At the Financial Inclusion Summit on July 15, the RBI Governor claimed that about 425 million individuals have JDY accounts, 55% of whom are women.
By Arindam Gupta
RBI’s financial inclusion index (FI-Index) is the second such institutional effort in the country, after CRISIL’s Inclusix. The FI-Index is similar to Inclusix with regards to the scale of measurement, both ranging from 0 to 100. FI-Index covers financial services as a whole, with a total of 97 indicators weighing three parameters: ease of access to services (35% weight), availability and usage of services (45%), and quality of services (20%). As per a RBI release, it captures the quality aspect of financial inclusion “as reflected by financial literacy, consumer protection, and inequalities and deficiencies in services”. Inclusix considered four parameters—bank branch penetration, deposit penetration, credit penetration, and insurance penetration—tilting towards activities surrounding a bank account. Only in 2018 Inclusix included insurance as a parameter. It covers 666 districts and evaluates financial inclusion at the national, regional, state and district levels, last available in 2018. Against the backdrop, RBI’s effort is well-timed when the present government is championing the cause of financial inclusion.
Across the world, bank account ownership was used as the sole indicator of financial inclusion for a long time. Credit emerged later as a more significant indicator, making bank account a prerequisite. In India, Inclusix considered microfinance since its first edition. It also took credit penetration into its fold. In a finer evaluation of financial inclusion, access to insurance was also considered important. The failure of the banking intermediary models like bank mitra has driven the government to take several measures. Turning post offices into Post Office banks is one such measure.
The new FI-Index also considers people’s access to the post offices in their new avatar. Retirement planning is gaining importance in the country with more pension schemes in play. Private sector, in which there is no pension, employs larger numbers than the public sector. Among the PSUs, the core government sector can only afford pension. State governments have almost stopped pension for new entrants and the Centre too stopped volunteering it alone since 2004. For the vast section of people who are either self-employed or are in the unorganised sector, pension is non-existent. Atal Pension Yojana (co-contributory). modified from the pre-existing Swavalamban Yojana, is a government-backed pension scheme primarily targeting the unorganised sector. LIC and other companies have already launched many pension products irrespective of economic strata, apart from the National Pension Scheme being in play. The FI-Index makes participation of people in these pension schemes a parameter of financial inclusion.
The FI-Index, as proposed to be published every July, is constructed without any base year. Its value is said to be 53.9 for the financial year ended March 2021, as compared to 43.4 for the year ended March 2017. Bank account ownership has significantly increased with the Pradhan Mantri Jan Dhan Yojana. DBT has brought bank accounts out of the dormancy technically (dormancy was 49% as per Findex data in 2017); Rs 5.53 lakh crore was transferred digitally under 319 government schemes in FY21 as DBT. Now, close to 96% of the bank accounts are claimed by the government to have been covered by at least one digital means of payment by March 2021.
At the Financial Inclusion Summit on July 15, the RBI Governor claimed that about 425 million individuals have JDY accounts, 55% of whom are women. He attempted to address the criticism that one-third of poor women in India don’t have JDY accounts. But all these statistics fall short of explaining the value of the FI-Index crossing merely the halfway mark. The “qualitative” evaluation of financial inclusion gives rise to many questions like how many customer-induced transactions could be seen in JDY accounts, usage of overdraft facility, availing accidental insurance facility associated with the Rupay card or life insurance facility associated. It also throws up questions on financial literacy, about the masses’ knowledge of financial products and types, for example, their ability to distinguish between insurance from an ordinary investment. There is a long way to go.
The author is Professor of commerce, Vidyasagar University, Midnapore