One Lesson from the One Rupee Accounts in Jan Dhan Yojana


One of the major successes of the Narendra Modi government has been the Jan Dhan Yojana. In fact, in 2015, around 12 crore bank accounts were opened under the scheme at a rapid pace of over 3 lakh accounts per day.

As of September 21, 2016, a total of 24.61 crore accounts have been opened under the scheme. The accounts have a total of Rs 43,347.84 crore under them. Only, around 23.98 per cent of the accounts are zero balance accounts i.e. the accounts have been opened, but there is no money in these accounts.

This is a huge improvement over January 31, 2015, when 67.3 per cent of the accounts were zero balance accounts. Further, there were a total of 12.55 crore accounts that had been opened under the scheme, at that point of time. These accounts had a total of Rs 10,499.62 crore in them. The accounts now have more than four times the money they had in January 2015.  Hence, things have improved significantly.

Earlier this month, The Indian Express reported that: “Bank officials are quietly making one-rupee deposits, many from their own allowances, some from money kept aside for office maintenance. Their ostensible goal: to reduce the branch’s tally of zero-balance accounts.”

Branch managers told the Express that there was pressure on them to show that the zero-balance accounts were falling. And this is why they ended up doing what they did.

The Indian Express further reported that the percentage of accounts with one rupee deposits is fairly significant. Take the case of Punjab National Bank. Of the 1.36 crore accounts that the bank had opened under the Jan Dhan Yojana around 12.97 lakh accounts had deposits of Re 1. The UCO Bank had opened 74.6 lakh accounts under the Jan Dhan Yojana. Of this 11.06 lakh accounts had deposits of Re 1.

While this does not mean that the Jan Dhan Yojana has been unsuccessful, it does take away some its sheen. Also, the fact that the number of zero-balance accounts have come down dramatically since January 2015, cannot be taken that seriously.

There is a lesson that needs to be learnt here. If the government starts following one measure of performance or gives it more importance than others, chances are the measure will be gamed.

One example (though rather extreme) of this played out in communist China under Mao Zedong. Mao wanted agricultural production of China to increase at a very fast pace. He wanted to use the agricultural surplus (whatever was left after the Chinese consumption) to finance ambitious military as well as industrial projects.

As Yuval Noah Harari writes in Homo Deus—A Brief History of Tomorrow: “Mao’s impossible demands made their way down the bureaucratic ladder, from the government offices in Beijing, through provincial administrators, all the way to the village headmen. The local officials afraid of voicing any criticism and wishing to curry favour with their superiors, concocted imaginary reports of dramatic increases in agricultural output. As the fabricated numbers made their way up the bureaucratic hierarchy, each official only exaggerated them further, adding a zero here or there with a stroke of a pen.

The trouble was that as everyone up the hierarchy padded the numbers, the fictional number of grain production that reached the top was much higher than the actual production. And this had its consequences.

As Harari writes: “Consequently, in 1958 the Chinese government was told that annual grain production was 50 per cent more than it actually was. Believing the reports, the government sold millions of tons of rice to foreign countries in exchange for weapons and heavy machinery, assuming that enough was left to feed the Chinese population. The result was the worst famine in history and the death of tens of millions of Chinese.”

In this case, the government pushing for a particular result to be achieved, led to that result being achieved on paper. In the process, the numbers were believed and the food grains sold off. It eventually led to people dying of hunger.

In the Jan Dhan Yojana case there have been no disastrous consequences. All it has led to is a slightly embarrassed government and that’s about it. Nevertheless, there is a lesson in it for us. If the government puts too much focus on one measure of performance, chances are ultimately that the lower bureaucracy will game the number.

In economics, there is even a law for a situation like this and it’s called the Goodhart’s law (named after economist Charles Goodhart). The Goodhart’s law states that, “when a measure becomes a target, it ceases to be a good measure.” And this is precisely what has happened with the focus on bringing down the zero-balance accounts, opened under the Jan Dhana Yojana.

Also, it is worth reminding here that as more and more government subsidies are paid out as cash to citizens, the number of zero balance accounts will automatically come down in the years to come. Of course, this will take time.

The column originally appeared in Vivek Kaul’s Diary on September 28, 2016