Will Saral Money reduce corruption?
The date Dec. 12, 2012, could be a significant one in India's banking history. This was the day when five banks and Visa came together to offer banking services to the unbanked population in India, which stands at nearly 400 million.
Christened "Saral Money", this new service leverages the government's flagship Aadhaar program to offer a Visa ‘instant account’ to financially excluded individuals in India.
It has never been easy to open a bank account in India., which is something I had blogged about back in October 2009. In short, my domestic help was facing a lot of harassment when she tried to open a bank account then, even though she had an ID card. I had to speak to the bank manager, who eventually did help her out.
For those who do not have an ID card, opening a bank account in India is nearly an impossibility today.
At the Saral Money launch held in New Delhi, India, Wednesday, R S Sharma, director-general of the Unique Identification Authority of India (UIDAI), narrated two such incidents. The first one was about the sweeper at the Jharkhand House, who had asked Sharma to give money to his wife when the director-general travels to Ranchi. This is because the sweeper did not have an ID card despite having worked in New Delhi for many years, and could not open a bank account and transfer the money to his wife.
The second incident involved a widow in a village in Uttar Pradesh, who was given a cheque of INR 20,000 (US$368) under some government scheme. She didn't have a bank account, and Sharma had helped by opening a bank account for her with help from the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
These two are amongst millions of examples in which people in both rural and urban areas have not been able to open bank accounts due to the stringent 'know your customer' requirements of banks.
Last month, when the government announced the direct cash transfer scheme, it came in for heavy criticism especially by activist Arvind Kejriwal, who recently launched the Aam Aadmi Party (AAP). According to Kejriwal, the cash transfer scheme may help stop "some leakages" but on several counts, it is not desirable.
"The timing is questionable. This is a way of giving bribe to voters," the activist said.
Even the Communist Party of India-Marxist opposed it. The party said the rules of the scheme are weighted against the poor.
No economy can rely on subsidies and public spending alone for development. India's subsidy bill and costs associated with public spending are bound to increase tremendously in the future.
In a recent study undertaken by Accenture, costs primarily associated with increased spending on citizens for healthcare and growth of the ageing population are estimated to require the Indian government--at the central, state and local levels--to spend an additional INR 3.2 trillion (US$58.9 billion), or 1.5 percent of the nation's GDP, to fund public services by 2025.
Given the fiscal deficit of the government, such costs definitely don't seem sustainable. For development, people in India need jobs, better infrastructure such as roads, power and ports, and better housing and healthcare services.
Financial inclusion is an important first step in that direction. The penetration of banking services is very low--merely 57 percent of the population has access to bank accounts. And amongst people with annual income of below INR 100,000 (US$1,841), it is below 25 percent.
The ruling UPA government appears to have made cash transfers an important pillar of its 2014 election campaign. This will help facilitate its plans to make a wide range of payments--from pensions to scholarships to kerosene subsidy--directly to the accounts of beneficiary citizens, thus eliminating leakages and avenues for corruption.
But, if the poll plank increases financial inclusion, reduces corruption and increases transparency, the common man shouldn't be complaining.