A year into the NDA regime, one area where it clearly scores over its predecessor is in delivering financial inclusion to India’s disadvantaged. The difference lies in its ‘mission mode’ execution capabilities which have led to the opening of 12.5 crore bank accounts and the issue of life, accident and pension plans to over six crore subscribers in short order. NDA’s inclusion initiatives — the Jan Dhan Yojana, Jeevan Jyoti Bima Yojana, Suraksha Bima Yojana and Atal Pension Yojana — are also better designed to cater to the needs of savers, while avoiding an undue burden on the exchequer.

The NDA’s approach to financial inclusion differs fundamentally from the UPA’s on three counts. Its initiatives have been more pragmatic in delivering basic savings, credit and protection products. The UPA in contrast, focussed too much, and unsuccessfully, on coaxing small savers into equities through schemes such as the Rajiv Gandhi Equity Savings and the CPSE Exchange traded fund. Other products such as inflation indexed bonds and the National Pension Scheme also failed to recognise that the primary entry barrier to financial access in India is the extra-ordinary complexity of financial products and their onerous KYC rules. Modi’s recent schemes offer one-step KYC, attractive pricing and assured benefits to boot. No doubt, the freebies and low costs have played their role in making people queue up for these plans. Jan Dhan dangled carrots such as a zero balance bank accounts and free insurance cover. The recently launched Jeevan Jyoti Bima offers a ₹2 lakh life cover for just ₹330 a year, while the Suraksha Bima holds out a ₹2 lakh accident cover for a trifling ₹12 per year. Such pricing is not unviable for insurers, contrary to popular assumption. Online term plans from private sector insurers are available at costs as low as ₹170-300 for a ₹2 lakh cover and Modi’s schemes leverage economies of scale by pooling risks for thousands of subscribers.

Yes, though the Centre has asked banks and insurers to offer these schemes on a ‘voluntary’ basis, it is the public sector insurers, piggybacking on the public sector bank network, that have so far opened the bulk of these accounts. To avoid an unfair burden on them from its inclusion drive, the Centre should now allow the issuers of these plans to tweak their future premiums and pricing, based on their experience with customer transactions and claims. But even State-owned firms stand to reap long-term benefits from Modi’s inclusion drive given that it is planned around delivering sustained credit and financial access to the poor without State intervention. One may recall that it was the public sector banks that shouldered a disproportionate burden for the UPA’s quixotic and largely ad-hoc efforts at providing a social safety net by interest subvention schemes and farm loan waivers.

comment COMMENT NOW