Prime Minister Narendra Modi cleared the grand financial inclusion plan last week, which he is going to unveil on August 15. But before giving clearance, the PM asked a few pointed questions. What is being done now under financial inclusion? And how will the new plan be different and solve the problems faced by the current exercise?
The answer to the first question is obvious. Financial inclusion, predominantly, has been more or less limited to opening bank accounts. Banks are not interested in these accounts as there is not much of a business here, and account holders are not enthusiastic about it in the absence of a workable payment system.
Here lies the clincher which also answers the second question. The underlying message of the new financial inclusion plan, therefore, has to be much more than opening bank accounts.
It has to fix the payments problem. If there is cash dispensation facility and banks are getting enough money in the accounts on a regular basis making their operation a profitable proposition, there is no reason why financial inclusion can?t spread at a rapid pace. That nobody is currently interested in it explains why there has to be a fresh approach. The contours of the Modi plan are not new. The model was suggested by the former Unique Identification Authority of India (UIDAI) chairman Nandan Nilekani. It?s just that the previous government could not implement it. The NDA government is doing the smart work by making it happen by finding ways to implement it.
The game-plan is straight and simple. Banks will open accounts which will be seeded with Aadhaar. The government will transfer all the benefits under various government schemes, and also subsidies, to these accounts.
Then, a combination of banking correspondents, white-label ATMs and hand-held devices in shops and other payment locations will ensure that spending the money available in those accounts is easy.
On top of everything, banks will also issue co-branded RuPay cards, such as SBI-RuPay or PNB-RuPay, to their account holders, which will work as any debit or credit card with added advantages. They will be easier to issue and their cost of handling will be substantially lower for banks than MasterCard or Visa cards.
In fact, the government?s basic financial inclusion plan has already been outlined in the Outcome Budget for FY15?speedy creation of a workable payment structure can play the role of a much-needed catalyst.
PSU banks opened 7,840 branches in FY14 as compared to 4,432 in FY13 and their ATMs increased to 96,853 as on January 31, 2014, from 69,652 on March 31, 2013. Clearly, PSU banks have been kept under constant pressure to enhance the level of financial inclusion but it has not moved much.
Thus, the direct benefit transfer (DBT) holds the key. If financial inclusion has to work, the DBT has to be made its bedrock.
The UPA government could not capitalise on it. The NDA government wants to give it the required push and there is no reason why it can?t work given its success in curbing leakages in the distribution of LPG. It is another matter that the previous government developed cold feet and stopped it in January. It needs to be restarted quickly.
The DBT was rolled out on January 1, 2013. Currently, 27 central government schemes of various ministries and departments have been brought under the scheme in 121 districts across the country.
The Aadhaar seeding is still voluntary for the bank accounts in which benefits are being transferred but, going forward, it has to become mandatory. Over 64.91 crore people have been given Aadhaar numbers and this number is set to swell with the PM endorsing it. Seeding them with bank accounts needs to be expedited now.
Total funds transferred through DBT at the end of FY14 were R1,717.6 crore?R269 crore through Aadhaar payment bridge, R514.6 crore without Aadhaar, and R934 crore via other electronic modes including NEFT.
While there has been limited success in social sector programmes, the scheme has been fairly successful in LPG distribution. It started in June 2013 and covered 291 districts before being put on hold after disbursing R5,391 crore?the most significant part being the identification of 6.18 lakh duplicate connections out of the 4 crore LPG consumers linked to Aadhaar, saving subsidy to the tune of R251 crore.
Needless to mention, the possibility of huge savings in the government spending on subsidies and entitlements will be more than a bonus for a speedy roll-out of the financial inclusion plan.
The UPA government tried to put the cart before the horse by bringing in DBT without creating a composite model; the NDA government is right in making financial inclusion carry the DBT forward.
santosh.tiwari@expressindia.com