NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, April 29, 2015

One of the ways that Indian Prime Minister Modi is trying to get more Indians into the financial system is by delivering state support straight into bank accounts of those who need it rather than via costly price subsidies.

The government says that since the launch of a program in August to increase the amount of bank accounts in the country, well over 100 million new accounts have been opened; it claims that now virtually every household in the country has one. However, it has also acknowledged that especially in the early days of the campaign, many of the new accounts were opened by people who already had banks.

To rule out duplicate accounts and to more easily reach those it wants to sweep into the banking realm, the government wants each Indian to have a so-called Aadhaar number, a 12-digit identifier linked to biometric data. The Aadhaar, enrollment for which started in 2009, can also be used to prove whether a person is entitled to subsidies. In the bank-account push, a bit more than a third of the new accounts were linked to Aadhaar numbers.

It isn’t immediately clear how subsidies will reach those who have trouble opening a bank account or getting an Aadhaar ID. Finance Ministry officials say those with issues can call widely advertised helpline numbers, and say such problems aren’t common. The government plans to give every citizen an Aadhaar number by the end of the year, but India’s Supreme Court has ruled that having one can’t be made mandatory.

One voice offering a perspective on the push is Jean Drèze, a development economist of Belgian origin who has taught at the Delhi School of Economics and is now a visiting professor at Ranchi University, in rural Jharkhand, one of India’s poorest states. He spoke to The Wall Street Journal on the government’s financial inclusion programs in that region. Here are edited excerpts from the interview.