Modi's development model for india

From banking the unbanked, and
funding the unfunded….…..to securing
the unsecured
Sen’s and Bhagwati’s models in
Modi’s Development Plan for India
Socio-economic empowerment initiatives of Modi’s Government
Dr. Kamakhya Nr. Singh,
UNDP(AMSCO)
Present day Government of India, led by Narendra Modi is doing remarkable work on
economic front. What is more remarkable is the fundamental change that he is trying to bring
to the way development is seen, talked about and undertaken in a developing economy like
India. Even when the world is realizing that India, through its large consumer base and
enormous economic strength, could be the engine of global growth, the Indian Government is
trying to take the development to the roots. Within just one year of governance, Modi’s
Government has undertaken a series of initiatives for socio-economic empowerment of those
sections of Indians, who have largely remained untouched by the macro-economic
development. Such section of Indian population is too large to wait for the development to
trickle down to them. This paper evaluates the recent schemes of financial inclusion and social
security. The paper recommends that concerted efforts at tackling the economic and social
malaise faced by the excluded section of society will not only help ensure more equitable
development but also help the economy itself grow faster. A sound economy, growing at robust
rate, will offer larger pie for distribution of gains of economic growth.

From banking the unbanked, and funding the unfunded to securing the
unsecured - Sen’s and Bhagwati’s model in Modi’s Development plan
Dr. Kamakhya Nr. Singh [http://ng.linkedin.com/in/kamakhyasingh/] Page 1 of 9
Introduction:
Contrary to the apparent mutually exclusive models of Economic Development propounded by
Amartya Sen and Jagdish Bahgwati, Modi Government seems to have found a way to charter
development along a new path. Modi’s vision of Indian Economic Development builds upon the
best advices offered by Amartya Sen and Jagdish Bahgwati, whose views were, interestingly,
hotly debated before the 2014 general election in India. Modi Government is not only trying to
boost the growth of Indian Economy (as per UN Report, growth is estimated to be more than
8% for FY 2015 and FY 2016) but also trying to make the development more inclusive.
One year is not a long period for the macro-economic policies and government initiatives to
show grand impact. However, over the last one year, apart from the brand building of India at
international stage, what Indian Government seems to have achieved is put the focus of
development on those “who are at the margin of the mainstream economy.” Those people have
been made an important stakeholder of development. Concerted efforts are being made to
ensure that the Indian Economy grows sustainably at significant rate. At the same time,
government is also trying to ensure that standard of living and quality of life of vast majority of
Indians, who seemed to get left out of the broad economic growth of India, get improved.
The social empowerment initiatives of Modi Government have the tools of economic
betterment for the masses of India at their root. On May 9th, speaking at the launch of three
social security schemes: Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti
Bima Yojana, and Atal Pension Yojana, Modi said that the fruits of development must reach the
poorest of the poor. He said Jan Dhan Yojana helped bank the unbanked, Mudra Bank would
help fund the unfunded, and these schemes would help secure the unsecured.
These interlinked schemes of empowerment, launched by Modi government to improve the
socio-economic conditions of large segment of Indians, can be presented schematically as
under:
Fig 1: Linkages amongst schemes of socio-economic empowerment
Fig 1: Linkages amongst Modi’s schemes of socio-economic empowerment
Schemes of Socio-Economic empowerment:
Jan Dhan
Scheme
Date of launch:
Aug 28, 2014
MUDRA Scheme
Date of launch:
April 08, 2015
Social Security
Schemes
Date of launch:
9th May, 2015

A quick review of the three socio-economic initiatives, as shown in Fig 1 above, demonstrates
the visionary thinking behind those initiatives. The review of the salient features of those
schemes and potential challenges that could be thrown up by those schemes are as under:
A) Jan Dhan Scheme or Pradhan Mantri Jan-Dhan Yojana (PMJDY):
On August 28, 2014, while launching the PMJDY, PM Modi, declared the beginning of the end of
financial untouchability in India. Opening of an estimated 15 million bank accounts across the
country was an exercise unprecedented in scale in economic history. Client acquisition of 15
million in single day has never been heard anywhere in the world.
PMJDY is National Mission for Financial Inclusion to ensure access to financial services, namely,
Banking/Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension, etc. in an
affordable manner. Account can be opened in any bank branch or Business Correspondent
(Bank Mitr) outlet. PMJDY accounts are being opened with Zero balance. However, if the
account-holder wishes to get cheque book, he/she will have to fulfill minimum balance criteria.
Special Benefits under PMJDY Scheme
a. Account holders will be provided zero-balance bank account with RuPay debit card. In
addition, accidental insurance cover of ₹1 lakh (to be given by 'HDFC Ergo') would be
offered, provided that the RuPay Debit Card is used at least once within first 45 days of
opening of the account.
b. An additional life insurance cover of ₹30,000 (to be given by LIC) was to be given to
those who had opened accounts by January 26, 2015 over.
c. With the introduction of new technology by National Payments Corporation of India
(NPCI), a person could transfer funds and check balance through a normal phone
d. Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.
e. After satisfactory operation of the account for 6 months, an overdraft facility of ₹5000
will be permitted
f. Mobile banking for the poor would be made available through National Unified USSD
Platform (NUUP)
g. Bank accounts opened under PMJDY, will have access to Pension and insurance
products.
It is expected that opening of bank accounts will provide efficient and safe means of keeping
their savings. The Prime Minister illustrated his point through the example of a mother saving
money and being forced to hide it somewhere within the house. He said the bank officials who
had opened an account for such a mother, had been blessed by those mothers.
The Prime Minister said that a breakthrough was required to overcome the vicious cycle of
poverty and debt, and that breakthrough had been achieved with the launching of PMJDY. He
further added that there were similarities between the poor getting access to mobile
telephones, and getting access to debit cards. They both had the effect of instilling confidence
and pride among the poor, he added.

Fig
2:
Prime Minister, Modi, launching PMJDY
Achievements under PMJDY:
1) On the inauguration day, 15 million bank accounts were opened under PMJDY. By 28
January 2015, 125.8 million accounts had been opened, with around ₹106 billion
(US$1.75 billion) deposited under the scheme. As on 31st March, 2015 total number of
accounts opened were 147.2 million and had ₹156 billion in deposits; about 85 million
had zero balance. Number of Rupay Debit cards issued by 31st March, 2015 was 132
million.
2) On January 31, 2015, Shri Narendra Modi, while reviewing PaHaL (Pratyaksha
Hastaantarit Laabh - the Direct Benefit Transfer Scheme for LPG Subsidy), noted that
PaHaL, had covered more than. 97.5 million LPG consumers, and was perhaps the
world’s largest cash transfer program as compared to similar programs in other
countries, such as China, Mexico and Brazil.
Challenges thrown by PMJDY:
1) Management of so many accounts has put immense pressure on the over-burdened
banking infrastructure, especially on the infrastructure of public-sector banks.
2) The overdraft facility has become discretionary in view of the government notice that
only those people would get the overdraft facility whose transaction record is satisfactory
as per the banks.
3) Keeping the account live and operational could be a huge task for account holders. A
simple trip to the bank branch may not be economically viable for those people who have
opened the zero balance account.
4) Technology for branchless banking, which would eventually drive the PMJDY, would
require continuous upgradation and at the same time reduction in the cost of usage
5) For the use of banking correspondent to be effective, the incentive structure would
require to be made more attractive

B) MUDRA Bank Scheme:
Launching Pradhan Mantri MUDRA (Micro Units Development and Refinance Agency) Scheme
on April 08, 2015 PM Modi tweeted that the biggest capital of the poor is their integrity and
combination of integrity with MUDRA – capital - will be the key to success for small
entrepreneurs. He also observed that supporting the small entrepreneurs of India was the
biggest way to help the Indian economy grow and prosper.
Earlier, on 28th Feb, 2015, Finance Minister, Arun Jaitley, had indicated in his budget speech
that there are some 57.7 million small business units, mostly individual proprietorship/own
account enterprises (OAEs), which run small manufacturing, trading or service businesses.
These hard-working entrepreneurs, who operate at the bottom-of-the-pyramid, find it difficult,
if not impossible, to access institutional finance. To help such entrepreneurs, Micro Units
Development Refinance Agency (MUDRA) Bank, with a corpus of ₹200 million, and credit
guarantee corpus of ₹30 million was created. MUDRA Bank would refinance Micro-Finance
Institutions through Pradhan Mantri Mudra Yojana.
Fig 3: Prime Minister, Modi, launching MUDRA Scheme
It is hoped that MUDRA scheme could be a boon for small business units/enterprises, which
have only limited access to formal finance. Numbering about 57.7 million, these small
enterprises use a debt fund of just ₹11 trillion (about US$ 180 billion) and provide employment
to 120 million Indians. Government statistics show that only 4% of these SBUs get finance from
regular banks and Micro, Small and Medium Enterprises (MSMEs) as a whole get less than 15%
of the total bank credit. It is in this backdrop that Government of India (GoI) has envisioned to
set up a Micro Units Development & Refinance Agency (MUDRA) Bank through a statutory
enactment. This Agency would be responsible for developing and refinancing all Micro-finance
Institutions (MFIs) which are in the business of lending to micro/small business entities
engaged in manufacturing, trading and service activities. The Bank would partner with state
level/regional level co-ordinators to provide finance to Last Mile Financiers of small/micro
business enterprises.
MUDRA Bank would be primarily responsible for:
1) Laying down policy guidelines for micro enterprise financing business

2) Registration and Supervision of MFI entities
3) Accreditation /rating of MFI entities
4) Laying down responsible financing practices to ward off over-indebtedness and ensure
compliance with the proper client protection principles and methods of recovery
6) Development of standardised set of covenants governing last mile lending to micro
enterprises
7) Promoting right technology solutions for the last mile
8) Formulating and running a Credit Guarantee scheme for providing guarantees to the
loans/portfolios which are being extended to micro enterprises
9) Supporting development and promotional activities in the sector
10) Creating a good architecture of Last Mile Credit Delivery to micro businesses under the
scheme of Pradhan Mantri MUDRA Yojana
MUDRA bank will be offering:
1) Refinance to Commercial Banks, NBFCs, RRBs, Cooperative Banks and MFIs for lending
to micro units. The loans to micro units will be in 3 categories:
a. Shishu : covering loans upto ₹50,000/-
b. Kishor : covering loans above ₹50,000/- and upto ₹5 lakh
c. Tarun : covering loans above ₹5 lakh and upto ₹10 lakh
2) Development and Financial Literacy Support - MUDRA will adopt a credit- plus
approach and offer Developmental and Support services to the target audience to help
overcome constraints such as:
• Skill Development Gaps
• Knowledge Gaps
• Information Asymmetry
• Financial Literacy gap
• Lack of growth orientation
MUDRA Bank will act as a market maker and build-up an ecosystem with capacities to deliver
value in an efficient and sustainable manner. MUDRA Bank will also support Financial Literacy
on demand as well as on supply side by 'providing familiarity with and understanding of
financial market products, especially rewards and risks, in order to make informed choices.'
In India, Micro Finance sector players can be broadly grouped under 3 categories:
a) Those who follow the SHG-Bank linkage model through Commercial Banks and Regional
Rural Banking channels,
b) The Non-Banking Finance Company and
c) Others including Section 8 (formerly Section 25) Companies, Trusts, Societies, etc.
MUDRA Bank will arrange to meet the requirements of institutions in all the 3 categories.
Challenges:
a. There seems to be a sense of uncertainty, as MUDRA Bank is yet to be set up as a
separate/independent statutory body. As the Bank will function as an NBFC and a
subsidiary of SIDBI in the initial phases, it will have problems setting up a new path of
its own
b. Given the complex nature of microfinance sector, MUDRA Bank may find it difficult to
serve as a regulator for widely diversified set of Microfinance operators and, at the same
time, provide them refinancing services as well.

C) Social Security Schemes:
While launching the Social Security Schemes on May 09, 2015, PM stated that poor do not need
support (Sahaara), but require strength (Shakti). Government was determined to providing
strength to the marginalized and poor people by using three social security schemes: Pradhan
Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, and Atal Pension
Yojana. He noted that it was indeed a matter of great pain that 80 to 90 percent of the people in
India do not have access to insurance and pension.
Fig 4: Prime Minister, Modi, launching Social Security Schemes
Building on the foundation of Jan Dhan Yojana, new social security schemes have been
launched. These social security schemes are:
a) Prime Minister Accident Insurance Scheme-Pradhan Mantri Suraksha Beem
Yojana (PMSBY) –
This is an Accident Insurance Scheme offering accidental death and disability arising from an
accident. The scheme will be have one year coverage, and be renewable from year to year. All
savings bank account holders with participating banks, within the age bracket of 18 to 70
years, will be entitled to join. Aadhar would be the primary KYC for the bank account.
An amount of ₹12/- per annum needs to be paid as premium by each beneficiary. The premium
will be deducted from the account holder’s savings bank account through ‘auto debit’ facility in
one installment on or before 1st June of each annual coverage period under the scheme.
Resultant potential benefits accruing to those opting for this insurance would be as per the
following table:
Benefits Sum Insured
a. Death ₹ 2 Lakh
b. Total and irrecoverable loss of both eyes or loss of use of
both hands or feet or loss of sight of one eye and loss of use
of hand or foot
₹ 2 Lakh
c. Total and irrecoverable loss of sight of one eye or loss of use
of one hand or foot
₹ 1 Lakh
Table 1: PMSBY - Table of benefits

b) Prime Minister Life Insurance Scheme-Pradhan Mantri Jeevan Jyoti Yojana
(PMJJY)
This is an Insurance Scheme offering life insurance cover for death due to any reason. The
scheme offers a renewable one-year life cover of ₹ 2 lakh for a premium of ₹ 330 a year. Thus
the scheme provides risk coverage of life at a premium of less than 1₹ per day and can be
renewed on a yearly basis. All savings bank account holders with participating banks, within
the age bracket of 18 to 50 years, will be entitled to join. In case of multiple saving bank
accounts held by an individual, the person would be eligible to join the scheme through one
savings bank account only. Aadhar would be the primary KYC for the bank account.
c) Atal Pension Scheme - Atal Pension Yojana (APY)
This pension scheme addresses the longevity risks among the workers in unorganised sector. It
encourages those workers in the unorganised sector, who constitute 88% of the total labour
force but do not have any formal pension provision, to voluntarily save for their retirement.
Atal Pension Yojana (APY) is open to all bank account holders. Bank accounts must have auto-
debit facility and subscribers need to keep the required balance in their savings bank accounts
on the stipulated due dates to avoid any late payment penalty.
The minimum age of joining APY is 18 years and maximum age is 40 years. Therefore,
minimum period of contribution by any subscriber under APY would be 20 years or more.
Pension would be paid on monthly basis after completion of 60 years of age. The benefit of
fixed minimum pension would be guaranteed by the Government. To all those subscribers of
APY who join this scheme during the period of 1st June, 2015 to 31st December, 2015, who are
not members of any statutory social security scheme and who are not income tax payers,
Government will contribute 50% of the total contribution (or ₹1000 per annum, whichever is
lower) for a period of 5 years, i.e., from Financial Year 2015-16 to 2019-20.
All the details of APY are illustrated in the table of computation below:
Age of
Joining
(Years)
Years of
Contribution
Indicative Monthly
Contribution
(in ₹)
Monthly Pension to
the subscribers and
his spouse (in ₹)
Indicative Return of
Corpus to the nominee
of the subscribers (in ₹)
18 42 42 1,000 170,000
20 40 50 1,000 170,000
25 35 76 1,000 170,000
30 30 116 1,000 170,000
35 25 181 1,000 170,000
40 20 291 1,000 170,000
Age of maturity: 60 years
Table 2: APY - Table of contribution and pension payments
Subscribers need to be regular in payment of their contribution to the scheme as
discontinuation of payments of monthly contribution shall lead to following:
 After 6 months, account will be frozen.
 After 12 months, account will be deactivated.

 After 24 months, account will be closed.
It is not clear as to what happens to the fund after the account is closed. More clarification
would be required on how the contributor gets his contribution (in part, at least) back. A
serious concern about the pension plan relates to the longevity of Indians, the amount of
contribution that (s)he makes, which is to be made upto 60 years and the amount of pension
that that (s)he would get under APY, which would be received only after the completion of 60
years.
Conclusion:
There is no gainsaying that the recent actions taken by the Indian Government have been long
overdue in India. These schemes are especially remarkable as they are targeted to benefit that
section of the Indian society, which has lower financial resources at its disposal and which has
largely remained excluded from mainstream financial sector for long. What is also remarkable
is the use of economies of scale and use of large number of potential users to make these social
schemes so affordable in terms of cost (premium) to the beneficiary.
With all these positive points there are a few points of caution as well. As normally happens
with most of the government schemes, these schemes of socio-economic empowerment also
have a few grey areas and uncertainties. As the operational process starts at full scale, it is
expected that those uncertainties would get clarified and pending issues resolved.
Time and again, it has been noticed that many a schemes, launched with all the noble
intentions, flounder at the stage of implementation. For these recently launched schemes as
well, there could be potential hurdle of implementation from vested interests. However, if
proper positive incentives are put in place at the stage of implementation and all the
stakeholders are positively sensitized to rise to the occasion, then these schemes will not only
improve the living conditions of large segment of Indians but also lead to quantum jump in the
economic output. Removal of deficiencies related with the initiatives would go a long way in
ensuring their acceptability by all the stakeholders. It would be good for the Indian Economy
and Indian Public that these initiatives are taken as good foundation to start with, and further
work is done on those initiatives to bring in larger benefits.

Sources/References:
1. Speeches of Prime Minister of India, Shri Narendra Modi
c. http://pmindia.gov.in/
d. http://www.narendramodi.in
e. http://www.narendramodi.in/pm-launches-pradhan-mantri-jan-dhan-yojana
f. http://www.narendramodi.in/pm-launches-pradhan-mantri-mudra-yojana
g. http://pmindia.gov.in/en/news_updates/pms-remarks-at-launch-of-social-security-schemes/
h. http://www.narendramodi.in/the-pm-reviews-pahal-scheme-for-direct-benefit-transfer-for-
lpg-subsidy
2. Website for schemes:
a. http://jandhanyojana.net/
b. www.pmjdy.gov.in/
c. www.mudra.org.in/
d. http://financialservices.gov.in/PMSBY.asp
e. http://financialservices.gov.in/hindi/PMJJY.asp
f. http://financialservices.gov.in/jansuraksha/APY_Brochure.pdf
3. UN ESCAP Report
http://www.unescap.org/resources/economic-and-social-survey-asia-and-pacific-2015
4. Sen-Bhagwati Debate on the model of Economic Development for India:
a. http://www.nytimes.com/2013/08/22/world/asia/rival-economists-in-public-battle-
over-cure-for-indias-poverty.html?_r=0
b. http://www.quora.com/What-do-economists-think-of-Amartya-Sen-versus-Jagdish-
Bhagwati
5. Budget speech - http://indiabudget.nic.in/bspeecha.asp

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