Status of financial inclusion in India, persisting challenges and way forward

Abstract

Financial inclusion is a critical pillar of development and has been a major policy thrust for the Indian Government over the decades. However some of the major policy impetuses were received the last one decade resulting in some of the biggest policy interventions for financial inclusion in the world. Pradhan Mantri Jan Dhan Yojana, Direct Benefit Transfer under Digital Banking and Aadhar has been significant interventions in this area. Despite these and several areas policy measures as well as technological innovations adopted by RBI and banking sector, even though encouraging, is much less than satisfactory when it comes to their extent and penetration when it comes to usage by marginalized sections, people in the informal economy and those living in remote areas. The significant barriers for achieving inclusive growth are Financial illiteracy, lack of convenience, technology issues and viability. This study aims at integrating some of the results of existing literature on financial inclusion and role played by Government, RBI and the other banks in promoting inclusive growth. It also attempts to analyze the key persisting challenges on the demand as well as supply aspects of financial inclusion. On the basis of its findings the paper proposes a set of preliminary recommendations to strengthen and support financial inclusion in India. It has been observed that the financial sector has still not been able to design appropriate products in a sustainable way that can address the needs of the poor, those who are in the informal economy or to identify key gaps in a huge and diverse country like India where social security is very low for most of population. Technology obviously is playing and still needs to play a far greater role in addressing some of these challenges which the traditional banking models have failed to address.