Four Years of Modi Govt: A Roadmap towards Financial Inclusion

Financial Inclusion

Financial inclusion has been one of the key focus areas of the present government. It must be remembered that Pradhan Mantri Jan Dhan Yojana (PMJDY) was one of the first big-scale schemes launched by the Modi government. Considering that the government has completed four years in power, an assessment of its financial inclusion schemes is in order.

The Need for Financial Inclusion

When we look at why a large chunk of the population in India is poor, the root cause may be traced down to not being part of the institutionalized financial system. This further accentuates into being devoid of social security and access to formal credit sources. In 2014, a mere 53% of adults were bank account holders. This says a lot about why the need for financial inclusion was felt as one of the key priorities for this government.

Do the Government’s Efforts offer a Roadmap?

If we carefully look at the efforts for financial inclusion made by the Modi government in the last four years, we can divide them into four clear strategies:

  1. Banking the unbanked (Jan Dhan)
  2. Social security schemes for the uninsured (Jan Suraksha)
  3. Providing funds to small entrepreneurs (MUDRA)
  4. Ensuring the financial reach of government schemes and subsidies (DBT)

We look at these four strategies and their outreach over the past four years to assess whether these schemes are helping in achieving the goal of financial inclusion.

Jan Dhan Yojana: Banking the Unbanked

We have mentioned earlier that a mere 53% of adults were bank account holders back in 2014. Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched in August 2014 to increase the penetration of banking services. Here is a look at the impact of PMJDY in the last four years (as of May 23, 2018):

  • The total number of Jan Dhan beneficiaries are 31.67 crore
  • Total balance in beneficiary accounts is at Rs. 81,108.57 crore

While these are the cumulated figures, if we further categorize this data, we get some interesting facts:

  • Women beneficiaries at more than 52%:

Out of 31.67 crore total beneficiaries, 16.73 beneficiaries are women. This puts women beneficiaries at more than 52%. This data shows a very positive trend that more women are gaining access to banking services.

A large part of these accounts can be attributed to the Ujjwala scheme for providing LPG connections to poor households, where connections could only be issued in the name of women of the households.

  • Beneficiaries in rural/semi-urban areas at more than 58%:

18.65 crore beneficiaries out of a total 31.67 crore come from rural/semi-urban areas. This puts these beneficiaries at more than 58%.

People from urban centers are more financially literate and have easy access to banks and other financial services. Therefore, a larger number of beneficiaries being from rural/semi-urban areas shows than Jan Dhan Yojana has been able to reach its intended beneficiaries.

  • Falling number of zero-balance accounts:

When the scheme started, it received a lot of criticism from sceptics and commentators, as more than 70% of the accounts were zero-balance accounts. Today this number is less than 20%. The following graph from this year’s economic survey illustrates this trend clearly:

Another interesting point to note is that a survey conducted by ICE 360° in 2016 called ‘Household Survey on India’s Citizen Environment & Consumer Economy’ found that 99% of households in both rural and urban India have at least one member with a bank account. It attributed this figure to the Jan Dhan Yojana for opening several bank accounts.

Jan Suraksha: Social security schemes for the uninsured

When close to half of the adult population doesn’t have access to even a bank account, social security schemes seem like a far-fetched idea. The concept of financial planning is all the more necessary for people from the informal sector as they are more prone to risk and their income source isn’t steady. Therefore, it is to the credit of this government that they have expanded the coverage of social security schemes under the fold of Jan Suraksha by making them extremely affordable:

  • Pradhan Mantri Suraksha Bima Yojana provides accident insurance worth Rs 2 lakhs at an annual premium of just Rs 12, which effectively translates to insurance worth Rs 2 lakhs for just Re 1 a month.
  • Pradhan Mantri Jeevan Jyoti Bima Yojana provides life insurance worth Rs 2 lakhs at an annual premium of just Rs 330.
  • Atal Pension Yojana provides pension scheme for the unorganized sector and informal workers.

With the annual premium as low as Rs 12 and Rs 330, these insurance schemes become easily affordable and provide a safety net for even the poor and financially weaker sections of society. PMJJBY and PMSBY were launched in May, 2015. Let us have a look at the coverage of these schemes:

Source: Lok Sabha Reply

Atal Pension Yojana was also envisaged to provide pension benefits to the people working in the unorganized sector. On the completion of three years of the scheme on May 9, 2018, APY crossed one crore subscribers.

The availability of social security schemes for the poorest of poor provides them with an incentive to come under the institutional fold and helps the government to strategize better policies for them. The same intent has been followed into the Ayushman Bharat scheme announced in this year’s budget, to provide universal health insurance coverage to the poor.

MUDRA: Financial assistance to small entrepreneurs

Corporates and big businesses have easy access to institutionalized credit through banks and other financial institutions. But small businesses, often from what is called the informal sector, had a dearth of institutionalized channels of credit. As a result, small entrepreneurs usually deal in informal source of credit, where interest rates are very high. This effectively translates to huge debt for these entrepreneurs. The collateral is also usually high on these sources of finance.

Pradhan Mantri Mudra Yojana or MUDRA as it is often called, was launched on April 8, 2015, to facilitate collateral-free entrepreneurship loans to small entrepreneurs. Unlike informal sources of credit, MUDRA may provide a sense of security and dignity for these entrepreneurs.

If we look at numbers, here is a look at the coverage of MUDRA scheme in these three years:

  • More than 12 crore beneficiaries covered
  • More than Rs 6 lakh crore worth loans have already been disbursed

If we further categorize these beneficiaries, it throws some important facts:

  • Women are 48.53% of India’s population but are an overwhelming 74% of beneficiaries under MUDRA
  • SC/ST and OBC entrepreneurs constitute more than 55% of the total beneficiaries

These facts have gained less attention but are one of the biggest strong points of the scheme. The high proportion of women and SC/ST/OBC entrepreneurs who are availing MUDRA loans is a sign that financial inclusion is reaching the intended beneficiaries.

DBT: Ensuring transparency and reach of benefits

The logical conclusion of financial inclusion is the ability of the state to reach the intended beneficiaries directly. This is where Direct Benefit Transfer (DBT) plays a role. It cuts out the role of middle men completely.

DBT may have been an idea from the UPA era. An idea isn’t worth much if it isn’t implemented properly. What gives DBT teeth now are the crores of bank accounts opened under Jan Dhan and crores of people holding Aadhaar cards for correct authentication. JAM i.e. Jan Dhan, Aadhaar and Mobile are DBT enablers that provide a unique opportunity to implement leakage-free welfare schemes across the country.

Under Modi government, benefits worth more than Rs 3.89 lakh crore have been given out, covering 434 schemes across 56 ministries. The following graphs illustrate the rising trend of usage of the DBT mode in terms of amount and transactions over the years:

Source: DBT website (as of May 31, 2018)


If we look at the strategies adopted by the present government, they are conceptually simple ideas like opening more bank accounts or adopting DBT. The difference that the present government has brought is the pace at which every strategy is being implemented- be it opening new bank accounts for the poor, providing affordable security schemes, loans to small entrepreneurs or DBT. The starting point of many of these schemes has been the opening of a large number of bank accounts under a very short span of time under Jan Dhan Yojana, which had a cascading effect on the coverage of DBT, MUDRA, Jan Suraksha and a plethora of other government schemes. This is a sign of real financial inclusion.