be encouraged to keep them active. The transfer of subsidies and other benefits to bank accounts will keep the interest of the people alive.

Then they will become a part of the lives of people.  It is necessary to increase credit facilities also because experience shows that access to credit is traditionally poor in rural areas.  However, it must be ensured that the overdraft facility is used judiciously and with ample supervision. If the scheme works, it can be transformational.