As per the latest IMF’s Financial Access Survey Report, 2020, India has made rapid strides in the domain of digital payments through mobile and internet banking. The number of digital transactions per 1,000 adults in India increased from 102.85 in 2014 to 6,183.62 in 2019, which is an almost 60 times growth. As a percentage of GDP, the value of such transactions increased 80 times from 1.8 per cent to 145 per cent during the same period.
The history of financial inclusion in India dates back to 1956 when insurance companies were nationalised. Then in 1969, bank nationalisation eased rural credit and aided financial inclusion. Thereafter, the policy of financial inclusion got a major push under the Pradhan Mantri Jan Dhan Yojana (PMJDY) in 2014. All the accounts under the PMJDY are linked with Rupay debit cards with an accident insurance cover and are eligible for various schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), Micro Units Development and Refinance Agency Bank (MUDRA), etc. These schemes provide comprehensive of financial services—right from access to savings bank account, credit, insurance, pension, and financial literacy with one bank account.
Significance of JAM
Linking the Jan Dhan Account, Aadhar, and Mobile number (JAM) (first conceptualised in the 2014-15 Economic Survey), resulted in the widespread use of digital payments by the government. This helped in achieving the massive target under Direct Benefit Transfer (DBT). DBT significantly reduced the administrative costs and time associated with transfer of benefit besides targeting and plugging the leakages. Consequently, the number of people getting benefits through DBT shot up by almost 15 times between 2013-2020. It is estimated that the total savings under DBT are around ` 1.78 lakh crore, which helped finance the first Covid-19 relief package of March 2020.
The developement of digital payment platforms such as Unified Payment Interface (UPI) and other app-based payments coupled with expanded usage of mobile and internet in India further catalysed the shift to digital payments. The UPI system clocked its first 100 crore monthly transactions by November 2019 and doubled to 207 crore transactions in October 2020 due to ease of usage and increased features of security.
Vital Infrastructure
The digital infrastructure provided a swift mechanism to reduce lockdown induced distress. For example, cash transfers to women, senior citizens, widows, divyang, construction workers, farmers (via PM-Kisan), etc., proved greatly beneficial in providing the government’s relief packages for the weaker and vulnerable sections. As per the Public Finance Management System (PFMS), 2.19 crore transactions were registered through DBT payments on March 30, 2020—around ` 36,659 crore was transferred through DBT in the bank accounts of beneficiaries during the lockdown, giving a rise to average monthly balance in the PMJDY accounts from ` 3.061 in March 2020 to ` 3,432.49 in May 2020. The subsequent reduction seen in the average balance, proves that these transfers helped people sustain their consumption of essentials, and provided a substitute to in-person cash transactions in this era of social distancing. The strategy to move towards digital payments, therefore, needs to be sustained and further strengthened.
The digital technology proved a boon in covid-19 situation lockdown, and social distancing norms in India. The initiative needs further improvement in terms of security, payment failures, and data privacy.
Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched initially for a period of 4 years (in two phases) on August 28, 2014, and envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance, and pension. It has provided a platform for other social security schemes, namely, Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), and Pradhan Mantri Mudra Yojana (PMMY).
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) is a life insurance scheme for people in the age group of 18-50 years. The beneficiary should have a bank account, has to give their consent to join/enable auto-debit, and must have an Aadhar card as the primary KYC for the bank account. The life cover of ` 2 lakh shall be from June 01 to May 31 and will be renewable. Risk coverage includes ` 2 lakh in case of death of the insured due to any reason. The premium is ` 330 per annum, to be auto-debited in one go from the subscriber’s bank account.
Pradhan Mantri Suraksha Bima Yojana (PMSBY) is an accident insurance scheme. It is available to people, aged 18-70 years. The applicant should have an Aadhaar-linked bank account. The coverage period will be from June 01 to May 31. The risk coverage is ` 2 lakh for accidental death and full disability and ` 1 lakh for partial disability. The premium is ` 12 per annum, to be auto-debited in one go from the account holder’s bank account.
Atal Pension Yojana is a social security scheme, aimed at providing a steady stream of income after the age of 60 to all citizens of India. It is based on National Pension Scheme (NPS) framework. The bank immediately provides a Permanent Retirement Account Number (PRAN) to subscribers, who have a choice to get fixed monthly pension amount from ` 1000/-, ` 2000/-, ` 3000/-, ` 4000/- and ` 5000/- by paying subscription on monthly basis.
Pradhan Mantri MUDRA Yojana (PMMY) provides loans up to ` 10 lakh to the non-corporate, non-farm small/micro enterprises, classified as MUDRA loans under the scheme, and are provided by commercial banks, RRBs, small finance banks, MFIs, and NBFCs. It has created three products namely ‘Shishu’, ‘Kishore,’ and ‘Tarun’ to signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provides a reference point for the next phase of graduation/growth.