When we aspire for certain things and work hard towards securing them, we feel happy only briefly at our success. Then, there is a mental reset. What has been achieved becomes the benchmark. What is still elusive becomes the next quest or cause for restlessness. This is true of most humans. We adopt a similar approach with respect to public policies.We clamour for certain policies or actions to be taken. When govt addresses a long-standing problem, the bar is raised even higher. There is inadequate acknowledgement of the achievement and contemplation of the counterfactual – the persistence of the inferior status quo. The PM Jan Dhan Yojana (PMJDY), which celebrates its tenth anniversary, is one such case.
For long, we lamented the financial exclusion of crores of Indians. In 2014, the then-new NDA govt took on the challenging task of bringing crores of Indians into the formal financial system. It turned out to be a spectacular success. As of Aug 14, 2024, there were over 53.1 crore beneficiaries with total deposits of over Rs 2.3 lakh crore. Nearly thirty crore beneficiaries are women.
In a research paper titled, ‘The design of digital financial infrastructure: lessons from India’, researchers at the Bank for International Settlements stated, “Given the low levels of both financial inclusion and formal identification in 2008, the magnitude of the challenges facing India a little more than a decade ago was immense. Based on the bank account data and the relationship with GDP per capita discussed above, one rough estimate is that it would have taken 47 years to achieve 80% of adults with a bank account had India solely relied on traditional growth processes.”
Another research (‘Banking the Unbanked: What do 280 Million New Bank Accounts Reveal About Financial Access?’, Sept 2023) shows that PMJDY accounts helped safeguard financial savings as there was greater usage of PMJDY accounts in regions prone to thefts. It also led to a decline in borrowing from informal sources who normally charge high rates of interest.
In a world where instant judgment is more the norm than the exception, commentators pointed out that the PMJDY accounts were mostly zero-balance accounts. These accounts have a combined deposit balance of over Rs 2.3 lakh crore. The usefulness of these accounts proved to be inestimable during Covid. The Union govt transferred benefits directly to these accounts. In the three financial years (FY20 to FY22), approximately Rs 8.1 lakh crore were directly transferred to beneficiaries’ bank accounts. Together with the evolution of digital payment infrastructure, this facilitated no-touch payments during the peak time of the pandemic.
Emerging research (‘Does open banking expand credit access?’, Aug 2024) shows that PMJDY facilitated open banking – customer-permitted data sharing to any financial institution. More specifically, regions with more PMJDY accounts have increased credit growth led by fintech, and the effects were stronger in regions with cheap and better internet connectivity. ‘Account aggregation’ is a manifestation of open banking. It is enabling the public to access more financial products and services.
Behaviourally, PMJDY has empowered women with their own accounts and money in the accounts. This financial independence is hard to quantify, but it is significant. Women in India generally have a higher savings proclivity, and over time, this could result in enhanced financial security for families and boost the national savings rate. Further, it can boost female entrepreneurship. Female participation has been quite encouraging in the wave of entrepreneurship through Startup India, a govt initiative to promote startups, and Stand-Up India, a scheme to promote entrepreneurship among women and SC/ST communities.
We return to the challenge of contemplating the counterfactual. In the light of the evidence of benefits that PMJDY has conferred on the accountholders, it is not hard to visualise the counterfactual. India’s development accomplishments in the last decade would have been substantially lower but for the visionary decision to launch PMJDY and its successful execution in a short period.
(The writer is chief economic advisor in the finance ministry)
For long, we lamented the financial exclusion of crores of Indians. In 2014, the then-new NDA govt took on the challenging task of bringing crores of Indians into the formal financial system. It turned out to be a spectacular success. As of Aug 14, 2024, there were over 53.1 crore beneficiaries with total deposits of over Rs 2.3 lakh crore. Nearly thirty crore beneficiaries are women.
In a research paper titled, ‘The design of digital financial infrastructure: lessons from India’, researchers at the Bank for International Settlements stated, “Given the low levels of both financial inclusion and formal identification in 2008, the magnitude of the challenges facing India a little more than a decade ago was immense. Based on the bank account data and the relationship with GDP per capita discussed above, one rough estimate is that it would have taken 47 years to achieve 80% of adults with a bank account had India solely relied on traditional growth processes.”
Another research (‘Banking the Unbanked: What do 280 Million New Bank Accounts Reveal About Financial Access?’, Sept 2023) shows that PMJDY accounts helped safeguard financial savings as there was greater usage of PMJDY accounts in regions prone to thefts. It also led to a decline in borrowing from informal sources who normally charge high rates of interest.
In a world where instant judgment is more the norm than the exception, commentators pointed out that the PMJDY accounts were mostly zero-balance accounts. These accounts have a combined deposit balance of over Rs 2.3 lakh crore. The usefulness of these accounts proved to be inestimable during Covid. The Union govt transferred benefits directly to these accounts. In the three financial years (FY20 to FY22), approximately Rs 8.1 lakh crore were directly transferred to beneficiaries’ bank accounts. Together with the evolution of digital payment infrastructure, this facilitated no-touch payments during the peak time of the pandemic.
Emerging research (‘Does open banking expand credit access?’, Aug 2024) shows that PMJDY facilitated open banking – customer-permitted data sharing to any financial institution. More specifically, regions with more PMJDY accounts have increased credit growth led by fintech, and the effects were stronger in regions with cheap and better internet connectivity. ‘Account aggregation’ is a manifestation of open banking. It is enabling the public to access more financial products and services.
Behaviourally, PMJDY has empowered women with their own accounts and money in the accounts. This financial independence is hard to quantify, but it is significant. Women in India generally have a higher savings proclivity, and over time, this could result in enhanced financial security for families and boost the national savings rate. Further, it can boost female entrepreneurship. Female participation has been quite encouraging in the wave of entrepreneurship through Startup India, a govt initiative to promote startups, and Stand-Up India, a scheme to promote entrepreneurship among women and SC/ST communities.
We return to the challenge of contemplating the counterfactual. In the light of the evidence of benefits that PMJDY has conferred on the accountholders, it is not hard to visualise the counterfactual. India’s development accomplishments in the last decade would have been substantially lower but for the visionary decision to launch PMJDY and its successful execution in a short period.
(The writer is chief economic advisor in the finance ministry)
