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Millennium Post

Modinomics for fiscal revolution

Prime Minister Narendra Modi’s first step to abolish ‘financial untouchability’ has been bold and revolutionary, with announcement to open one crore bank accounts in a day and expand the horizon of fiscal inclusion to bring the economically unaccommodated within the ambit of public sector banking.

Jan Dhan Yojana is definitely a landmark decision, and much like his push to build toilets over temples, his ambitious plan to provide monetary access and credit extension to over 40 per cent of Indians still languishing outside the financial grid promises to bridge the massive gulf between the haves and have-nots in this country. While the idea is to allow zero balance bank accounts, with accident insurance of up to Rs one lakh, Rs 30,000 life cover, a free debit card and an overdraft facility for the poor and hitherto excluded, it is equally important to keep in mind the pitfalls of not following up grand intentions with proper and adequate execution of such pro-people schemes.

It must be pointed out that opening more no-frill bank accounts, as happened last year under the former UPA-II regime, is not at all a guarantee of providing fiscal access to the poor, since barely any transaction was carried out from them. Moreover, if the thrust is to allow right to use timely credit and allied banking services to the economically weaker sections and low income groups, how would just putting in place an empty bank account expand the fiscal horizon and ensure the lofty ideal of increasing the wealth of the nation?

 We understand Jan Dhan Yojana (JDY) is predicated upon the goal of providing universal access of a wide range of financial services at a reasonable cost, bring over 40 per cent of Indians under the rubric of public banking services, and legislatively ensure that credits and loans are extended to the have-nots, particularly in remote heartlands of the country. However, significant hurdles still remain.

Guaranteeing regular and steady income is as integral to culturing a robust and inclusive financial grid as is providing banking services to better utilise savings. In addition, the underprivileged in India, comprising a diverse demography of rural and urban poor, need financial products geared towards their specific needs. Moreover, safeguards from illegal chit funds and private money schemes must be bolstered to prevent the fiscally uninformed from taking reckless steps to make quick bucks.

It is obvious that private banks would be unwilling to extend low interest loans to the fiscally uninitiated; hence, greater the responsibility of PSU banks part of JDY to tap into the massive informal financial market, calibrate and calculate the numbers of actual account holders and strictly avoid repetition or bogus accounts. Macro-banking when combined with micro-financing and stringent regulation would certainly help Modi achieve what he has set out to do.
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