On India’s Gambit to Get Everyone a Bank Account

First, the good news. Over the past few years, India has been moving rather aggressively towards bringing all Indians under the banking fold. Back of the envelope calculations suggest that 480 million Indians, about 96 million households, did not have access to banking as recently as 4/5 years ago. Well, since then, after some pushing by the RBI, the finance ministry and state governments, the number of No Frill Accounts, which target this chunk of our population, had climbed to 79.5 million by March last year. It is estimated at about 100 million now. The number of places which access to banking itself had trebled between 2009 and 2011 — zooming up from 35,000 or so to 105,000 locations.

However, look beyond the aggregate numbers and more worrying stats emerge. The vast majority of these accounts — three different studies estimate this percentage as ranging between 80-90% — lie dormant. The reasons are manifold. There is an absence of banking products that make it easy for the poor to save. This expansion of banking has largely been through banking correspondents (BCs), locals hired as quasi-representatives of banks. And this model isnot working so far — the representatives drop out of the business saying they don’t earn enough; elsewhere, village elite become BCs and use this new found control over fellow villagers’ financials  to reinforce their hegemony over the village.

On the whole, things are delicately poised. Most of these accounts have been opened with KYC documents. They belong to real people. The government can indeed start flowing its welfare programmes down this pipeline, betting people will start using the accounts on their own. The problems lie elsewhere. For one, we are not very sure about the BC as delivery channel — does it work? is it indeed more cost-effective than the channels used till now?

The Act That Disagreed With Its Preamble

I have waited the longest time to upload this. I had spent all of 2009 studying the drafting of the “Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006. I finished writing it. Sent the paper to a journal called Conservation And Society. Got busy with my job at the Economic Times. And when the reviewers’ comments came, I was too neck deep in journalism to be able to rework the paper. Well, a year and a half after their feedback, I finally finished reworking it.

But, sigh, I am still to send it to the journal. In the meantime, here is the abstract. This, from what I know, is one of the few accounts of the pre-legislative process in India, of how laws evolve from a “political promise” into a “legal reality”.

In 2006, India passed an Act recognising hitherto unrecognised rights of tribals and other forest-dwellers over the forests that sustain them. However, for all its merits, this Act, ‘The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006’ is a puzzling document. It is ambiguous in parts. There are differences between its text and its preamble. It leaves critical questions on operationalisation unanswered. All this has marred the Act’s implementation. To explain how contradictions and ambiguities entered the text of what should have been a precise legal document, this paper reconstructs the drafting process through which the Act took shape. Briefly, it argues that every actor who participated in the drafting of the “Forest Rights Act” the people movements, the Left, the Tribal Ministry, the Environment Ministry, the wildlifers had a different conception of the problem the Bill had to resolve and, consequently, the provisions it needed to contain. There were few attempts to harmonise these divergent views. The final Act emerged from a law-making process where no actor influenced more than a few provisions. In the process, the meaning of the final text became an incidental outcome a combination of parts that do not fit together very well.

getting rural india to grow again…

the budget is around the corner. and here is what this opinionated hack thinks the finance minister should focus on in budget 2012-13.

story one. on agri.

It is no secret that Indian agriculture is in doldrums. Lakhs of farmers have committed suicide. Millions supplant their meagre earnings from farming by working in local factories and brick kilns, or by migrating to cities to work as labour. Step into the house of a small and marginal farmer, who now comprise 92% of all farming households in India, and you will see gnawing impoverishment. A complex set of factors is to blame.

story two. on the non farm sector.

With agriculture in crisis, India needs to create lots of jobs in the rural non-farm sector. However, travel around in rural areas and you will find most businesses in the hinterland service the rural market itself –garages, small shops, and the like. Businesses based in rural areas but serving larger markets elsewhere –like Amul — are almost non-existent. This is suboptimal. Fortunes of these rural businesses continue to be hitched to the agrarian economy villagers were trying to escape.

also see these two stories in our package today. the first, by iim professor m s sriram, on where india’s massive financial inclusive drive  is going wrong. and the second by NAC member n c saxena on why the indian government’s rural development plans go awry so often.