What does budget 2023-24 hold for financial inclusion?
The 2023-24 budget approaches financial inclusion by enhancing public digital infrastructure and targeting specific populations. Are these measures enough to have the intended impact at the last mile?
In the previous union budget, the government announced a few reforms that could move the needle on financial inclusion. The measures included setting up 75 Digital Banking Units (DBUs) in 75 districts of India and integrating the core banking systems with 1.5 lakh post offices. There has been considerable progress on setting up the DBUs across 75 districts but we are yet to understand its last-mile impact on service and product delivery.
One of the updates from this year’s budget speech was the proliferation of various types of financial accounts in India. There are 47.8 crore PM Jan Dhan Yojana (PMJDY) accounts, and a combination of schemes covers 44.6 crore individuals. PMJDY accounts are a gateway to greater financial inclusion and typically the journey to using better financial products starts from receiving cash benefits.
The 2023-24 budget announcement outlines some critical measures impacting financial inclusion, directly or indirectly. We analyze the budget from two perspectives - I. Cohort-specific developmental measures that aim to target specific segments of the population and II. Measures supporting public digital infrastructure effectiveness.
Cohort-based development measures
Economic empowerment of women
As per the budget speech, 81 lakh Self-Help Groups have been formed in India. Through the membership of SHGs, women will also be offered various market linkages to producer collectives and possibly to better and suitable credit products.
This newly launched Mahila Samman Savings Certificate is designed to encourage women to save money as a term deposit. As per the announcement, the scheme will offer a deposit facility of up to Rs. 2 lakhs in the name of women or girls for a tenor of 2 years at a fixed interest rate of 7.5% with a partial withdrawal option. To give some context, female depositors accounted for only 19.8% of total deposits as of March 2022.
Artisans
As per official statistics, India is home to 7 million artisans and much more as per unofficial sources. However, despite being a significant part of the handicraft industry, they lack access to marketplaces, market linkages, and financial support. In this budget, the government announced the PM Vishwakarma Kaushal Scheme which aims to provide a package of assistance. This package will include financial support, access to advanced skill training, knowledge of modern digital techniques and efficient green technologies, etc, along with know-how of digital payments.
Agriculture
There are around 1800+ agri-tech startups in India and the sector is witnessing significant year-on-year growth. To boost the innovative solutions offered by these startups, the budget announced the setting up of an Agriculture Accelerator Fund. The hope is that this fund will help in bridging the gap between access to funds for innovative agri-tech ideas as well as encouraging building for rural markets.
Along with the accelerator fund, the government also proposed to build an open-source, open-standard, and interoperable digital public infrastructure for agriculture. This will enable inclusive, farmer-centric solutions that also include information about credit and insurance along with other necessary inputs. The hope is that increased access to credit will benefit the last-mile farmer and supply-chain actors in the medium to long term.
The budget speech also mentioned that the credit limit for animal husbandry, fisheries, and dairy will be increased to Rs. 20 Lakh crore. Greater access to credit could enable farmers to adopt greener and more-sustainable technologies, in line with the government’s outlined priority areas for ‘Green Growth’.
Measures Supporting Public Digital Infrastructure Effectiveness
India’s push for public digital infrastructure and the success of the Aadhar and UPI platforms has received global recognition. Keeping in line with this approach, this year’s budget proposes initiatives in four key areas that have the potential for deepening financial inclusion.
Towards a framework for Data Governance: The new National Data Governance Policy could help enable the use of anonymised, non-personal data that can be leveraged by both private entities as well as policymakers. Fintechs leveraging alternative data sources to establish creditworthiness to offer customized loan products or better risk assessment for insurance stand to benefit from access to these data sources. Guidelines on data sharing and usage could potentially enable better user data protection.
Simplifying KYC: The budget proposes to simplify the KYC procedure by adopting a 'risk-based rather than a 'one size fits all' approach. What this essentially means is simpler customer-onboarding experiences that adjust the verification levels based on risk factors. Low-risk customers are more quickly accepted, while higher-risk customers can have additional verification procedures. A one-stop IT solution was another theme around KYC with a single window for identity and address updates for citizens (ex. Aadhaar). This is particularly useful for migrant workers who are constantly on the move as well as rural populations with incomplete and contradictory documentation.
More Use-Cases for DigiLocker: To enable more fintech innovations, the scope of documents available in DigiLocker for individuals is expected to be expanded. Further, non-individual entities such as small businesses can now avail DigiLocker services. The budget enables several new anchor use cases for the platform. The DigiLocker + Aadhar combine is a trusted identity and document layer and will play a key role in facilitating the risk-based KYC approach discussed above. This is particularly expected to facilitate credit expansion.
Facilitating Digital Payments: The budget almost doubled the subsidy for enabling digital payments from the last fiscal. While industry players and financial service providers would argue that this is not nearly enough, it certainly indicates the Government’s commitment to expanding digital payments further to the nearly 500 million people yet to experience its benefits. Digital payments serve as a gateway to accessing more complex financial products and services.
Facilitating Credit Flow: The budget briefly mentions a National Financial Information Registry that will be set up to serve as the central repository of financial and ancillary information. This will facilitate the efficient flow of credit to underserved populations. A comprehensive review of regulations in this space is also expected to follow with guidance from the RBI. In addition to this, the revamped Credit Guarantee Scheme is expected to infuse collateral-free credit of Rs 2 lakh crore to MSMEs while the cost of credit is expected to be reduced by 1% making it cheaper for small businesses to borrow. Enabling businesses to share their own GSTN data is also likely to benefit under the account aggregator framework.
A budget that prioritizes financial inclusion would aim to improve the financial stability, financial security, and well-being of individuals and low-income households. This year’s budget weighs heavily on the role of technology and open-sourced and interoperable digital infrastructure to bridge the access versus usage gap of financial products and services by low-income households. It also performs well in offering women-specific financial products as well as provides impetus to the agri-tech sector. What remains to be seen is the implementation of these measures and their intended impact on last-mile users.
The header artwork is designed by Rajashree Gopalakrishnan.
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