Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
General Studies 2
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Pradhan Mantri Jan Dhan Yojana: A success story
This month marks the completion of the third anniversary of the launch of the Pradhan Mantri Jan Dhan Yojana (PMJDY), the financial inclusion scheme implemented by the National Democratic Alliance (NDA) government.
Benefits of PMJDY:
Opening of a bank account. The account holders get access to credit and pension facilities and also a debit card with a built-in accident insurance cover for Rs1 lakh.
The account holders can get government subsidies delivered to them in cash, directly into their accounts.
Beyond enabling account ownership and the use of financial services, the PMJDY also facilitated financial inclusion for a variety of demographics.
A paper (Who Wants To Be An Entrepreneur?, May 2016) suggests that, “Financial development facilitates economic growth by moving workers out of less productive, informal entrepreneurial activity into formal jobs in more productive firms.” In other words, there are multiple benefits arising out of access to finance for the poor. If this were to happen, India could reasonably aspire to resemble the prosperous high-growth economies of the West.
Various studies have made noteworthy points which shows success of PMJDY scheme.
The government’s flagship financial inclusion drive, by virtue of sheer scale, is one of the grandest policy initiatives of its kind. With an initial target of opening 75 million accounts by January 2015. The government mobilized an oft-recalcitrant state apparatus to expand access to basic savings accounts with additional benefits in the form of debit cards, insurance cover, and overdraft facilities. Working at breakneck speed, the government has opened more than 294 million accounts as of August.
As per the website of PMJDY, as of 16 August, there were 295.2 million beneficiaries or account holders, with a total bank balance in their accounts of Rs658.45 billion (a little over $10 billion). That is a little under half a per cent of the Indian gross domestic product (GDP) of around Rs150 trillion. It is similar to the mobile phone connectivity that India achieved for its citizens in the first decade of the millennium.
PMJDY accounts are increasingly being used actively: “70% of the accounts migrate out of dormancy into active use.
Activity levels in PMJDY accounts increased over time, a pattern not necessarily seen in non-PMJDY accounts.
In few low-income states socioeconomic hurdles were attenuated: women, low-income individuals, rural residents, and the less educated enjoyed greater account ownership following the PMJDY. Owning an account also appeared to weaken significant constraints like large household size, distrust of financial institutions, and distance to the nearest bank branch.
More needs to be done:
Much more remains to be done to make India truly financial inclusive. In order to create formal jobs following issue needs to be resolved:
One is the issue of non-performing assets (NPA) in the banking system. The government has passed the bankruptcy legislation and empowered the central bank to direct the banks under its supervision to invoke its provision to recover their dues. The big challenge that banks face is the share of bad assets in the overall loan portfolio, and it has shown no sign of peaking yet.
The other is the absence of dynamism in the formal business sector.
Scope for improvement:
While the programme has performed admirably at removing barriers to financial access important gaps remain in ensuring active use.
Account duplication and dormancy remain key stumbling blocks.
Misunderstandings about the policy are widespread. A study noted that the government’s push to route direct benefits transfers through these accounts was a possible driver for duplication, with several beneficiaries opening second accounts expressly to receive benefits.
There is a higher account inactivity rate among women, rural residents, and below- poverty-line individuals overall, the same groups were more likely to report being unaware if their account was opened under the PMJDY.
Regional variation is another arena with room for improvement. Large asymmetries exist in both account ownership and activity across Indian states.
While business correspondents contributed significantly to realizing last-mile banking, they were relatively underutilized for regular financial services—a consequence of low and irregular commissions per transaction.
There is much to learn from successes, as there is to learn from failures. The PMJDY is a success story. It is a rare case of a popular policy that delivers political and long-term economic benefits. Hence, the government applied itself to the task. It needs to repeat the formula for economically pragmatic, in contrast to popular, decisions.
While the programme has made significant headway towards genuine financial inclusion, it is clear that improving policy communication, widening and deepening progress in low-income states, and ironing out the kinks in the bank-agent model will be crucial if these hard-fought gains are to prove sustainable.
Connecting the dots:
The PMDY is a success story. Discuss how it has been successful in ensuring financial inclusion. What lessons can government take from the success of the scheme.
TOPIC: General Studies 2
India and its International relations.
Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.
Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
US’s new Af-Pak Policy
In a dramatic reversal from his earlier position on the war in Afghanistan, US President Donald Trump has recast the Barack Obama era’s “Af-Pak” policy dramatically. Trump’s plan will lead to the deployment of an additional 4,000 soldiers to train and buttress Afghan forces. The new strategy, we are told, will be dictated by “the conditions on the ground” not “arbitrary timetables”.
Along with an expansion in American military footprint, the second aspect of the new strategy is a strong focus on Pakistan to make sure it abides by its commitments. “Pakistan often gives safe haven to agents of chaos, violence and terror. Trump observed in his speech. “We can no longer be silent about Pakistan’s safe havens for terrorist organizations, the Taliban and other groups that pose a threat to the region and beyond,” he added.
The third part of the Trump strategy is his outreach to India, saying a “critical part” of his administration’s South Asia policy is to further develop the US’s strategic partnership with India. “We appreciate India’s important contributions to stability in Afghanistan, but India makes billions of dollars in trade with the US, and we want them to help us more with Afghanistan, especially in the area of economic assistance and development,” Trump said, underlining India’s role in Afghanistan and the need to do much more. New Delhi has welcomed the new approach, saying it shared Mr Trump’s concerns over safe havens and “other forms of cross-border support enjoyed by terrorists.”
The Pentagon deems such a move necessary to avoid the collapse of the US-backed government in Kabul. Trump acknowledged that although his “original instinct was to pull out … a hasty withdrawal would create a vacuum for terrorists,”—an outcome Washington clearly wants to avoid.
Pakistan has leveraged its centrality in America’s Afghanistan policy for decades now, securing billions of dollars in US civilian and military aid. Given the geographical constraints facing the US supply lines, reliance on Pakistan has been a constant. Indeed, during previous tensions between Washington and Islamabad, Pakistan has restricted the movement of trucks carrying supplies to US forces in landlocked Afghanistan. Confronting Pakistan is, therefore, easier said than done.
Iran, Russia and China have moved beyond simply siding with the enemies of the Taliban and are busy cultivating influence with the main Afghan jihadist movement.
Pakistan also has a new benefactor in China which was quick to leap to its defence, saying that, “We believe that the international community should fully recognize Pakistan’s anti-terrorism efforts.” Pakistan also feels buoyed by the diplomatic support it has received from old friends in Beijing and the new suitors in Moscow. It has postponed different levels of consultations with Washington and is dispatching its foreign minister on a defiant visit to China, Russia and Turkey. The objective is to demonstrate that the US can’t isolate Pakistan.
Some point to the fact that support for terror sanctuaries has become too entrenched in the Pakistan army’s domestic and regional calculus. Jihad as foreign policy was indeed encouraged by the US in the 1980s and blessed by many leading Islamic countries, Western Europe and China as part of the global effort against the Soviet army’s occupation of Afghanistan. Pakistan’s support to violent extremism played a key role in trapping and bleeding the Russian bear in Afghanistan. It was critical in compelling Moscow to accept a humiliating withdrawal from Afghanistan at the end of the 1980s.
If the US wants to have troops in landlocked Afghanistan, it needs Pakistan’s logistical support. Thus, there is need of Pakistan’s intelligence cooperation in the global war on terror. Rawalpindi has publicly rejected Trump’s demands to shut down terror sanctuaries and has outlined its own counter demands — like getting Kabul to end its support to the groups fighting Pakistan and Delhi to make concessions on Kashmir.
The Taliban predictably panned Trump’s strategy, warning that “the Afghan Mujahid nation is neither tired nor will it ever get tired in pursuit of winning their freedom and establishing an Islamic system.” But the Taliban are no longer a cohesive force and are being challenged by the Islamic State. On the other side, the anti-Taliban camp is also a divided one with regional states playing one faction off another.
Implications for India:
Trump’s policy is a remarkable turnaround for Washington which had wanted to keep India out of its “Af-Pak” policy for long for fear of offending Rawalpindi.
India was viewed as part of the problem and now Trump is arguing that India should be viewed as part of a solution to the Afghan imbroglio.
It is now for New Delhi to effectively leverage the positive trend in America’s South Asia policy—not only for its own interests but also for the greater good of its regional friends such as Afghanistan.
Way ahead in dealing with Pakistan:
Leaving aside symbolic measures like sanctioning military personnel linked to terrorism, Trump could also directly target the Pakistani military, denying it spare parts for equipment like its F16 combat jets, its P3 Orion maritime patrol aircraft and AH-1F Cobra attack helicopters.
Trump, of course, has blunter instruments, too. The United States has the capacity to target jihadist infrastructure and individuals deep inside Pakistan. It could also unleash its Afghan allies’ covert assets to execute retaliatory terrorism in Pakistan. However, no-one can be certain where coercive action would lead. Iraq holds out a grim warning that defeating militaries doesn’t lead to victory — Pakistan, moreover, has nuclear weapons.
The pillars of the new South Asia strategy — open-ended commitment to the Afghan war, with the use of all the instruments of American power, a greater role for New Delhi there, strategic partnership with India and destroying terror safe-havens in Pakistan — are meant to annihilate jihadism, and with it, growing Iranian, Chinese and Russian influence.
Connecting the dots:
The pillars of the new South Asia strategy by Trump gives an opportunity to India to re-align its space in the region. Discuss.