By Shreya Sehgal
On August 28, 2014, Prime Minister Narendra Modi launched the Pradhan Mantri Jan Dhan Yojana (PMJDY), a flagship scheme aimed at enhancing financial inclusion across India. The primary mission of the scheme is to ensure access to financial services, namely, basic savings and deposit accounts, remittance, credit, insurance and pensions affordably. The formulators of the scheme had a primary objective set at the integration of the marginalised communities, youth and women, into the formal financial system. By facilitating the opening of savings bank accounts, PMJDY provides its beneficiaries with Rupay Debit cards, along with accidental insurance and life insurance coverage.
The PMJDY has been pivotal in transforming India's financial landscape. Until January 2021, 41.75 Cr accounts were opened under the scheme, but only 35.96 Cr accounts were operative (Mahajan, n.d.). It has not only increased account ownership but also contributed to a reduction in the gender gap in financial access—from 20% in 2011 to just 6% in 2017. Furthermore, the scheme has enabled direct benefit transfers (DBT), ensuring that government subsidies reach intended beneficiaries efficiently. The Department of Financial Services, Ministry of Finance under the Central Government has released reports asserting the success of the Pradhan Mantri Jan Dhan Yojana (PMJDY) based on the substantial number of bank accounts opened and Rupay debit cards issued. The website of the department shows the success rate on its home page. Archive reports mention that the scheme has been successful and opened approximately. (Mantri Jan Dhan Yojana, n.d.)
Despite, these achievements, questions persist regarding the depth of financial inclusivity experienced by account holders. The scheme has facilitated in improving the pace of economic growth but failed significantly in improving the economic prosperity across states. While the initiative facilitated the establishment of bank accounts with no minimum balance requirements, often allowing for zero-balance accounts, this model raises sustainability concerns. The government must manage a vast number of accounts that frequently experience minimal or no transactions, which poses a significant economic burden. The current structure of the Indian banking system may not be viable in the long term if the account holders do not engage in regular banking activities conferring to their accounts opened under the scheme. The effectiveness of the policy finds its base in transforming these accounts into active tools for financial empowerment. (Bakhshi, 2016)
Even a decade after the scheme's inception, financial inclusion in India remains elusive, with approximately 40% of the population still lacking access to essential financial services such as savings, credit, investment, and insurance. Therefore, efforts should be made to ensure that the beneficiaries are not only aware of their accounts but also equipped to utilize them effectively for savings and investment purposes. The poor banking penetration led to the development of negative saving patterns amongst the rural population and the economy was becoming increasingly credit based. This behaviour was expected to change after the implementation of PMJDY, but the victory was achieved only partially.
The Pradhan Mantri Jan Dhan Yojana (PMJDY) faces several significant challenges that hinder its effectiveness in achieving comprehensive financial inclusion. One of the primary issues is the lack of adequate infrastructure in regions such as Uttarakhand, Bihar, the Northeastern states, and Jammu & Kashmir. The challenging topography of these areas, characterized by hilly and often inaccessible terrain, exacerbates these infrastructural deficiencies.
In addition to geographical barriers, acute shortages of power and poor digital connectivity further complicate banking operations in these regions. Reports indicate that among India's approximately 600,000 villages, only 46,000 are serviced by banks, and merely 14% of the total number of ATMs—approximately 16,000—are accessible to the population. This limited reach significantly restricts the ability of account holders to engage with their financial services. Furthermore, the scheme's primary target population, consisting of marginalized groups and women, has been inadequately served in the Northeastern states due to insufficient infrastructure. This disparity highlights a critical gap in the program's implementation and suggests that its objectives are not being fully realized in these regions. (K, 2017)
Another critical challenge faced by PMJDY is maintaining account activity. Many account holders are reluctant to travel long distances for transactions, leading to a high rate of inactivity among accounts. The government incurs costs ranging from ₹100 to ₹150 per account for maintenance, which raises questions about the sustainability of such a model. A cost-benefit analysis suggests that closing inactive accounts may be more advantageous for the government, as many account holders are not deriving the intended benefits from the services offered (India news, 2024).
Another significant challenge faced by the scheme's executioners is individuals' propensity to circumvent its intended benefits. Specifically, some participants have engaged in fraudulent activities, such as opening multiple bank accounts using various identities to maximize their claims under accidental damage and life insurance coverages. This practice undermines the equitable distribution of resources and compromises the program's integrity.
The success of the policy hinges on its ability to reach the lowest regions of the nation. Achieving this would only be possible through rigorous investment in infrastructure, particularly in the rural areas, to eliminate existing barriers to access.
Infrastructure Development: Improving infrastructure is important to enable the use of financial services in isolated areas. Improving connectivity will promote greater financial inclusion by making it less difficult for people in these locations to access banking facilities.
Role of Business Correspondents: In this attempt, using business correspondents can be critical. Underprivileged groups can benefit from their assistance in promoting financial literacy and increasing knowledge of financial services. Business correspondents can improve the overall implementation of PMJDY by informing people about the features and advantages of banking services.
Linkage with Aadhaar and KYC Compliance: To streamline access to financial services, the government's attempt to link bank accounts with Aadhaar numbers has been crucial in helping people create distinct financial identities. Strong Know Your Customer (KYC) practices must also be put in place to stop duplicate account openings, which could result in exaggerated figures for the number of accounts opened under the program.
Despite these complications, the scheme has been successful in several areas, such as in rural areas of Bengaluru the Pradhan Mantri Jan-Dhan Yojana (PMJDY) has significantly improved access to banking services by allowing individuals to open accounts without a minimum balance, thereby encouraging greater participation. Beneficiaries, especially women, have experienced notable enhancements in their physical, social, and economic well-being, leading to better lifestyles and financial habits.(Associate Professor et al., 2024)
A similar study was conducted in an area of Kanpur. 25 respondents were chosen from each of six villages in two blocks, for a total of 150 respondents. According to the research, 60.0% of families had an annual income between Rs. 50,000 and Rs. 75,000, while 26.7% of respondents worked in agriculture. As a result, 88.7% of respondents strongly agree that PMJDY provides a hassle-free method of attaching savings to a bank, 85.3% strongly believe that the plan helps improve the level of financial literacy, and 84.0% strongly agree that the PMJDY encourages saving habits in poor people.
The study also reveals that most respondents had an economic impact, such as PMJDY providing them with hassle-free ways of attaching deposits to the bank, which is beneficial. It promotes expanding financial literacy, and saving habits, satisfies people's financial problems, and reduces financial untouchability.(Tiwari et al., 2021)
Conclusion
In conclusion, for PMJDY to realize its potential, it is imperative to focus on infrastructure development, leverage business correspondents for outreach and education, and ensure stringent KYC compliance. These measures will contribute significantly to achieving genuine financial inclusion for all segments of society. (K, 2017)
About the Author
Shreya Sehgal is a current M.A. Public Policy student at the Jindal School of Government and Public Policy. Her research interests encompass a diverse range of fields, including geopolitics, labor economics, migration studies and household economics. Beyond academics, Shreya enjoys engaging in insightful conversations rooted in history and myth.
BIBLIOGRAPHY
Associate Professor, D. U., Jogish, D., Mankar, M., & Assistant Professor, M. (2024). Impact of PMJDY scheme on the Financial empowerment of rural Poor-A study across Bangalore rural district in Karnataka, India. In Journal of Informatics Education and Research (Vol. 4). http://jier.orghttp://jier.org
Bakhshi, P. (2016). Review of Pradhan Mantri Jan Dhan Yojana: Sab Ka Sath Sab Ka Vikas. Review of Professional Management- A Journal of New Delhi Institute of Management, 14(1), 82. https://doi.org/10.20968/rpm/2016/v14/i1/109415
India news. (2024, August 28). 10 Years Of Jan Dhan Yojana: A Transformative Success In Financial Inclusion. NDTV .
Mahajan, S. (n.d.). Title: Financial Inclusion in India: Achieving Quantity, but Waiting for Quality Financial Inclusion in India: Achieving Quantity, but Waiting for Quality. 58(3).
Mantri Jan Dhan Yojana, P. (n.d.). Ministry of Finance.
Tiwari, D., Verma, M., & Gupta, S. (2021). Awareness regarding benefits of Pradhan Mantri Jan Dhan Yojana on economically weaker section of the society. In ~ 124 ~ International Journal of Home Science (Vol. 7, Issue 2). http://www.homesciencejournal.com
K, R. (2017). Implementation of Jan Dhan Yojana - chaleenges and prospects. International Journal of Management .
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