This article has been written by Ms. Tanisha Jain, a 4th year student of New Law College, Bharati Vidyapeeth, Pune.
Abstract
Inclusive growth is facilitated by financial inclusion. With a similar goal, the Indian government introduced the Pradhan Mantri Jan-Dhan Yojana (PMJDY) in 2014. In order to determine how the banks have operated under the PMJDY plan, the current study uses data envelopment analysis to analyse the efficiency of 25 institutions. The empirical analysis’s findings show that public sector banks have outperformed private banks in terms of increasing financial inclusion under the PMJDY scheme. Furthermore, the evaluation of banks’ projected and underwhelming outcomes has demonstrated that a very small number of banks have effectively advanced the goals of the PMJDY system. As a result, the analysis’s overall findings indicate that inefficient banks should increase the number of underprivileged customers they serve. Frequent efficiency reviews would help in determining the challenges facing the financial inclusion targets and, in turn, help put the appropriate solutions in place. To encourage financial inclusion in India, the Reserve Bank of India and the Indian government have launched a variety of programmes. A key factor in the universalization of financial inclusion programmes is the Pradhan Mantri Jan Dhan Yojana. Numerous bank accounts have experienced huge development as a result. Merely the numerical measure conveys a great deal about unequal financial inclusion. It has the potential to become equitable financial inclusion with qualitative features. The main reasons for the PMJDY scheme’s failure include low use of financial services and an increase in the number of inactive accounts following its introduction.
Introduction
The Indian financial system, which consists of several parts including financial institutions, agents, practices, and markets, is essential to the economic growth of a country. As a result, the RBI, NABARD, and Indian government are continuously working to improve financial inclusion in the country. The supply side of financial inclusion campaigns and initiatives was the main emphasis of the financial inclusion policy’s implementation. Three primary factors are causing Indian authorities to pay more attention to financial inclusion. First, to give those with lesser incomes a platform to develop the saving habit. The second goal is to establish official credit channels that are affordable for the unbanked population. The third goal is to close any gaps and leaks in public assistance schemes.
The Pradhan Mantri Jan-Dhan Yojana (PMJDY) was introduced as “A National Mission on Financial Inclusion” and is based on the inclusive growth concept of “Everyone’s Support, Everyone’s Development.” The first successes under PMJDY were so remarkable that Guinness World Records acknowledged them. But creating a bank account alone does not guarantee financial inclusion. The fundamental aspect of financial inclusion is that all citizens of a country have access to the financial services offered by the banking industry. Simply having a bank account does not mean that it is being used to its full potential. Even when they have a bank account, people may experience financial exclusion due to obstacles like a lack of bank branches nearby or other psychological and physical barriers. Therefore, the phrase “financial inclusion” is comprehensive and does not just refer to having a bank account; rather, it also assesses how frequently and effectively the beneficiaries utilise the banking facilities.
The effectiveness of the baking industry is essential to a country’s economic development. Economic growth is a good thing since it helps the government better fulfil the needs of the nation. The likelihood of survival will be greater for banks with better efficiency compared to those with lower efficiency in the fiercely competitive financial services sector. Furthermore, a lacklustre performance by the financial industry might have significant negative effects. It is vitally important to comprehend the current state of efficiency at which the Indian banking industry is functioning. Measuring efficiency might be important for creating metrics that could help update PMJDY requirements.
Financial inclusion via the PMJDY programme
According to Khuntia (2014), PMJDY is “a big bang action plan” that would battle poverty, lower the degree of financial untouchability, speed up growth, and guarantee that everyone in the Indian economy, even the last person standing in the back, can have power. Agarwal anticipated that the programme will enable those at the bottom of the pyramid to realise their full potential. Banerjee and Gupta have discovered, however, that while PMJDY has contributed to an arithmetic increase in bank account ownership, it has not been able to guarantee financial inclusion of individuals in the genuine sense. This is due to the extremely low number of account holders (under this programme) who are utilising the financial services.
Furthermore, Singh and colleagues (2021) discovered that a decrease in the use of financial services resulted in an increase in inactive accounts after the PMJDY scheme was introduced. Therefore, Dutta and Mehta (2021) proposed that in order to improve the way the PMJDY plan operates, emphasis should be placed on financial literacy initiatives and suitable saving products.Furthermore, it is evident from the varied operational models that the participating banks employed to implement the programme that, although some have grown aggressively, others have been more steady, and still others have grown slowly. This indicates that there are variations in the cost structures and efficiency of banks that require more investigation.
Moreover, research such as Maity and Sahu (2020) has attempted to investigate the effectiveness of PSBs in augmenting financial inclusion. Before and after the PMJDY initiative was introduced, the efficiency of banks was compared by the researchers in a comparative analysis. The findings indicate a notable disparity in the degree of effectiveness between the two stages. Following the introduction of PMJDY, banks’ effectiveness in promoting financial inclusion rose on average. Similarly, Shylaja (2021) has noted that PMJDY has improved the banking habits of the newly banked population (as evidenced by an increase in deposits into BSBDA accounts) and has greatly increased the accessibility of financial services (in terms of the number of households covered by the scheme). Furthermore, Günther (2017) said that, following PMJDY, the disadvantaged had a considerable rise in bank account ownership and active usage (although to a lesser degree). The distance to the closest bank and the mistrust of obtaining official financing have also decreased.
Financial inclusion and growth: Building on the previous point, a number of impact assessment studies have been conducted to look at how financial inclusion affects economic development both domestically and internationally. The main distinction between these studies is the econometric methodology and indicators that were employed. One of the first studies on this subject was conducted by Swamy (2010), who used multiple linear regression models to investigate the effect of financial inclusion on economic growth in India and discovered a positive relationship between financial inclusion and growth. Sharma (2016) examined the relationship between financial inclusion and economic growth in India using VARAnalysis and the Granger causality test. The investigation demonstrated that the two have a favourable association. In a related study, Lenka and Sharma (2017) looked at the relationship using the ARDL and error correction model and discovered that financial inclusion had a favourable effect over the long- and short-terms.
Additionally, Sethi and Sethy (2018) carried out a second impact assessment research to examine the effects of financial inclusion using the cointegration and nonlinear ARDL approaches. It was determined that there is a long-term connection between the two. Conversely, a number of research have been conducted at the worldwide level on cross-country and country-specific analysis. Using data from 49 nations, Sarma and Pais (2011) conducted a cross-country study to investigate the effects of financial inclusion. Based on empirical findings, nations with greater rates of economic inequality, low levels of literacy, low levels of urbanisation, and inadequate connectivity are likely to have lower levels of financial inclusion. Using correlation and regression analysis, Michael and Sharon (2014) examined the effect of financial inclusion on the economic growth of Nigeria.
DISCUSSION: Of the beneficiaries, almost 21% do not use their accounts, making them “inactive,” while 36.8% of them make one transaction per month, indicating infrequent account usage. 36.2% of beneficiaries activated their RuPay cards, while 39.2% of beneficiaries fulfilled the KYC formality needed by PMJDY. But just 21% of them make transactions with RuPay cards. Merely 7.5% of participants have employed the overdraft (loan) feature under PMJDY. Just 6.1% of individuals benefit from life insurance, and only 4.9% from accident insurance, because the majority of people are not aware of PMJDY’s insurance programmes. Merely 0.8 percent of recipients have utilised the loan amount for commercial endeavours, while 0.5 percent have utilised it for household reasons. Through PMJDY, there has been a notable increase in financial inclusion. Nonetheless, there are more bank accounts that are dormant than active. Financial inclusion requires a consistent, long-term job path that is well-planned. It appears that there are no short cuts “(Kalhan, 2020).
Conclusion
According to Sinha and Azad (2018), the PMJDY plan is insufficient in its current form to solve the issues of financial exclusion. Individuals who were previously not allowed now have personal PMJDY accounts. Certain accounts remain inactive due to the requirement of sufficient revenue. Therefore, encouraging microenterprises is crucial to generating revenue, which will support each household’s sustainability and means of subsistence. PMJDY should be connected to the National Rural Livelihood Mission and National Urban Livelihood Mission programmes. PMJDY account users ought to have access to microcredit via channels such as microfinance, self-help groups, or business correspondents (BCs). At least one of them has to be connected to the PMJDY account.
Beneficiaries of the Pradhan Mantri Jan Dhan Yojana (PMJDY) still have significant opportunity costs when it comes to keeping bank accounts open, despite attempts to increase financial inclusion. Travel fees and bank transfer delays are examples of these potential costs (Mathew and Goswami, 2016). The majority of PMJDY account recipients are from the economically disadvantaged group. To utilise digital technology for financial services, one must have at least an Android cell phone. Business Correspondents may get Point of Sale Machines and Micro-ATMs, enabling them to provide accountholders doorstep banking services.
Up till March 25, 2015, 14.54 crore bank accounts and 12.99 crore RuPay cards were issued under the PMJDY project. Over the course of six years, we saw that this project had grown significantly. 30.90 crore RuPay cards and 42.20 crore bank accounts had been opened as of March 31, 2021. There was a 65.55 percent rise during the course of the time. There is little doubt that this financial inclusion plan has produced quantitative growth. However, when it comes to the program’s output, we are waiting for quality. 83.7% of account holders have a low financial inclusion quotient (0 to 0.40) when looking at total financial inclusion. When the account’s entire activity is taken into consideration, 67.6% of account holders have a low account activeness quotient. The PMJDY has performed well in terms of numbers, but it hasn’t accomplished much in terms of quality. This says a lot about the injustice of financial inclusion. Qualitative checks can turn it into equitable financial inclusion.
The dynamic panel findings provide evidence-based backing for the relationship between growth and financial inclusion in all Indian states. Overall, the findings show a strong and favourable correlation between financial inclusion’s usage, penetration, and overall FII and economic development. Using intercept and interaction dummies for the PMJDY programme, the effect of financial inclusion fostered by the scheme on economic growth is examined. In every model, it is discovered that the intercept dummies are statistically unimportant. Interaction dummies, however, are important in Models 1 and 3, respectively. The findings indicate that while the PMJDY plan failed to raise state-by-state economic prosperity overall, it did somewhat accelerate economic development among Indian states.
The main reasons for the PMJDY scheme’s failure include low financial service utilisation and an increase in the number of inactive accounts following the programme (Yadav et al., 2020). Therefore, in order to improve the economic results of financial inclusion schemes, the government should concentrate on factors that determine financial inclusion, such as human development, physical infrastructure, and governance circumstances like the rule of law.
References
- This article was originally written by Shrikrishna Mahajan published on engage EPW website. The link for the same is herein. https://www.epw.in/engage/article/financial-inclusion-india-achieving-quantity
- This article was originally written by Nidhi Agarwala published on national library of medicine website. The link for the same is herein. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9817463/