The economic empowerment and financial inclusion of people till the last level has been the theme outlining government policies since last two budget sessions in India. JAM Trinity refers to the consolidation of three critical spokes, i.e; Prime Minister Jan Dhan Yojana (PMJDY), Aadhaar and Mobile connectivity (JAM), in the wheel of economic policies that are meant to drive the financial inclusion measures to bring about an overall empowerment. JAM Trinity is one of the key reforms undertaken to deliver the Direct Benefit Transfer (DBT) scheme, including subsidies, minimum wage payments for various government schemes and other payments.
While DBT has been operational since 2013, there were still gaps which led to leakages and an inefficient payment system that hindered the wide-spread implementation of the scheme. The combination of JAM makes it easier to recognise the essential steps that are required to identify and remove the hurdles in each of the elements to effectively deliver DBT.
To highlight the huge direct impact the JAM Trinity may have, we need to look at some figures. According to the Economic Survey, about 4.2 per cent of the GDP, which works out to roughly Rs 3.78 lakh crore is spent on key subsidies. As of March 2015, there were more than 227 million beneficiaries under 36 different schemes, who were a part of the DBT programme. The highest enrollment was under DBT for liquefied petroleum gas subsidy. But due to number of inefficiencies in the system, the DBT could never attain a national scheme status. Several measures are taken to plug these gaps under JAM Trinity to build an effective and robust delivery mechanism for DBT benefits.
To understand the utility of the JAM Trinity, it is essential to understand each of these aspects with its agenda and respective challenges.
- Prime Minister Jan Dhan Yojana (PMJDY)
This is the first spoke, the ‘J’ of the trinity, which is contouring the economic landscape of financial inclusion since its launch in August 2014. PMJDY aims to extend the banking services to the unbanked population in the country. The scheme works in two legs.
- One leg includes opening a bank account and bundling it with RuPay card, pension and insurance schemes etc, for an upliftment of the under-privileged by taking it all the way through to cover the last mile.
- Another leg refers to automation of all the subsidies and other payments and move away from traditional delivery routes to plug the leakages in the system. This takes care of both, the direct payments to individuals employed under various national schemes like MGNREGA and others, along with the institutional payments to sectors providing products like food, oil, fertilizer etc, at a subsidy to individuals to ensure a minimum standard of living for the poor.
In December 2015, the government directed all the banks to convert and tag all the accounts opened prior to the launch of PMJDY and yet were the beneficiaries of DBT payments, into PMJDY accounts. The move will ensure all the other benefits of PMJDY scheme like insurance, pension etc, is extended to the pre-existing DBT beneficiary accounts.
The PMJDY progress:
- As a starter, to gauge the effectivity of PMJDY, the focus has shifted from just tracking number of bank agents deployed on the ground to monitoring more concrete parameters that are critical to its sustenance, like agent remuneration, bank account penetration for transaction readiness etc.
- A minimum monthly remuneration of Rs 5000/- was also recommended under PMJDY to tackle the problem of dormant agents hindering the growth of account penetration.
- In January 2015, Finance ministry fixed the DBT commissions for banks at 1% subject to an upper limit of Rs. 10 per transaction for all rural schemes and commission at par with NEFT charges or Aadhaar Payment Bridge rate for all urban schemes. Although 1% commission is still considered quite low.
- A detailed cost analysis done by a consulting firm MicroSave in May 2015 reveals that there are significant savings to the government on account of lower administrative costs and leakages, which can be better-utilized to incentivise banks and agents with higher commissions.
- Aadhaar – Unique Identification Authority of India (UIDAI)
Aadhaar, which adds the ‘A’ to the JAM trinity, refers to establishing the Unique Identification number for each and every citizen with the help of bio-metric identification which is further linked to individual bank accounts to aide unique identification of the beneficiaries and address the problem of leakages. This can really help the government to implement and deliver the benefits of both, the existing and new welfare schemes with greater ease. Government is also working to create an appropriate legislation around the National Identification Authority of India (NIAI) Bill.
With government’s massive support, Aadhaar is being adopted as a major governance tool. It is already been used to deliver the LPG subsidy benefits to individuals. The government claims to have saved around Rs 15,000 crore in FY 14-15 only by weeding out fake and duplicate LPG connections which were highlighted while linking Aadhaar number to deliver the benefits. PDS is another scheme to have enrolled under Aadhaar to plug leakages. Government also plans to link Aadhaar for distributing DBT for Kerosene and Fertilizer in future. The institutions such as RBI, TRAI, SEBI and several state governments advocate the use of Aadhaar.
The challenges are:
- A major hurdle is that to make the Aadhaar number universal, the government needs to make it mandatory for availing DBT benefits and other payments. Currently the voluntary use of Aadhaar is allowed for PMJDY among few other schemes.
- Another issue of ‘Right to Privacy’ is also debated amongst a larger constitutional bench.
The last and the most critical leg of the JAM trinity is the ‘M’ – Mobile that can automatize or digitize the delivery system. With over 600 million unique users and tele-density of 81.4% in India, Mobile Money offers a complimentary way to deliver DBT benefits to a larger population without leakages.
Yet, some of the challenges are –
- Reliable connectivity in the remote rural areas may not be available to effectively deliver DBT benefits directly to the people.
- Even with connectivity, there has to a benchmark for data connectivity bandwidth, especially in rural India that can ensure accurate and smooth digital transactions.
With all the right intentions, there are still three critical steps that are required to be taken to make JAM trinity an effective enabler for DBT transactions.
- The Finance Ministry needs to work out and fix an adequate transaction processing charge for bank and agent network along with its timely disbursements.
- Pass the NIAI Bill which can ensure wide-spread utilisation of Aadhaar across schemes to minimise leakages.
- Setting up and constant monitoring of service quality benchmarks for Digital Financial Transactions.