Where cash is still the raj

PEOPLE respond to incentives. But as economists have long recognised, often not in the way they were supposed to. Take an odd Indian phenomenon: bank branch managers have personally been donating tiny amounts of money to their own customers. Their aim was to please their political masters by boosting the usage rates of a government scheme to bring banking to the poor.

“The One-Rupee Trick”, as it was dubbed by the Indian Express newspaper, which uncovered it this week, is a hare-brained attempt by bankers to spare politicians’ blushes. In 2014 a bold financial-inclusion plan known as Jan Dhan (whose full name translates as “Prime Minister’s People’s Wealth Scheme”) was launched by the newly elected prime minister, Narendra Modi. It promised basic bank accounts for all Indians. Hundreds of millions of accounts were opened. But as with past schemes, many remained unused.

Then the scheme seemed to take off. The proportion of such “zero-balance” accounts began to fall, from roughly half a year ago to under a quarter at the end of August. The apparent...Continue reading