Sep 23: Digital India – Financial Inclusion – https://youtu.be/-F88ooM-j4s
- GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
- GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Digital India – Financial Inclusion
Technology has had a disruptive effect on the delivery of financial services, and adoption of digital solutions could help accelerate financial inclusion.
Financial inclusion refers to the access to financial services like savings, insurance, credit etc. In line with SDG 1, to end global poverty, financial inclusion will be key. The 2030 Agenda seeks to guarantee human beings, especially those in vulnerable situations, the right to financial services, including microfinancing. Digital financial inclusion is defined as digital access to and the use of formal financial services by the unserved and underserved population at an affordable cost (Lauer and Lyman 2015).
Traditionally, the costumers had to visit the physical banks to perform their business with banks (transactions, withdrawal, etc.). However, after the ICT revolution, the banking services are available via IT and ITES. This new form of banking, that is use of ICT, is called digital banking. This is a step towards cashless economy too, because the money transaction happens not via physical currency but digitally. This has also reduced the burden on physical banking infrastructure.
Efforts by Government of India
The GoI has been making concerted efforts to expand its digital infrastructure and enable access to financial services through the Unique Identity-Aadhaar and the Digital India programme (to deliver public services through digital channels and to connect rural areas with high-speed internet). Another far-reaching move towards digitisation is the shift towards government-to-person (G2P) payments or direct benefit transfers (DBTs) (GPFI 2017).
Amid the gloom of the Covid-19 pandemic, the past year has shown some pleasant surprises in the efforts to promote India’s digital journey.
- India overtook China to register the highest number of countrywide digital payments.
- Real-time transactions crossed 25 billion, much higher than China’s 15 billion in 2020, as reported in the annual research report of ACI Worldwide. The report also stated that digital payments in India are set to account for 71.7 per cent of all payments by volume by the year 2025.
- A YouGov survey showed that 67 per cent of urban Indian women responding to the survey use digital modes of payment on a general basis. (Convenience of use, which interestingly overtook cashbacks and promotional offers. This convenience has been felt even more during the Covid pandemic.)
The Pradhan Mantri Jan Dhan Yojana has added 42.4 crore bank accounts in the past seven years, of which 28 crore are owned by rural Indians. Over 23.5 crore women now own bank accounts across rural and urban India. While Jan Dhan was the first pillar of the ambitious JAM trinity, Aadhaar card seeding and bank account linkages to mobile numbers have empowered people in hitherto unimagined ways. The JAM trinity has helped people know their account status, receive scholarships and fellowships, get fertiliser and LPG subsidy, disability pensions and farm income support — directly into their accounts.
In the past one year alone, Rs 4.3 lakh crore was transferred, in over 477 crore transactions under 319 schemes, and an estimated saving of Rs 1.8 lakh crore under DBT was observed.
Key Recommendations of ‘Connected Commerce: Creating a Roadmap for a Digitally Inclusive Bharat’ – A report by NITI Aayog and Mastercard
- Strengthening the payment infrastructure to promote a level playing field for NBFCs and banks.
- Digitizing registration and compliance processes and diversifying credit sources to enable growth opportunities for MSMEs.
- Building information sharing systems, including a ‘fraud repository’, and ensuring that online digital commerce platforms carry warnings to alert consumers to the risk of frauds.
- Enabling agricultural NBFCs to access low-cost capital and deploy a ‘phygital’ (physical + digital) model for achieving better long-term digital outcomes.
- To make city transit smoothly accessible to all with minimal crowding and queues, leveraging existing smartphones and contactless cards and make it an inclusive, interoperable, and fully open system
Digital Financial Inclusion is critical to achieving the Sustainable Development Goals to which India remains committed, especially when it comes to fighting poverty, reducing gender inequalities and ushering in greater social equity, among others. India being a major economy must reap benefits of digital age for which digital literacy is inevitable.
The digital journey, however, is long and one hopes to see the positive trends sustaining given their transformative impact on the lives of Indians.
Can you answer these questions?
- Essay: The pursuit of financial inclusion
- The involvement of large tech players in the financial services segment has been specifically flagged by the Reserve Bank of India (RBI). Examine the reasons and provide solutions.