Analyzing the progress and prospects of financial inclusion in India

• Date: 01 November 2019
• Published date: 01 November 2019
• DOI: http://doi.org/10.1002/pa.1948

PRACTITIONER PAPER

Analyzing the progress and prospects of financial inclusion in

India

Rajesh Barik |Pritee Sharma

Discipline of Economics, School of Humanities

and Social Science, Indian Institute of

Technology Indore, Simrol, India

Correspondence

Rajesh Barik, Discipline of Economics, School

of Humanities and Social Science, Indian

Institute of Technology Indore, Simrol 453552,

India.

Email: rajeshbarik195@gmail.com

Taking data from Financial Access Survey, Global Findex and Reserve Bank of India

bulletin, this paper tries to analyze the progress occurred and the future prospect

of financial inclusion in India. Our analysis depicts that India has witnessed a quick

progress in financial inclusion. Though there is long way to go to achieve the dream

of universal financial inclusion, there is no doubt that tremendous progress has been

achieved in the recent time. Specifically, after the implementation Pradhan Mantri Jan

Dhan Yojana in August 2014, much improvement has happened in opening of bank

deposit accounts. Similarly, the post‐dimerization period has seen a rapid growth of

digital finance in India. Despite high growth of digital transaction, digital payment

among the women, rural people, elderly people, and less educated people is much less

than other groups of people. The provision of good digital infrastructure to the

remote area, opening of more financial literacy centers and extension of credit to

the marginalized people can help to fulfill the true essence of financial inclusion in

India.

1|INTRODUCTION

The successes of financial inclusion necessitate inclusion of financially

excluded and unbanked people under the purview of formal banking

system. The easy access of formal banking to the unbanked/under

banked people has become an indispensable part of development for

every country. The provision of secure, adequate and affordable credit

to the unbanked/under banked people is the basic precondition for

economic growth, alleviating poverty and reducing income inequal-

ities. There is much empirical evidence that depicts financial inclusion

has very significant effect on many economic variables such as pov-

erty, inequality, human development and economic growth (see Laha,

2015; Lenka & Sharma, 2017; Park & Mercado, 2017; Zhang & Posso,

2017). Realizing the importance of financial inclusion on other eco-

nomic indicators, every developing and underdeveloped countries in

the world is trying to obtain universal financial inclusion. In this regard,

the Government of India (GOI) has taken some major initiatives such

as the nationalization of banks, opening cooperative banks, establish-

ing regional rural banks and implementing bank licensing policy and

very recently the introduction of Pradhan Mantri Jan Dhan Yojana

(PMJDY) are some of the key schemes, which have helped to increase

financial inclusion in India. After independence, to fulfill the goal of

financial inclusion, GOI nationalized 14 banks in 1969 and again, six

more banks were nationalized in 1980. Similarly, the establishment

of regional rural banks had played greater role to extend the banking

services to the rural unbanked areas. Likewise, the recent introduction

of PMJDY has helped the poor and marginalized people to open their

bank account with zero or minimum balance. Same like GOI, the

Reserve Bank of India (RBI) had also undertaken so many initiatives

to extend the banking outreach to the unbanked rural masses. The

implementation of social banking policy, introduction of Know your

Customer norms, opening of financial literacy centers, implementation

of no‐frill account and opening of Business Correspondents (BCs) are

some of eye‐catching programs initiated by the central bank of India

to expand the banking outreach.

Gwalani and Parkhi (2014) argued that many efforts have been

undertaken to fulfill the dream of universal financial inclusion but

India being a diversified country needs more innovative models to

speed up financial inclusion drive, which will alternatively spur eco-

nomic growth. Poonam and Chaudhry (2016) found that 2001 to

2014, most of the Indian states have improved the condition of

financial inclusion in their respective states. But despite all this

Received: 29 March 2019 Accepted: 31 March 2019

DOI: 10.1002/pa.1948

J Public Affairs. 2019; :e1948.

https://doi.org/10.1002/pa.1948

© 2019 John Wiley & Sons, Ltd.

wileyonlinelibrary.com/journal/pa 1of619