The joint report by NITI Aayog and Mastercard, named ‘Connected Commerce: Creating a Roadmap for a Digitally Inclusive Bharat’, emphasizes the necessity and challenges of Digital Financial Inclusion (DFI) in India. The report provides recommendations to make digital services more accessible to all 1.3 billion citizens of the country.
Digital Financial Inclusion: An Overview
DFI signifies the provision of formal financial services to underserved and excluded populations through digital means. These services ought to be tailored to users’ needs, delivered responsibly, and at an affordable and sustainable cost for both customers and service providers.
Challenges to Digital Financial Inclusion in India
Despite successful strides in DFI on the supply side, gaps remain on the demand side where account holders still prefer cash withdrawals.
Downside of Unsuccessful Agri-Techs
Agriculture is a crucial sector providing livelihood to a significant portion of the Indian population. Despite this, most agri-techs have failed to digitize financial transactions for farmers or provide lower interest rates through transaction data usage.
Inability of MSMEs to Access Formal Finance
MSMEs are significant contributors to India’s economic growth. However, these enterprises face difficulty accessing formal credit due to the lack of proper documentation, collateral, credit history, and non-standard financials, forcing them to rely on informal sources with double the interest rates.
Trust and Security in Digital Commerce
The increase in digital transactions has led to heightened risk of security breaches for both businesses and consumers.
Need for Digitally Accessible Transit Systems
Given the pandemic’s onset, integrating transit systems with contactless payments has become increasingly important in India.
Recommendations to Improve Digital Financial Services
The report suggests creating user-friendly digital products and services, strengthening payment infrastructure, digitizing registration and compliance processes, and building information sharing systems. It also recommends enabling agricultural NBFCs to access low-cost capital, digitizing land records, and making city transit more accessible.
Digital Financial Inclusion Initiatives in India
Several initiatives have been launched in India to promote digital financial inclusion, like the Jan Dhan-Aadhar-Mobile (JAM) Trinity, increasing financial services in rural and semi-urban areas, promoting secure digital payments, and enhancing financial literacy.
The JAM Trinity: Revolutionizing Access to Government Services
This combination of Aadhaar, PMJDY, and mobile communication has reshaped citizens’ access to government services.
Promotion of Financial Services in Rural and Semi-Urban Areas
RBI and NABARD have initiated several measures to increase financial inclusion in rural regions, including opening bank branches in remote areas and developing banking infrastructure.
Secure Digital Payments
With the strengthening of NPCI’s UPI, digital payments have become safer compared to the past. Offline transaction platforms have also increased the accessibility of these payment systems.
Enhancing Financial Literacy
The RBI has initiated ‘Project Financial Literacy’ to disseminate information about banking concepts and the central bank’s role to various target groups. SEBI and NISM also run a programme called ‘Pocket Money’ to increase financial literacy among school students.
