India to relaunch its Jan Dhan "bank accounts for every household” scheme with some key changes

• The Pradhan Mantri Jan Dhan Yojana scheme was launched in August 2014 with the aim of ensuring a bank account for every household.
  
• The scheme has been modified to target bank accounts for every individual while overdraft restrictions have been loosened.
  
• Around 325.4 million bank accounts had been opened under the scheme by the end of August, 60% of which are in rural or semi-urban areas.
  

In August 2014, a few months after the current BJP-led government came to power, the Pradhan Mantri Jan-Dhan Yojana scheme was launched to great fanfare. Under the scheme, which was announced by Narendra Modi during his first Independence Day speech as India’s Prime Minister, the government said it would ensure financial inclusion for all by ensuring a bank account for every household in the country.

And now, four years after Jan Dhan’s launch, Finance Minister Arun Jaitley has announced the relaunch of the financial inclusion scheme with a few important changes. In response to what he termed the scheme’s “runaway success”, Jaitley said the scheme would now target bank accounts for every individual as opposed to every household.

In addition, the scheme’s overdraft restrictions were loosened. The overdraft limit for all accounts opened under the scheme will be increased from ₹5000 to ₹10000. Account-holders up till the age of 65 will also be able to avail of a ₹2000 overdraft facility without any conditions whatsoever. Finally, the free accident insurance coverage has been doubled to ₹200,000 for all accounts that have been opened after August 28th, 2018.

Significant progress but some hurdles

While not exactly a “runaway success”, the Jan Dhan scheme has shown a considerable amount of progress since its launch. According to the scheme’s website, 325.4 million bank accounts have been opened under the scheme by the end of August, 60% of which are in rural or semi-urban areas. Additionally, around 245 million RuPay debit cards have been issued to account-holders.

However, the scheme has drawn a fair bit of criticism in the past few years due to the prevalence of inactive accounts, which indicates that the scheme’s progress in achieving financial inclusion could be overestimated. A few months after the scheme started, around 77% of the accounts had no funds in them. In September 2016, the Indian Express reported that bank officials were quietly depositing ₹1 in accounts in order to ensure they weren’t classified as “zero-balance”.

The government subsequently sought clarification from the banks and ordered them to impose tighter standards. A year ago, Jaitley announced that the ratio of inactive accounts had decreased to 20%.

All things considered, the scheme’s added incentives could convince more Indians to enroll. In expanding the mandate of the scheme to every individual, the Indian government will also correct any gender inequality seen under the scheme so far.