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From Jan Dhan to Jan Suraksha: A Journey towards Financial Inclusion and Security


The budget 2015-16 had announced 3 Social Security Schemes:

#1. Pradhan Mantri Suraksha BimaYojna (PMSBY)
#2. Pradhan MantriJeevan Jyoti Bima Yojana (PMJJBY)
#3. Atal Pension Yojana (APY)

Why the schemes?

  • India faces the biggest challenge of providing banking facilities and insurance coverage to all
  • Having access to institutional finance has so far remained a far cry to a vast chunk of rural population
  • As of May 2015, only 20% of India’s population has any kind of insurance and only 11% has any kind of pension scheme
  • Insurance is a way of managing risks & give necessary protections in case of financial loss
  • When one has an insurance policy, certain rights and protections are derived out of it to the person and his family
  • There is a dire need for providing social security at a very nominal cost to the millions and economic empowerment of the poor Answer in comments.>
  • PMJDY is a major step to bring people across the country closer to institutionalized finance, and save them from the clutches of informal financiers
  • However, most of the PMJDY accounts had zero balance initially. The government aims to reduce the number of such zero balance accounts by using these schemes Answer in comments.>

PMSBY & PMJJBY:


 


 

  • Implementation: The scheme will be offered by all Public Sector General Insurance Companies and all other insurers who are willing to join the scheme and tie-up with banks for this purpose
  • Govt Contribution: Various Ministries can co-contribute premium for various categories of their beneficiaries from their budget or from Public Welfare Fund created in this budget from unclaimed money
  • Auto-debit: The premium amount will be auto debited from subscriber’s bank account
  • The schemes will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan Yojana scheme

Criticisms of PMSBY:

  • Private banks have complained that the Govt should focus on upper middle class instead of the poorer section
  • Western scholars have argued that financial inclusion is a myth and serving such large number of people would only increase the burden and work-load of public sector

Criticisms of PMJJBY:

  • The banks have complained that revenue received will be very low
  • Some bankers have claimed that amount they are receiving is not sufficient to cover the service costs
  • Insurers have also pointed out that no health certificate or information of pre-existing disease is required for joining

Atal Pension Yojana

  • It focuses on the unorganized sector where nearly 400 million employees representing more than 80% of all employees are engaged Answer in comments.>
  • The aim is to make sure that needy people could get fixed amount when they get old
  • It is the improved version of Swavalamban scheme, launched in 2010-11, which has been found lacking in clarity with regard to pension benefits at the age after 60

Features:

  • All citizen of India aged between 18-40 years are eligible
  • A guaranteed minimum monthly pension will be provided to the subscribers varying from Rs. 1000 to Rs. 5000 per month
  • The pension amount depends on contribution by subscriber
  • Government of India will guarantee the minimum benefit of pension
  • Most interesting part of the scheme is that the government will contribute 50% of the contribution made by the subscriber or Rs. 1000 whichever is lower
  • However, contribution by the govt is available for only those who are not income tax payers and are not covered by any Statutory Social Security Schemes
  • Bank account holder of Any Bank account is eligible

Suraksha Bandhan drive- Spreading the social security message

  • Aim: To take forward the Govt’s objective of creating a universal social security system in the country, targeted especially at the poor and the under-privileged
  • Participating Banks supported by the participating Insurance Companies are carrying out local outreach, awareness building and enrolment facilitation under the drive
  • Public service organizations supported by peoples representatives are participating in these efforts through various outreach activities such as enrolment drives, camps etc. in large numbers during this period

Any doubts?


  1. Preist aBy

    What are the schemes were RBI is associated as far as Financial Inclusion is concerned

UN report for social inclusion

Image source

Note4students

Mains Paper 3: Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: UN Economic and Social Commission (ECOSOC),

Mains level: Establishing a link between economic growth and social inclusion


News

UN Economic and Social Survey of Asia and the Pacific (ESCAP) Report, 2018

  1. A UN report on the Asia-Pacific region has urged the regional powers to invest in inclusive and sustainable growth
  2. The UN Economic and Social Survey of Asia and the Pacific (ESCAP) 2018, the annual report from the UN Economic and Social Commission (ECOSOC) for Asia and the Pacific have urged countries to take advantage of high growth rate and share the benefits with the national society
  3. Governments of countries in the Asia-Pacific region are advised to take advantage of the currently favourable economic conditions in order to address vulnerabilities and enhance the resilience, inclusiveness, and sustainability of their economies stated the report highlighting the urgency facing the economies of the region
  4. The report was launched at the Indian Council for Research in International Economic Relations (ICRIER)
  5. The report described South and Southwest Asia as the fastest growing sub-region of the Asia-Pacific region and urged the countries to increase social spending

Back2Basics

ESCAP

  1. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is the regional development arm of the United Nations for the Asia-Pacific region.
  2. It is established in 1947 with its headquarters in Bangkok, Thailand.
  3. Parent Organisation: UN ECOSOC
  4. ESCAP works to overcome some of the region’s greatest challenges by providing results-oriented projects, technical assistance, and capacity building to member States in the following areas:
  • Macroeconomic Policy and Development including the publishing of Asia-Pacific Development Journal (APDJ) twice a year
  • Trade and Investment
  • Transport
  • Social Development
  • Environment and Sustainable Development
  • Information and Communications Technology and Disaster Risk Reduction
  • Statistics
  • Sub-regional activities for development

[op-ed snap] On growth and equality, two trajectories

Note4students

Mains Paper 3: Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: IMF, World Bank, World Economic Forum, MGNREGA, PDS

Mains level: Rising inequality in India in recent years and its effects on the economy as well as society


Context

Rising inequality

  1. At the global level, inequality has become a central concern
  2. It is on the agenda of major international institutions such as the IMF and the World Bank and is a key subject of debate in the Davos meetings of the World Economic Forum
  3. High inequality can be a threat to both political stability and economic growth

Growth in Brazil

  1. Brazil went through a period of rapid growth before 1980
  2. In this process, the labour market became more segmented, with an increasing number of protected, regular workers but a widening gap with the informal economy
  3. The middle class also expanded, with high incomes and consumption
  4. Growing private investment led to an increasing concentration of wealth, while in rural areas, land distribution remained highly unequal
  5. A bulk of the benefits were captured by a relatively small fraction of the population

Comparing India with Brazil

  1. India’s growth pattern since the 1980s clearly echoes of the earlier pattern in Brazil
  2. In India, liberalization released some of the factors that had previously prevented an increase in the concentration of income
  3. This has led to wider gaps in the labour market where many are excluded from the new opportunities and has generated a highly unequal accumulation of wealth

Checking rising inequality

  1. In India, policies were introduced after 2005 which helped to moderate the rise in inequality, especially in rural areas
  2. These include MGNREGA and improvements in the PDS
  3. Despite this, formal employment stagnated, minimum wages hardly rose in real terms and urban inequality continued to rise

Problems related to employment in India

  1. In India, standard measures of women’s labour force participation have been declining, suggesting that gender inequality in access to employment is increasing
  2. There are also persistent differentials in employment and incomes by caste and community in India
  3. This results less from direct wage discrimination, and more from differences in access to education and decent jobs

Not addressing the issue

  1. In India, inequality is strangely absent from the political agenda
  2. Attention is more focused on poverty reduction and the relative position of particular social groups
  3. There is a lack of reliable data on changes in inequality in recent years, but wages have been rising more slowly than output per capita, and there is no sign that the increasing trend in inequality has been reversed

Way forward

  1. Inequality is not an issue that can be dealt with minor adjustments to economic strategy
  2. It needs a more fundamental shift to a view of development in which growth and equality are two sides of the same coin

Government proposes amendments in small savings schemes

Note4students

Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Government Savings Certificates Act, 1959, Public Provident Fund (PPF) Act, 1968, Government Savings Banks (GSB) Act, 1873, National Savings Certificates, Kisan Vikas Patra, Post Office Savings Bank

Mains level: Encouraging savings and its impact on economy


News

Merger of different acts governing small saving schemes

  1. Many different small saving schemes have come up over the years, under many different rules and Acts
  2. Government of India has proposed to merge the Government Savings Certificates Act, 1959 and the Public Provident Fund (PPF) Act, 1968, with the Government Savings Banks (GSB) Act, 1873

Various acts and their scope

  1. Government Savings Certificates Act, 1959 covers National Savings Certificates and Kisan Vikas Patra
  2. GSB Act covers Post Office Savings Bank, and banking companies or any other company or institution that the central government may include in this Act

Consolidation of acts and schemes

  1. The main objective in proposing a common Act is to make implementation easier for the depositors
  2. They need not go through different rules and Acts for understanding the provision of various small saving schemes

Other amendments

  1. As per the current PPF Act, it can’t be closed prematurely before completion of five financial years
  2. Under the proposed Bill, benefits of premature closure of Small Savings Schemes may now be introduced to deal with medical emergencies, higher education needs and so on
  3. Investment in Small Savings Schemes can be made by guardian on behalf of minor(s) under the provisions made in the proposed Bill
  4. Provisions have been made more clear for the operation of accounts in the name of physically infirm and differently abled persons

Back2Basics

National Savings Certificates

  1. The National Savings Certificate (NSC) is an investment scheme floated by the Government of India
  2. It is a savings bond that allows subscribers to save income tax
  3. The certificates earn a fixed interest, which is currently at the rate of 8.1% per annum
  4. These certificates can also be used as collaterals while taking loans from banks
  5. There is no maximum limit on the purchase of NSCs, but investments of up to Rs 1.5 lakh in the scheme can earn a tax break under Section 80C of the Income Tax Act

Kisan Vikas Patra

  1. Kisan Vikas Patra is a saving certificate scheme which was first launched in 1988 by India Post
  2. Even though this scheme was popular, a Government Committee formed in 2011 suggested that KVP could be misused for purposes like money laundering
  3. This was again reintroduced in 2014 with some changes
  4. Any resident Indian can invest in a KVP scheme and can obtain a certificate either jointly, individually or in the name of a minor
  5. The principal amount invested in KVP will be doubled in a time of 8 years and 4 months or 100 months

India’s richest 1% corner 73% of wealth generation: Survey

Note4students

Mains Paper 3: Economy | Inclusive growth & issues arising from it

From UPSC perspective, the following things are important:

Prelims level: ‘Reward Work, Not Wealth’ report, Oxfam, World Economic Forum

Mains level: Income inequality in India


News

Rising income inequality in India

  1. The richest 1 percent in India cornered 73 percent of the wealth generated in the country last year
  2. 67 crore Indians comprising the population’s poorest half saw their wealth rise by just 1 percent

Changes since last year

  1. Last year’s survey had shown that India’s richest 1 percent held a huge 58 percent of the country’s total wealth –higher than the global figure of about 50 percent
  2. The wealth of India’s richest 1 percent increased by over Rs 20.9 lakh crore during 2017 — an amount equivalent to total budget of the central government in 2017-18

‘Reward Work, Not Wealth’ report

  1. All these findings are a part of the survey released by the international rights group Oxfam
  2. The annual Oxfam survey is keenly watched and is discussed in detail at the World Economic Forum Annual Meeting
  3. Rising income and gender inequality is among the key talking points for the world leaders at the summit

Status of income inequality

  1. In India, it will take 941 years for a minimum wage worker in rural India to earn what the top paid executive at a leading Indian garment firm earns in a year
  2. In the US, it takes slightly over one working day for a CEO to earn what an ordinary worker makes in a year

Rising billionaires

  1. 2017 saw an unprecedented increase in the number of billionaires, at a rate of one every two days
  2. The billionaire boom is not a sign of a thriving economy but a symptom of a failing economic system
  3. Those working hard, growing food for the country, building infrastructure, working in factories are struggling to fund their child’s education, buy medicines for family members and manage two meals a day
  4. The growing divide undermines democracy and promotes corruption and cronyism

Income inequality in India worsens, but slower than Russia and China: report

Note4students

Mains Paper 3: Economy | Inclusive growth & issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: World Inequality Report, new direct tax code, universal basic income

Mains level: Various types of inequalities persistent in India and ways to reduce them


News

Top 10% of earners now corner more than half of the country’s national income

  1. Income inequality in India has worsened over the past three-and-a-half decades
  2. The top 10% of earners now corner more than half of the country’s national income in 2016
  3. Their share was 30% of the national income in 1980

World Inequality Report 2018

  1. It is published by World Wealth & Income Database, which tracks information on income distribution
  2. Among major economic blocks, with the exception of West Asia, India’s record on inequality is the worst
  3. The level of income inequality in India in 2016 matched that in sub-Saharan Africa and Brazil, where top earners accounted for a very high share of income

Role played by tax laws

  1. Rise in income inequality has been more gradual in India since 1980 compared to Russia, where it has been abrupt and compared to China, where it was moderate
  2. This indicates the role played by policies and institutions in evening out inequality by using “tax progressivity” i.e. higher taxes on the rich
  3. Income taxes are levied based on a person’s ability to pay and the rate increases as income level progresses

Efforts by India to bridge the gap

  1. India has been trying to tackle income inequality with a combination of direct transfer of entitlements to the intended beneficiaries, drive against tax evasion and schemes meant to improve access to energy and finance by the poor
  2. The findings of the report come at a time when the central government has started working on drafting a new direct tax code which is likely to rejig the tax structure
  3. The state of Jammu and Kashmir is set to make a bold experiment with a universal basic income scheme from the next financial year

What does report suggest?

  1. Robust public policy intervention was required to address income inequality
  2. The report advocated higher public spending in education to reduce income inequality
  3. It also suggested setting up an international registry of financial asset ownership for curbing tax evasion

80% Jan Dhan accounts have balance now, says Jaitley

  1. Total number of accounts: 240 million
  2. Getting them connected to an insurance scheme in the next goal
  3. World Bank Prez: The progress made by India in financial inclusion is a model that is inspiring for the rest of the world
  4. Also the Unique Identity Card scheme has now covered 80% of Indian population and it makes it easier for the banks to know who their customers are

Almost every household has a bank account: Labour Bureau- II

  1. While 93.4% households in rural areas had a bank account, 96.8% houses had a savings bank account in the urban parts
  2. In Daman and Diu and Lakshwadeep, all the households surveyed had saving bank accounts
  3. Chandigarh had 99 per cent households with saving bank accounts
  4. North-east: Banking penetration is particularly low– Manipur (82.8%), Meghalaya (85.1%) and Arunachal Pradesh (88.9%)

Almost every household has a bank account: Labour Bureau- I

  1. Source: The Fifth Annual Employment-Unemployment Survey by Labour Bureau
  2. The penetration is mainly due to Govt’s recent initiatives to enhance the financial inclusion and accessibility of financial institutions
  3. Initiatives: Pradhan Mantri Jan Dhan Yojana and Pradhan Mantri Micro Units Development and Refinance Agency (Mudra) Yojana
  4. Around 94.4% households had a saving bank accounts in 2015-16
  5. The figure is much higher than the official figure (58.7%) of households with saving bank accounts in India, as per Census 2011

Pradhan Mantri Jan Dhan Yojana has been launched for: [Prelims 2015]

a) providing housing loan to poor people at cheaper interest rates
b) Promoting women’s Self Help Groups in backward areas
c) promoting financial inclusion in the country
d) providing financial help to marginalised communities

Remittances impacting financial inclusion

  1. Source: ‘Remittances and its impact on financial inclusion and development in India’ by Western Union, the world’s biggest money transfer firm
  2. Inward remittances have had positive impact on financial inclusion, poverty and social factors, such as health and education
  3. Kerala and Tamil Nadu used most of the money that came in not just for subsistence and debt repayments, but also for education, healthcare expenses and bank savings
  4. Remittances lead to women empowerment in Tamil Nadu
  5. A majority of migrant husbands send home money in the name of the wife, who becomes the key decision-maker regarding financial matters as well as other household decisions

RBI to explore interest-free banking

  1. Aim: To improve financial inclusion in the country
  2. Why? Some sections of the Indian society have remained financially excluded for religious reasons that preclude them from using banking products with an element of interest

Rural areas pose hurdle for small finance banks

  1. News: With merely 8 months remaining to start operations, small finance banks are facing problems to open 25% of their total branches in unbanked areas as it will impact their profitability
  2. Context: RBI has mandated that the small finance banks have to open at least 25% of their branches in unbanked rural areas within 1 year of their operations
  3. The small finance bank representatives have requested RBI to give them 3 years to comply with the norms
  4. Unbanked rural areas: Centres having a population less than 9,999 as per latest census
  5. The annual branch expansion plans of the small finance banks for the initial 5 years would need prior approval of RBI

Faster credit for urban poor

  1. News: The Ministry of Housing and Urban Poverty Alleviation (MHUPA) has proposed to appoint a Central nodal agency
  2. Aim: To speed up disbursal of bank loans to the urban poor, by removing hurdles in credit flow
  3. A conference dedicated to the Deendayal Antyodaya Yojna-National Urban Livelihoods Mission (DAY-NULM) to be held
  4. Discussions on ways and means of scaling up skills training and credit flow for self-employment of urban poor to be focused

SBI floats Rs 200 crore fund to aid fintech firms

  1. News: State Bank of India (SBI) has floated a Rs 200 crore fund, ‘IT Innovation Start-up Fund’, to help the fintech start-ups
  2. Limits: Up to a maximum of Rs 3 crore per a fintech start-up
  3. Fintech: Fintech (Financial Technology) industry uses technology to increase the efficiency of financial services
  4. Indian examples include Paytm, MobiKwik, Citrus Payments etc.
  5. Global trend: Traditional banks across the globe have been open to work with new age fintech firms, which are disrupting business models by using technology to deliver services at lower cost

Postal payments bank to be set up in major districts

  1. The Govt is plannig to set up 650 branches of India Post Payments Bank at all major district headquarters by September 2017
  2. Aim: To leverage the extensive outreach of the Department of Posts
  3. In the coming days, the role of all employees, including Grameen Dak Sevaks, will be very significant in successful rollout of the Payments Bank to make financial inclusion possible for every Indian

India Post to boost financial inclusion

  1. India Post got the approval for starting payments bank
  2. The new entity would be known as India Post Payments Bank (IPPB), a public limited company under the Department of Posts, with 100% Government of India equity
  3. Competition: It would be the single largest bank in terms of accessibility
  4. Accessibility: India Post has a strong pan-India network (especially in the rural areas) and the huge franchise built over the years
  5. It would also encourage the move towards a cash less economy
  6. Challenges: Lack of technological upgradation and training of its personnel

Jan Dhan accounts more vulnerable to frauds: RBI’s Mundra

  1. Context: Concerns about the newly opened Jan Dhan accounts being vulnerable to fraud practises
  2. Money mules: Jan Dhan accounts can be misused by money mules
  3. RBI asked banks to be on guard against such activities
  4. Action: Failure to guard against misuse of customer accounts, might result in banks incurring supervisory sanctions and enforcement action from the RBI

RBI for easier bank permits

  1. RBI has proposed relaxation of norms for on-tap licenses for universal banks
  2. Reason: RBI seeks to open the key economic sector to wider participation.
  3. This is first time since the financial industry was opened up in 1991 that the RBI has decided to make the bank licensing process continuous as opposed to a ‘stop-and-go’ approach
  4. The norms are broadly in line with guidelines issued for bank licensing in 2013
  5. However, RBI has made it clear that business houses predominantly in financing activities, for example, NBFCs would be preferred

Payments banks do not have a viable business model: SBI chief

  1. What? Small and payments banks have not yet devised a business model which can be termed viable
  2. Competition: It is hard for payment banks or small finance banks to take away customers or income from commercial banks in a big way
  3. How? A mobile banking customer, who is also a customer for payment services, will be less free to migrate to a competition for mobile services
  4. Also, with deep-pocket corporates entering payments banking, it would be a dog eat dog scenario in the sector

NABARD to conduct survey on financial inclusion

  1. NABARD: National Bank for Agriculture and Rural Development
  2. Scope: 40,000 households spread across 29 states
  3. Focus: Household expenditure on production and consumption and financial inclusion charactersitics
  4. Will cover credit, savings, insurance, remittances, payments and pensions
  5. Why? To understand & assess the progress in financial inclusion since the launch of PMJDY & JAM trinity

Duplicate accounts under PMJDY rising

  1. Context: A survey by financial inclusion consulting firm MicroSave
  2. Finding: The number of duplicate accounts (those already having a bank account) under Jan Dhan Yojana is growing
  3. 30% customers indicated that PMJDY was not their first account
  4. Problem: Raghuram Rajan had earlier warned that duplicate accounts would lead to wastage of resources

Over 70% of PMJDY accounts are now active

  1. Context: A recent survey about PMJDY
  2. Findings: More than 7 of every 10 accounts opened for the unbanked, mainly for DBT, are seeing transactions
  3. Relevance: Most of the account activity is due to higher government subsidies flowing in
  4. The share of zero-balance accounts (which indicates lack of activity) has fallen
  5. Number of PMJDY accounts increased to 210 million, and total deposits stand at Rs.33,704 crore

Rs.2,000-cr fund to push financial inclusion

  1. The RBI announced merger of two funds to create a new Financial Inclusion Fund with a corpus of Rs.2,000 crore.
  2. It seeks to support developmental and promotional activities’ for expanding reach of banking services.
  3. FIF receives contributions from the interest differential in excess of 0.5% on RIDF and STCRC deposits on account of shortfall in priority sector lending kept with NABARD by banks.

RBI has merged the Financial Inclusion Fund and Financial Inclusion Technology Fund into a single Financial Inclusion Fund.

Restructuring the DoP for financial inclusion

A corporate structure for DoP may allow different wholly-owned subsidiaries to carry out specific commercial activities

  1. The RBI’s licence for payments bank to India Post should separate the banking business from various other services provided by DoP. A commercial focus on the banking business is desirable for viability and efficiency.
  2. With RBI’s licence comes the condition that India Post cannot accept deposits of more than Rs.1 lakh per account.
  3. Concerns expressed by Public sector banks (PSBs) about increasing competition for their low-cost current and savings deposits on account of payments banks are entirely misplaced because DoP was already in this business before, nor would other payments banks make things worse for PSBs.
  4. RBI’s insistence on charging ATM withdrawals and imposing absolute limits on deposits per account may discourage people from doing business with payments banks.
  5. Opening a bank account is only a necessary condition to achieve financial inclusion.
  6. The sufficient condition is to ensure that all needy households get adequate institutional credit and insurance cover at affordable costs.
  7. The experience of commercial banking for a couple of years would have enabled India Post to improve its operations and become a major player in rural areas.

A corporate structure for DoP may allow different wholly-owned subsidiaries to carry out specific commercial activities, utilizing the network of post offices on a rental basis. This would enhance the quality of services provided with cost-efficiency and commercial viability.


Can we discuss if DoP is the future for rural financial inclusion ?

RBI sets up panel on financial inclusion

The panel would suggest a `monitorable’ medium-term action plan for financial inclusion in payments, deposit, credit, social security transfers, pension and insurance.



:( We are working on most probable questions. Do check back this section.







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