New Delhi: Prime Minister, Narendra Modi promised on Friday greater access to financial services for nearly 500 million Indians who do not have a bank account, many of whom are now at the mercy of money lenders who charge extortionate interest.
Even though India has grown to become Asia's third-largest economy, thousands of poor farmers commit suicide every year because they cannot repay loans. "He takes a loan from a money lender that he cannot return and dies," Modi, 63, said in his Independence Day address. "For his daughter's marriage, a poor man takes a loan from the money lender that he cannot return."
Modi's push to achieve greater financial inclusion among India's population was one of the few initiatives he announced in the landmark annual address delivered from the ramparts of Old Delhi's 17th century Red Fort. His other big announcement was the scrapping of a Soviet-style state Planning Commission, reflecting his focus on overhauling a system of government that he found riddled with competing "fiefdoms" when he took office in May.
India counted 146,373 suicides by farmers between 2004 and 2012, according to government estimates. The toll has been on a declining trend in recent years but typically spikes in years when there is drought. Modi plans to open up to 75 million new bank accounts in rural and urban areas by 2018, officials say, helping banks expand credit and insurance services to low-income groups so far excluded from the financial system.
"Under the new policy, the people will get a debit card and insurance coverage of Rs 1 lakh (100,000 rupees) for the family," said Modi. The new scheme is named Jan Dhan Yojana - or the Scheme for People's Wealth - and would extend banking and accident insurance coverage to poor people in both rural and urban areas.
Of India's 1.27 billion people, nearly two-fifths lack a bank account, a greater share than in Bangladesh, Sri Lanka, Iran and South Africa, the World Bank estimates. Raghuram Rajan, governor of the Reserve Bank of India, has also promised support for financial inclusion. Since taking charge in 2013, he has encouraged banks and mobile phone companies to form alliances, and liberalised regulations. So-called mobile money payment systems popular in Africa have failed so far to take off in India.
Analysts say private and foreign banks - mostly focussed on urban and corporate clients - have little incentive to reach poor households with small savings. Over 40 per cent of Indians live on less than one dollar a day. The previous Congress government sought to achieve financial inclusion by setting up an ambitious biometric data base. Modi's Bharatiya Janata Party had criticised the scheme in the past but now plans to develop it.
The government currently spends $43 billion a year or more than 2 per cent of gross domestic product - on food, fertiliser and fuel subsidies that are widely criticised as wasteful and prone to corruption.
