Mains Practice Questions

Approach

• Introduce the answer by defining financial inclusion
• Highlight the progress made in Financial Inclusion in India
• Delve into challenges that remain
• Suggest a Way Forward
• Conclude suitably.

Introduction

Financial inclusion is the process of ensuring access to affordable and appropriate financial products and services like bank accounts, credit, insurance, and payments for all sections of society, especially the underprivileged and unbanked population.

• It plays a crucial role in promoting inclusive growth by enabling economic participation and empowerment of marginalized communities.

Body

Progress Made in Financial Inclusion in India:

• Account Opening: As of June 2024, over 52 crore beneficiary accounts have been opened under Pradhan Mantri Jan Dhan Yojana (PMJDY), with deposits exceeding ₹2.2 lakh crore.
  • The scheme provides basic banking accounts and overdraft facilities, bringing the unbanked into the formal financial system.
• Expansion of Banking Infrastructure: To increase access, India has witnessed a significant expansion of banking infrastructure, including branches, ATMs, and Banking Correspondents (BCs).
  • The private banks have boosted the number of branches by 60% since 2015
  • The Business Correspondents model has facilitated last-mile delivery of banking services in remote areas.
• Digital Financial Inclusion: The government has promoted digital financial services through initiatives like the Unified Payments Interface (UPI), Aadhaar-enabled Payment System (AePS), and the RuPay card network.
  • India recorded about 131 billion UPI transactions in FY24.
  • The AePS has enabled Aadhaar-based biometric authentication for banking services in remote areas.
• Credit Access: Schemes like Pradhan Mantri Mudra Yojana (PMMY) and Stand-Up India have facilitated access to credit for small businesses, entrepreneurs, and underserved communities.
  • As of March 2024, loans amounting to Rs 27.75 lakh crore have been disbursed under the PMMY..
• Insurance Coverage: The Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) have provided affordable insurance coverage to millions of low-income households.

Challenges that Remain:

• Persistent Gender Gap: Despite progress, a significant gender gap persists in access to financial services, with women facing cultural, social, and economic barriers.
  • Women in India own 35% of bank accounts, but only 20% of total deposits as of March 2023. .
• Low Financial Literacy: Low levels of financial literacy, especially among marginalized communities, act as a barrier to effective utilization of financial services.
  • A recent surveys reveal that only 27% of India's population is financially literate
• Limited Account Usage: Around 20% of PMJDY accounts were inoperative as of December 2023, indicating limited usage of financial products beyond basic accounts.
• Sustainability and Viability of Financial Inclusion Initiatives: Maintaining the sustainability and viability of financial inclusion initiatives remains a challenge, as many programs rely on government subsidies or cross-subsidization from other banking services.

Way Forward

• Focus on Financial Literacy: Financial literacy campaigns targeted at specific demographics can empower individuals to make informed financial decisions and utilize financial products effectively.
• Product Innovation: Developing need-based financial products, such as micro-insurance and micro-loans tailored for low-income groups, can address their specific financial needs.
• Leveraging Fintech: Further integration of Fintech solutions in different government touchpoints can enhance accessibility and affordability of financial services, particularly in rural areas.
  • Establishing Credit Counseling Centres such as ABHAY.
• Acting Upon Recommendations of Rangarajan Committee: Promoting micro-insurance as a critical component of financial services for the poor to mitigate risks effectively.
  • Implementing the Revival Package for the cooperative credit system to strengthen its role in financial inclusion with substantial financial assistance.
  • Adopting and promoting the JLG model for extending credit to mid-segment clients such as small and tenant farmers without collateral.
• Bridging the Digital Divide: Expanding internet reach and promoting digital literacy programs are crucial to ensure everyone can participate in the digital financial ecosystem.

Conclusion

India's journey towards financial inclusion is commendable. However, by addressing the remaining challenges as per the recommendations of the Rangarajan committee report on financial inclusion, India can ensure that the benefits of financial inclusion reach all sections of society, fostering inclusive and sustainable economic growth.