| Introduction: Define financial inclusion. Body: Explain how a boost to financial inclusion can help India become a 5 trillion-dollar economy. Briefly mention the constraints in achieving financial inclusion. Write about initiatives taken by the government to improve financial inclusion. Conclusion: Write about the benefit of financial inclusion apart from reaching target of 5 trillion-dollar economy. |
According to World Bank, Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.
India plans to become a 5 trillion economy and a global economic power house by 2024-2025. Financial inclusion is an important step towards the goal of a 5 trillion-dollar economy.
- Financial inclusion makes the development process more inclusive and participative thereby raising the level of economic output and growth.
- It inculcates the habit of savings which leads to capital formation, providing a boost to economic growth.
- Reduces cash in economy, thereby reducing tax evasion and role of black money.
- Increased money in the banking system creates a multiplier effect and propels economic growth,
- Availability of adequate and affordable credit fosters entrepreneurial spirit.
- Enables Direct Benefit Transfer (DBT), reducing government expenditure and leakages.
- Access to insurance products reduces the level of economic hardships thus enabling more effective participation in the economy.
- Increased level of financial inclusion enables tapping the capacity of rural masses.
However, financial inclusion is not an exclusive phenomenon, its achievement depends upon several factors. Thus, the following challenges should be tackled for optimum benefit from financial inclusion:
- Low levels of digital and financial literacy.
- Regional disparity in financial inclusion, eastern and north eastern states lag behind in financial inclusion.
- Urban rural divide, majority of bank branches are in urban areas, whereas rural areas are underserved.
- Lack of adequate infrastructure, especially ICT infrastructure.
- Socio economic constraints like low-income level and exclusion of vulnerable section like women etc.
- Inability to provide collateral induces more reliance on informal sources of lending.
Government initiatives for financial inclusion
To address these challenges and propel India towards a 5 trillion-dollar economy the government has taken following initiatives for financial inclusion.
- Banking reforms
- Announced in budget 2022, 100% of 150,000 post offices will be brought into the core banking system with interoperability between post office accounts and bank accounts.
- Increasing the number of Regional Rural Banks to increase access.
- Expanding the scope of Priority Sector Lending to ensure affordable credit.
- Promoting the engagement of banking correspondents to enable doorstep delivery of banking services.
- Promoting micro-finance institutions to provide collateral free loans.
- Government schemes like PM Mudra Yojana and Stand-Up India to ensure access to credit to the underserved section of society.
- Government schemes for increasing insurance and pension coverage, PM Jeevan Jyoti Bima Yojana (PMJJBY), PM Suraksha Bima Yojana (PMSBY), PM Fasal Bima Yojana (PMFBY) and Atal Pension Yojana (APY).
- National Strategy for financial inclusion by RBI and financial literacy programmes by RBI
- DBT utilising JAM trinity reducing leakages and expenditure.
- Expansion of Kisan Credit Card scheme to cover animal husbandry and fishery.
- Push for digital banking to reduce dependence on physical banks to ensure greater reach of banking services.
Increase in Financial Inclusion will not only help India achieve the target of 5 trillion economy quickly but also ensure that the benefits of this growth are distributed equitably.
