New Delhi: “Had I received the Jan Dhan transfer, Rs 500 would have given me a ray of hope... nothing more... prices have increased so much. How is it possible to run a family on Rs 500?” said Pinky Sharma, a housewife and Pradhan Mantri Jan Dhan Yojana account-holder from West Delhi.

Sharma, who lives with her daughter and husband in a joint family of eight, thought she was eligible to receive money under the government’s scheme but she never got a text message from her bank about the deposits. Her family, like millions of other Indians, is facing serious financial hardship. “Everyone is surviving by using their limited savings. My husband has also taken a loan from his employer,” she said.

A direct debit transfer of Rs 500 every month for three months to all women Jan Dhan account holders was announced in late March by the finance minister under the Pradhan Mantri Garib Kalyan Yojana. Between April and June, the government released three tranches of more than Rs 10,300 crore ($1.3 billion) each to be directed to about 200 million women. However, like Sharma, a large number of eligible women were not able to access the money during the difficult time.

This is reflected in the fact that of the Rs 10,300 crore ($1.3 billion) deposited in Jan Dhan accounts in April and May, on average, only Rs 3,000 to Rs 4,000 crore ($400 million to 520 million) was withdrawn each month. Beneficiaries cited account dormancy due to infrequent usage and limited access to banks in rural areas as amongst the most common gaps in last-mile connectivity, according to rapid phone interviews by Indus Action, a non-governmental organisation focused on policy implementation.

To address these gaps, India must temporarily relax documentation requirements to access benefits, develop a system to track biometric failure and determine means to directly provide cash to citizens, experts said.

Slipping through the safety net

To assess the extent to which vulnerable citizens received social protections under the Pradhan Mantri Garib Kalyan Yojana, Indus Action conducted a survey between April 6 and May 30 covering 5,242 families across 11 states. Although Indus Action surveyed families in both urban and rural areas, the sample was skewed towards respondents in metros. These families were from socially and economically disadvantaged backgrounds.

The survey assessed beneficiaries’ access to ration, healthcare, employment status and government schemes. Only about 59% of the 2,233 women eligible for Jan Dhan reported that they had received the benefit. While 34% said they did not receive the transfer, 7% said they did not know if they received the benefit.

Maharashtra, Madhya Pradesh and Bihar had among the lowest rates of reported receipt of Jan Dhan transfers in the relief package at 42%, 49% and 55% respectively. Uttar Pradesh at 68%, Chhattisgarh at 70% and Gujarat at 75% had the highest reported rates. Considered alongside other schemes included in the Pradhan Mantri Garib Kalyan Yojana, the overall Jan Dhan reported receipt rate of 60.24% was similar to that of PM Kisan at 57.12% and PM Ujjwala at 59.44%. It was far more successful than the Building and Other Construction Workers support that only 21.46% of eligible beneficiaries received.

Jan Dhan’s challenges

To understand the Jan Dhan coverage gaps during COVID-19, it is worth understanding the scheme’s origins. The Pradhan Mantri Jan Dhan Yojana was launched in August 2014 with the aim of providing universal access to banking services for every household. Additionally, it aimed to increase financial literacy and provide access to credit, insurance and pension.

The scheme’s initial target was 75 million bank account openings in four years. However, the target was surpassed within months of the scheme’s launch and in a little over two years, 260 million accounts were opened, even though the system remained riddled with issues of account dormancy and patchy last-mile delivery.

Vandana Ramu, a 32-year-old housewife who lives with her husband and son in Bengaluru, heard about Jan Dhan accounts from her cousins. “Four or five of us visited the local State Bank of India branch and opened our accounts. I registered for the scheme because I did not have a bank account and was reassured by the zero-balance feature,” Ramu said. Over the course of the interview, she repeatedly referred to Jan Dhan as the “Modi account”, reflecting how the scheme is frequently attributed directly to the Prime Minister.

On its fourth anniversary in 2018, the scheme was extended for another four years with a new target of reaching every adult Indian. In addition to the extension, the government included other financial benefits such as an increase in the household overdraft limit from Rs 5,000 to Rs 10,000, and the removal of conditionalities for overdrafts up to Rs 2,000.

As of June 2020, there are 394 million Jan Dhan accounts and women hold 216 million of these, according to data on the scheme’s portal. In contrast, the PM Ujjwala Yojana, launched in May 2016 to provide concessional cooking gas connections to people below the poverty line, covers 80 million.

The JAM (Jan Dhan-Aadhaar-Mobile) trinity aims to ensure efficient transfer of government subsidies by linking Jan Dhan accounts to mobile numbers and Aadhaar cards. It is integral to providing social safety to millions of Indians. The majority (79.4%) of Jan Dhan accounts are in public sector banks, 17.4% with regional rural banks and 3.2% with private sector banks, according to the Bank Categorywise Report dated June 3, 2020. While 37% of beneficiaries are linked to bank branches in urban metros and 63% in rural or semi-urban areas, JAM offers the possibility “to move from immobile place-based benefits to mobile person-based benefits,” as suggested by former chief economic advisor Arvind Subramanian.

In spite of the potential of the JAM infrastructure, many citizens had limited experience with the formal banking system prior to opening their Jan Dhan accounts. Therefore, one of the challenges with the Jan Dhan scheme has been account dormancy due to infrequent usage. As of January 2020, 18.7% of the 378 million Jan Dhan accounts were dormant, the Finance Minister told the Lok Sabha. Among large Indian states, the highest percentage of inactive accounts are in Maharashtra, Uttar Pradesh, Gujarat and Madhya Pradesh. This is an improvement from earlier figures but it points to the importance of keeping these accounts active in order to ensure access to financial services.

Even before the COVID-19 fallout, Jan Dhan was not reaching the most vulnerable citizens, according to research by Manuela Kristin Günther for the Overseas Development Institute, a UK-based independent think-tank. Examining survey data from 2013-15 which covered a time frame before and after the Jan Dhan scheme was announced, Günther’s research also revealed that 51% of individuals who have a Jan Dhan account also have a non-Jan Dhan account. This indicates that a considerable number of citizens who were already part of the formal banking system have also registered for the scheme.

Günther also found that account ownership and usage are higher for individuals who are employed, educated up to class 12, and own mobile phones. Rural residents, especially rural women, are less likely to use their accounts.

“As with other government schemes, women in remote villages like in the desert or in mountain or forested regions may not have had the information on when and how to access the funds,” said Mirai Chatterjee, chairperson of the Self-Employed Women’s Association Cooperative Federation (SEWA), a trade union of women workers in the unorganised sector. “For any scheme to be successful, there is a lot of facilitation and hand-holding required,” she added.

COVID-19 consequences for women

These coverage gaps could have several consequences for India’s poorest citizens. COVID-19 has put women who hold insecure jobs in an even more precarious situation. The Ebola pandemic showed that periods of quarantine can affect women’s economic and livelihood activities, increase poverty rates and worsen food insecurity, according to the UN report, The Impact of COVID-19 on Women, published in April 2020.

While both men and women were affected by the nationwide lockdown, it was harder for women to reverse the effects. COVID-19, which is far more widespread than Ebola, is expected to cause a prolonged dip in women’s incomes and labour force participation. These effects will be compounded for women already living in poverty, the report added.

Women already face a disproportionate burden of care and household work. But when household incomes reduce, women and girls are likely to receive fewer resources, which may deepen existing gender inequities in access to health and education, as IndiaSpend reported in June 2020.

The utility of cash and credit through Jan Dhan

For women who received their Jan Dhan transfers but are typically financially reliant on their spouses, the cash support has given them agency in matters of household consumption and savings. “I got an SMS each time the money was deposited,” said Ramu from Bengaluru. While she used the Rs 500 received in April to buy food, she saved the Rs 1,000 that she got between May and June, she said.

In addition to the utility of cash transfers in boosting household consumption, Jan Dhan accounts represent the potential of access to formal channels for loans. In the top 50 Indian districts by indebtedness, credit from money lenders held 37% or the largest market share of loans, according to a study by Dvara Research, an organisation that aims to improve access to financial services. As citizens deal with the economic consequences of COVID-19, dependence on informal borrowing has increased and avenues for institutional borrowing such as overdraft facilities will play an important mitigating factor against indebtedness. But there are limitations to Jan Dhan’s impact on access to formal credit and household consumption.

The Jan Dhan Yojana has not helped people access formal credit, revealed by our analysis of RBI data. The credit-deposit ratio, which indicates how much credit a population group can avail per Rs 100 of bank deposits, among regional rural banks rose from 46.2% in 1998 to 68.1% in 2014, when the scheme was announced. Subsequently, the ratio fell to 62.8% in 2017, before increasing to 65.2% in 2018, the year for which latest data are available.

This lack of access to formal loans implies that people might be relying on exploitative money lenders, trapping them in a cycle of debt, IndiaSpend reported in May 2020. Although an overdraft facility of Rs 10,000 on their Jan Dhan account is available to one account holder in every household under the government’s COVID relief package, not many people are aware of it.

Vandana, in Bengaluru, said she was not aware of the overdraft facility. “This [overdraft facility] would have allowed women to have more control on how they could spend the money,” she said.

Others, such as Suman Sharma, a housewife from Rajasthan’s Sri Ganganagar district, used it frequently: “We have taken the loan several times. We prefer these loans because it is convenient and easier than borrowing money from small moneylenders.”

Recommendations to build off the JAM infrastructure

Investments in the JAM infrastructure have laid the groundwork for the implementation of targeted or universal support schemes, several economists have argued. Every Indian citizen could receive a regular inflow of funds through an ‘Inclusive Growth Dividend’ pegged at 1% of gross domestic product (GDP) per capita, according to Maitreesh Ghatak and Karthik Muralidharan, economists who have conducted research on the Jan Dhan scheme. At current GDP levels, the inclusive growth dividend would be Rs 120 per person paid out on a monthly basis.

Here's how Ghatak and Muralidharan envisage the details in a paper on reframing the role of cash transfers: Unlike universal basic income, which connotes that the transfer amount is enough to live on, an inclusive growth dividend would provide a modest cash transfer to all citizens that would grow equally with the nation’s economy. As it would be transferred each month, this would lead to an increase in frequency of account usage and, thereby, reduce the challenges of reactivating dormant accounts.

The inclusive growth dividend could contribute to women’s agency: “The Jan Dhan scheme has brought millions of Indians into the formal banking system. Implementing an inclusive growth dividend could accelerate the process of financial inclusion through usage of Jan Dhan accounts for savings and creating supply-side incentives for last-mile access to cash."

Since mothers would receive monthly transfers on behalf of their children, the inclusive growth dividend would allow them to bear an influence over household financial decisions, Ghatak and Muralidharan said. While through the Pradhan Mantri Matru Vandana Yojana, a conditional cash transfer scheme for pregnant women, mothers receive Rs 5,000 in three installments for one year during their first pregnancy, an inclusive growth dividend that Ghatak and Muralidharan propose could provide a mother with two children more than Rs 4,000 for each year for several years.

During times of economic contraction, as India is currently experiencing, the dividend would have a multiplier effect on the economy by boosting demand. The cash transfer would be too small to distort citizens’ incentives to pursue work but it could still play a role in mitigating poverty.

“Anything that puts money in the hands of women definitely strengthens her agency,” said Chatterjee of SEWA. Fundamentally, beyond just financial inclusion and services, “empowerment comes from organising women and building unity and solidarity, better health and nutrition, childcare, and ensuring full employment”, she said.

In order to solve some of the last-mile access and delivery issues, the government could focus on facilitating workshops for women to raise awareness about the availability of credit and insurance products. In areas that are sparsely populated and have a large percentage of dormant accounts, states should determine means to directly provide cash to people through panchayats or banking correspondent networks, according to the Center for Policy Research, a Delhi-based public policy think tank.

The government could also temporarily relax documentation requirements, increase access-point density in high-priority regions and develop a transparent system that tracks the underlying reasons for biometric failure, as suggested by Dvara Research. “The immediate imperative is to document all the different ways in which the system is failing, and one critical part of this is to build a ground-up beneficiary grievance redressal system that will become a permanent feature of India’s last-mile delivery mechanism,” said Indradeep Ghosh, executive director, Dvara Research.

(Patel, an MPP candidate at the Harvard Kennedy School, and Divakar, a graduate of Ashoka University, are interns at Indus Action. Prabhakar is the Indus Action state lead for Andhra Pradesh and Karnataka.)

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Aaran Patel

    Pragyna Divakar

      Rajatha Prabhakar