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Friday, 27 November 2015

Drawbacks of PMJDY, PMMY and GMS

The present government is continue to releasing new schemes regardless of the status of its previous schemes (PMJDY, PMMY, etc). PMJDY and PMMY couldn’t meet the Actual expectations.

Under PMJDY, MAJORITY of accounts opened, are dormant. So, the challenge before the government is how to make these accounts alive. And unfortunately, upto now, no one has seen any action towards making these accounts active. Majority of nationalized banks, were already offering “Zero balance account” and still the facility exist. So, we can say that the scheme is nothing but just a name, and in fact, wrongly named. It should be PMZBY (Pradhan Mantri Zero Balance Yojna). One more issue about PMJDY is, overdraft issue. Economists are really annoyed about how the banks will manage overdraft issues on such accounts which tend to be operating at such balance that is typically not suitable for overdraft facility. The insurance facility associated with PMJDY accounts, is available for limited number of accounts. The account holder should also have an active Rupay Debit Card and a biometric card linked to the account to avail the benefit of the life cover. Also, those filing income tax returns, serving and retired central and state government employees, employees of central and state public sector entities have been excluded. The families of such individuals are also ineligible for it. So, in nutshell, we can conclude that the PMJDY is full of loopholes. The government should prepare policy framework for effective implementation so that full benefits can be obtained.

Now come to PMMY.
With an ambitious target of 1.22 lakh crore for PSB to lend (by March 2016) to micro and small businesses, PMMY (Pradhan Mantri Mudra Yojna) was launched. Basically, the objective of the scheme is to provide financial assistance to small businesses and to inculcate the spirit of entrepreneurship. Before looking at its drawbacks, first we look at categories of the loan under PMMY:
 Shishu  : upto 50000
            Kishore : from 50000 to 5 lac
        Tarun    : from 5 lac to 10 lac

No doubt, India’s small entrepreneurs and start-ups urgently need financial assistance. But the government is putting force on bank to finish this job in very short period, and this can lead to serious credit assessment problem. Moreover, the loans under PMMY, are collateral free. This is good for individuals who are applying for the loan but for banks, there is great possibility that PMMY loans will adds to their existing pile of NPA(non-performing assets). Many believe that half of 1.22 lakh crore may be turned into NPAs. That is also a serious issue and needs to be addressed urgently.

Now let’s discuss about one more scheme:
Gold monetization scheme
India produces no gold, and imports large amount of it (800 to 1000 tons, a year).this finally leads to trade deficit. The big idea behind this scheme is narrow the trade deficit by curbing the import. The government is trying to curb the import by bringing the gold in market lying idle with individuals, households, temples etc. The objectives are good, but again the scheme is an effigy of failure. Here are the few points

  1.Under the scheme the depositor has to deposit the gold in bank to yield the interest. And in the beginning the depositor has to make it clear whether he wants to redeem it in cash or in gold. If they decide to redeem it in gold, the bank will not return the exact jewellery which they deposit. This makes the scheme insipid. Thus, most of the people are reluctant to deposit their gold under this scheme.

   2.One’s cash deposit can be given to anybody who comes to bank for the cash. So, bank easily match cash depositor with borrower. But, this is entirely different when it comes to gold, banks find it difficult to match exact gold borrower with gold depositor.

   3. Around 15 days have passed after the scheme launched. And approx. 400 grams of gold (out of 20000 tons) has been deposited so far. This fact is an evidence of how unsuccessful the scheme is.  

This is what I know about these government schemes. I’m not against the government. My sole target is to bring the reality before you guys. These schemes were launched with good objectives but later, became an effigy of failure due to ineffective policy. Government must appoint committees to construct effective framework and to find out the new ways of implementation. Also, government should not force banks to run these schemes, let banks do the banking.

Your comments are welcome.

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