Prime Minister Narendra Modi, as is his wont, touted his financial inclusion scheme on its launch as a game-changer. But that is not how it is panning out. Nearly 75% of the seven crore accounts opened under the Pradhan Mantri Jan Dhan Yojana are lying dormant with zero balance, indicating that the programme may end up as ineffectual as the earlier attempts at financial inclusion.

On August 28, as Modi announced his ambitious plan to “eradicate financial untouchability”, the government undertook a massive drive to help the poor open bank accounts for free. Along with an account came a debit card, an overdraft facility and an accident insurance cover of Rs 1 lakh. Upon the scheme's launch, the government claimed that it was accomplishing a feat never achieved before: opening of 1.5 crore accounts on a single day. It paid little heed to the Reserve Bank of India’s cautionary words that the drive by itself would not improve financial inclusion.

Now, the new programme is facing an old fate.

Similar scheme launched three years ago

According to a World Bank estimate, just 35% of the adults in India had a bank account in 2011, leaving the majority with little access to a formal bank loan. The problem has existed for decades. To address it, governments for the last 30 years have tried to bring more people into the banking network.

Just three years ago, the Congress-led government launched the Swabhiman scheme aimed at rural areas, with an ambitious target of opening five crore accounts in a year. In the end, the programme covered 74,000 villages out of the country’s nearly six lakh villages.

In 2012, World Bank data showed the drive had achieved little success spreading banking access – merely 9% of the accounts in rural areas were used for more than three transactions a month. The same year, the Reserve Bank of India said, over three-fourths of the no-frills accounts aimed at the poor were lying dormant.

Modi’s programme seems to be headed the same way. The website of Jan Dhan Yojana shows that close to 75% of the bank accounts opened under the scheme have zero balance. This disqualifies the crores of account holders from the in-built Rs 1 lakh accident insurance cover because at least one transaction in 45 days is mandatory for it. Also, the overdraft facility, which gives account holders access to quick credit, is dependent on the holder having some savings in the account.

To many, the dormancy has not come as a surprise. The Reserve Bank of India had warned in September that the drive to open accounts by itself will not improve financial inclusion. “It is going to be a waste if you do not have full coverage,” the central bank’s governor Raghuram Rajan said. “It is going to be a waste if those accounts are not used, they open and they languish.”

There are in fact fears that the high number of unused accounts could be a sign of a major flaw in the programme: duplicate accounts. An RBI official had warned of this in September, saying that the overdraft and accident insurance incentives could encourage people with existing accounts to open additional ones. But government officials, speaking with the Indian Express, responded that the opening of bank accounts was “more important” as that it would “help inculcate the habit of saving”.

Link to Aadhar cards

Both the RBI and the government seem aware of the pitfalls that plagued the United Progressive Alliance’s scheme and led to so many dormant accounts. In an effort to address these issues, the government has acted on an RBI recommendation and appointed the auditing firm KPMG to fact-check the data provided by the banks to prevent duplication of accounts.

Linking the scheme to the unique identification Aadhar cards, the government hopes, will also help in averting duplication while giving the authorities a conduit for subsidies and direct cash transfers. More than 30% of Jan Dhan accounts are already linked to Aadhar.

However, though the government is trying to avoid the stumbling blocks faced by the Swabhiman scheme, its programme appears to be faltering the same way.