NEW DELHI, February 27, 2016
The government’s big push for scaling up Direct Benefit Transfer subsidies using the JAM trinity (Jan Dhan Yojana, Aadhaar and Mobile number) is unlikely to work in rural India in the short to medium-term.
“The JAM agenda is currently jammed by the last-mile challenge of getting money from banks into beneficiaries’ hands, especially in rural India,” says the Economic Survey 2015-16 tabled in Parliament on Friday.
The survey adds there is still some way to go before bank-beneficiary linkages are strong enough to pursue Direct Benefit Tranfer (DBT) without “committing exclusion errors” despite the huge improvements seen in financial inclusion due to Jan Dhan Yojna.
The government must invest in last-mile financial inclusion by further improving banking correspondent (BCs) networks and promoting the spread of mobile money. “The recent licensing of banks will help. Regulations governing the remuneration of BCs may need to be reviewed to ensure that commission rates are sufficient to encourage BCs to remain active.”
To measure states’ preparedness to implement JAM-based DBT, an index has been constructed based on factors such as Aadhar penetration, basic bank account penetration and BC density.
The Urban DBT preparedness index finds there is significant variation across states. Some states like Madhya Pradesh and Chattisgarh show preparedness scores of about 70 per cent, while others such as Bihar and Maharashtra, have scores of only about 25 per cent.
“The binding constraint here is basic bank account penetration—paying beneficiaries is the issue, not identifying them,” according to the survey. The DBT rural preparedness scores are “significantly worse” than the urban scores, with an average of 3 per cent and a maximum of 5 per cent. “It is clear that last-mile financial inclusion is the main constraint to making JAM happen in much of rural India.”
The Economic Survey suggests incentivising states by sharing fiscal saving from DBT to help fully implement JAM. It adds that policy areas that appear most conducive to JAM are those where the central government has significant control and where leakages are high. “At present, the most promising targets for JAM are fertiliser subsidies and within government fund transfers.”
The example of MGNREGS highlights that delivering within-government transfers via JAM can help other centrally sponsored schemes reduce idle funds, lower corruption and improve the ease of doing business with government. While BC network is developed and mobile banking spreads, the survey recommends use of Biometrically Authenticated Physical Uptake (BAPU), wherein beneficiaries verify their identities through scanning their thumbprint on a POS machine, to reduce leakages.
BAPU preparedness is much better that Rural DBT preparedness with average state preparedness being 12 per cent.