AIR Discussions (JUNE 1st Week)

10th June, 2023

RBI BI-MONTHLY POLICY

Context: The Reserve Bank of India (RBI) announced its second bi-monthly policy review for the fiscal year 2023-24 on June 8. The central bank maintained a status quo on the key policy rates. 

Details

  • The Monetary Policy Committee (MPC), headed by RBI Governor, voted unanimously to keep the rates unchanged.
  • The MPC said that it will continue to monitor the evolving macroeconomic and financial conditions and take necessary measures to support growth while ensuring that inflation remains within the target range.

Key data released at the bi-monthly policy review report

  • The repo rate, the rate at which the RBI lends money to commercial banks, remained unchanged at 6.5%.
  • The reverse repo rate, the rate at which the RBI borrows money from commercial banks, stayed at 6.25%.
  • The marginal standing facility (MSF) rate and the bank rate were kept at 6.75%.
  • The consumer price index (CPI) inflation eased to 4.7% in March-April 2023, after touching a high of 6.7% in 2022-23. This was mainly due to a sharp decline in food inflation and a favourable base effect.
  • Headline inflation is still above the target of 4% (+/- 2%) and is expected to remain so in the near term. Several upside risks to inflation, such as rising global commodity prices, higher logistics costs, supply chain disruptions, and domestic demand pressures.
  • The growth outlook for the Indian economy for 2022-23 was estimated at 6.5%, with a strong rebound in the first quarter of 8%. This was supported by a revival in consumption and investment demand, an improvement in external trade, and a robust performance of the agriculture sector.

The RBI Governor also announced some important measures to enhance financial inclusion, promote digital payments, and support liquidity management.

  • Banks will be allowed to issue RuPay prepaid forex cards to their customers for international transactions.
  • Non-bank entities will be permitted to issue e-Rupee vouchers, which are digital instruments that can be used for specific purposes by beneficiaries.
  • RBI will conduct variable rate reverse repo (VRRR) auctions of longer tenors to absorb surplus liquidity from the banking system.

RBI Bi-Monthly Policy

  • The Reserve Bank of India (RBI) conducts a bi-monthly monetary policy review, in which it announces the key policy rates and its stance on inflation and growth. It is based on the assessment of the macroeconomic situation and the outlook for the economy.
  • It is decided by the Monetary Policy Committee (MPC), which meets every two months, usually in the first week of February, April, June, August, October and December.
  • The MPC votes on the policy rate and the stance, and the decision is announced by the RBI Governor in a press conference.

The bi-monthly policy has several objectives, such as:

  • Maintaining price stability and inflation within the target range of 2-6%.
  • Supporting economic growth and recovery from the pandemic-induced slowdown.
  • Ensuring adequate liquidity and credit flow in the financial system.
  • Preserving financial stability and resilience in the face of external and domestic shocks.

Policy rate

  • The policy rate is the repo rate, which is the rate at which the RBI lends money to commercial banks for short-term purposes.
  • It influences other interest rates in the economy, such as deposit rates, lending rates, bond yields, etc.
  • It affects the exchange rate of the Indian rupee (INR) against other currencies.

Significance 

  • The stance of the monetary policy indicates the direction and magnitude of future changes in the policy rate. The stance can be accommodative, neutral .
    • An accommodative stance means that the RBI is willing to cut the repo rate further or keep it unchanged to support growth and liquidity.
    • A neutral stance means that the RBI is not inclined to change the repo rate in either direction.
    • A contractionary stance means that the RBI is likely to increase the repo rate or keep it unchanged to curb inflation and excess liquidity.
  • It guides various aspects of monetary and financial management, such as liquidity operations, open market operations, regulatory measures, developmental initiatives, etc.
  • It reviews the macroeconomic developments and outlook for inflation and growth.

The bi-monthly policy is an important tool for communicating the RBI's monetary policy strategy and actions to various stakeholders, such as market participants, businesses, consumers, media, etc. The bi-monthly policy also helps in enhancing transparency and accountability of the RBI's monetary policy framework.

Monetary Policy Committee (MPC)

  • The MPC aims to maintain price stability and support economic growth by adjusting the repo rate in response to changing macroeconomic conditions.
  • The MPC was established in 2016 under the Reserve Bank of India Act, 1934, as an outcome of an agreement between the RBI and the Government of India.
    • The agreement specified a flexible inflation targeting framework, under which the RBI would aim to keep inflation within a range of 2% to 6%, with a central target of 4%.
    • The agreement also mandated the formation of a six-member MPC, with three members from the RBI and three external members nominated by the government.
  • The MPC would meet at least four times a year and decide on the repo rate by majority vote, with the RBI governor having a casting vote in case of a tie.

The MPC has several features that make it different from the previous arrangement of monetary policy decision-making in India. Some of these features are:

Transparency

  • The MPC publishes its decisions and minutes after each meeting, along with the rationale and votes of each member. The MPC also publishes its inflation forecasts and explains any deviations from the target range.

Accountability

  • The MPC is answerable to the government and the parliament if inflation exceeds the target range for three consecutive quarters. The RBI governor has to submit a report explaining the reasons for the failure and the remedial actions taken or proposed.

Independence

  • The MPC has operational autonomy in setting the repo rate, without any interference from the government or other external agencies. The external members have a fixed term of four years and cannot be reappointed.

The MPC has several significances for the Indian economy and society. Some of these significances are:

Price stability

  • By keeping inflation within a reasonable range, the MPC helps to preserve the purchasing power of money and protect the savings of households. Price stability also reduces uncertainty and enhances confidence among investors and consumers.

Economic growth

  • By adjusting the repo rate according to the economic situation, the MPC helps to stimulate or moderate aggregate demand and output. A lower repo rate lowers borrowing costs and encourages investment and consumption, while a higher repo rate curbs inflationary pressures and prevents overheating.

Credibility

  • By following a rule-based approach and communicating its actions clearly, the MPC enhances its credibility and reputation among domestic and international stakeholders. A credible monetary policy helps to anchor inflation expectations and reduce volatility in financial markets.

The MPC also faces several challenges in fulfilling its mandate and objectives. Some of these challenges are:

Data limitations

  • The MPC relies on various data sources to assess the current and future state of the economy and inflation. However, some of these data sources may be incomplete, inaccurate or delayed, which may affect the quality and timeliness of monetary policy decisions.

Structural changes

  • The Indian economy undergoes frequent structural changes due to factors such as technological innovation, demographic transition, globalization and climate change. These changes may alter the transmission mechanism and impact of monetary policy on different sectors and regions.

Coordination issues

  • The MPC has to coordinate with other institutions and policies that affect macroeconomic outcomes, such as fiscal policy, financial regulation, exchange rate policy and trade policy. A lack of coordination or consistency may undermine the effectiveness of monetary policy.

The MPC has been functioning for five years since its inception and has faced various challenges and opportunities in this period. Going forward, some possible ways to improve its performance are:

Enhancing data quality and availability

  • The MPC can work with other agencies to improve the collection, compilation and dissemination of relevant data for monetary policy analysis and forecasting. The MPC can also explore alternative data sources such as surveys, market indicators and big data.

Adapting to structural changes

  • The MPC can monitor and evaluate how structural changes affect the economy and inflation dynamics and adjust its policy framework accordingly. The MPC can also conduct research and experiments to test new models and methods for monetary policy.

Strengthening coordination and communication

  • The MPC can engage more actively with other policymakers and stakeholders to ensure the alignment of goals and actions. The MPC can also communicate more effectively with the public and media to explain its decisions and expectations.

To achieve these objectives, the MPC can engage more actively with other policymakers and stakeholders to ensure the alignment of goals and actions. The MPC can also communicate more effectively with the public and media to explain its decisions and expectations. By doing so, the MPC can enhance its credibility and transparency, foster public trust and confidence, and improve the effectiveness of its policy transmission.

Source: https://newsonair.gov.in/News?title=RBI-maintains-status-quo%2c-keeping-repo-rate-unchanged-at-6.5%25%3b-Also-retains-GDP-growth-forecast-for-fiscal-2023-2024-at-6.5%25&id=462196

NEWS IN SHORT

PRIMARY AGRICULTURAL CREDIT SOCIETIES

Context: The Government has announced a major initiative to integrate Primary Agricultural Credit Societies (PACS) with Pradhan Mantri Kisan Samridhi Kendras (PMKSK).

Details

  • This will enable PACS to provide a range of services to farmers, such as the marketing of organic fertilizers, drone-based spraying of fertilizers and pesticides, and access to credit and agricultural machinery.
  • The aim is to enhance the income and livelihood of farmers and strengthen the cooperative movement in the country.
  • PACS are the basic units of the cooperative credit system in India. They provide credit and other financial services to the farmers and rural communities.

PACS have several features that make them suitable for rural development, such as:

  • They are owned and managed by the members themselves, who share a common bond of occupation, residence or affinity.
  • They operate on the principles of mutual aid, self-help and democratic control.
  • They offer low-cost and easy access to credit, savings, insurance and other services to the poor and marginalized sections of society.
  • They promote collective action and social responsibility among the members.

However, PACS also face many challenges that hamper their performance and sustainability, such as:

  • Lack of adequate capital, infrastructure and technology.
  • Poor governance, management and accountability.
  • High incidence of loan defaults and non-performing assets.
  • Competition from other formal and informal sources of credit.
  • Regulatory and policy constraints.

To overcome these challenges and enhance the role of PACS in rural development, the following measures are suggested:

  • Strengthening the capital base and financial viability of PACS through internal mobilization, external assistance and diversification of income sources.
  • Improving the governance, management and professionalism of PACS through capacity building, training and supervision.
  • Enhancing the quality and outreach of services offered by PACS through innovation, technology adoption and customer orientation.
  • Promoting linkages and convergence among PACS and other stakeholders such as banks, government agencies, NGOs and private sector entities.
  • Creating an enabling environment for PACS through supportive policies, regulations and incentives.

PACS have a long history and a huge potential to contribute to the socio-economic development of rural India. By addressing their challenges and leveraging their strengths, they can become more efficient, effective and sustainable institutions of cooperative credit.

Pradhan Mantri Kisan Samridhi Kendras (PMKSK).

  • Pradhan Mantri Kisan Samridhi Kendras (PMKSK) is a new initiative by the Government of India to provide integrated services to farmers at the village level.
  • The PMKSKs aim to offer a range of facilities such as soil testing, crop advisory, input supply, market linkages, credit and insurance.
  • They are expected to enhance the productivity, profitability and resilience of small and marginal farmers, who constitute about 86% of the total farmers in India.
  • They seek to promote the adoption of sustainable and climate-smart agricultural practices.

The PMKSKs face several challenges in their implementation and functioning. Some of these are:

  • Lack of adequate infrastructure and human resources at the village level.
  • Poor coordination and convergence among various departments and agencies involved in the PMKSKs.
  • Low awareness and participation of farmers in the PMKSKs.
  • Inadequate quality control and monitoring of the services provided by the PMKSKs.
  • Limited access and affordability of inputs and services for the farmers

To overcome these challenges and make the PMKSKs more effective and efficient, the following steps are suggested:

  • Strengthening the capacity and motivation of the village-level functionaries and service providers.
  • Ensuring regular and timely delivery of inputs and services to the farmers.
  • Creating awareness and demand among farmers for the PMKSKs through mass media, social media and farmer-to-farmer communication.
  • Establishing a robust feedback and grievance redressal mechanism for the farmers.
  • Leveraging digital technologies and innovations to enhance the quality and reach of the PMKSKs

The PMKSKs have the potential to transform the rural economy and livelihoods of millions of farmers in India. By addressing the existing gaps and challenges, the PMKSKs can become a model of a farmer-centric and holistic service delivery system.

Must Read:

Primary Agricultural Credit Societies: https://www.iasgyan.in/daily-current-affairs/primary-agricultural-credit-societies-13

Source: https://newsonair.gov.in/News?title=Primary-Agricultural-Credit-Societies-to-be-brought-under-PM-Kisan-Samridhi-Kendras%3a-Govt&id=462220

CYCLONE “BIPARJOY”

Context: Cyclone 'Biparjoy' in the Arabian Sea rapidly intensified into a very severe cyclonic storm, according to the India Meteorological Department (IMD).

Details

  • The storm is expected to move northwards and then north-northwestwards, without making landfall in India.
  • The IMD said that the very severe cyclonic storm will further intensify and reach a peak intensity of 130 to 140 kilometres per hour gusting to 155 kmph over the east-central Arabian Sea.
  • The cyclonic storm will have an impact on the weather and sea conditions along the western coast of India.
  • Cyclone 'Biparjoy' was named by Bangladesh, which means 'disaster' or 'calamity' in Bengali.

Cyclone

  • Tropical cyclones are low-pressure systems that form over warm ocean waters and are driven by the heat energy released from the condensation of water vapour. They are classified into different categories based on their wind speed and intensity.
  • The Indian Ocean basin has two main seasons for cyclone formation: pre-monsoon (April-June) and post-monsoon (October-December). The Arabian Sea is more active during the pre-monsoon season, while the Bay of Bengal is more active during the post-monsoon season.

Some of the factors that influence cyclone formation and intensity in the Indian Ocean are:

  • Sea surface temperature: Higher sea surface temperature provides more energy and moisture for cyclone development and intensification. The threshold temperature for cyclone formation is about 26.5°C.
  • Wind shear: Wind shear is the difference in wind speed and direction at different levels of the atmosphere. High wind shear can disrupt the vertical structure and circulation of a cyclone, while low wind shear can favour its growth and organization.
  • Moisture availability: Higher moisture content in the atmosphere can enhance the convection and precipitation associated with a cyclone, while dry air can inhibit it.
  • Topography: The presence of land masses can affect the track and intensity of a cyclone. Landfall can weaken a cyclone due to friction and loss of moisture, while mountains can deflect or steer a cyclone away from its original path.

Cyclones can have devastating effects on India, especially on the coastal regions that are densely populated and economically important. Some of the effects are:

  • Strong winds: Cyclones can produce winds that can reach up to 300 km/h or more, depending on their category. These winds can uproot trees, and damage buildings, power lines, communication networks, crops and vehicles.
  • Heavy rainfall: Cyclones can bring torrential rainfall that can cause flooding, landslides, soil erosion and crop failure. Excessive rainfall can also contaminate water sources and spread diseases.
  • Storm surge: Storm surge is the abnormal rise in sea level due to the low pressure and strong winds of a cyclone. Storm surge can inundate coastal areas, and destroy houses, infrastructure, fisheries and mangroves. It can also increase the salinity and erosion of coastal soils.
  • Coastal erosion: Cyclones can erode the coastline by removing sand and sediment from the shore. This can alter the shape and size of beaches, islands and estuaries. Coastal erosion can also affect the habitats of marine life and biodiversity.
  • Socio-economic impacts: Cyclones can have severe socio-economic impacts on India, such as loss of lives, livelihoods, assets, infrastructure and services. They can also disrupt trade, tourism, transportation and education.
    • Cyclones can also create humanitarian crises, such as displacement, food insecurity, health issues and psychological trauma.

The way forward for cyclone management in India requires a holistic and integrated approach that involves multiple stakeholders and sectors. Some of the key strategies are:

  • Investing in scientific research and innovation to improve the understanding and prediction of cyclone behaviour and impacts.
  • Developing and implementing effective early warning systems that reach all sections of society, especially the poor and marginalized.
  • Building and maintaining cyclone-resistant infrastructure and facilities that can withstand high wind speeds and storm surges.
  • Promoting community-based disaster risk reduction and management practices that enhance local knowledge and capacities.
  • Supporting livelihood diversification and social protection schemes that reduce the vulnerability and increase the coping ability of the affected populations.
  • Restoring and conserving the natural coastal buffers that protect from cyclones, such as mangroves, wetlands and dunes.
  • Implementing mitigation measures that reduce the greenhouse gas emissions that cause global warming and climate change.

Cyclones are inevitable natural phenomena that cannot be prevented or controlled. However, their adverse impacts can be minimized by adopting a proactive and collaborative approach that balances prevention, preparedness, response and recovery. India has made significant progress in this regard, but there is still scope for improvement and learning from best practices. By doing so, India can ensure that cyclones do not become a barrier to its sustainable development and human well-being.

Must Read:

Classification of cyclones: https://www.iasgyan.in/daily-current-affairs/classification-of-cyclones#:~:text=Cyclone%20Classification,34%20knots%20or%2063%20kph).

Source: https://newsonair.gov.in/News?title=Cyclone-%26%2339%3bBiparjoy%26%2339%3b-in-Arabian-Sea-rapidly-intensifies-into-very-severe-cyclonic-storm&id=462193

FOOD SAFETY INDEX

Context: The Union Health Minister unveiled the fifth State Food Safety Index. The Index is a yearly evaluation released by the Food Safety and Standards Authority of India (FSSAI).

Details

  • The Minister honored the winning states in different categories. Kerala, Punjab, and Tamil Nadu received awards in the Large State category.
    • Goa, Manipur, and Sikkim are in the Small States category.
    • Jammu and Kashmir, Chandigarh, and Delhi secured the awards in the Union Territories category.

Food Safety Index

  • Food safety is a vital aspect of public health and nutrition that ensures the availability of safe and wholesome food for all. In India, the Food Safety and Standards Authority of India (FSSAI) is the apex regulatory body that oversees food safety and quality across the country.
  • To encourage states and union territories (UTs) to improve their performance and work towards establishing a proper food safety ecosystem in their jurisdiction, FSSAI releases the State Food Safety Index (SFSI) annually for each financial year.
  • The SFSI is announced on the occasion of World Food Safety Day, which is observed on the 7th of June every year to raise awareness about the importance of food safety for health and well-being.

The index is developed by FSSAI to measure the performance of states on five significant parameters of food safety. The parameters include:

Human Resources and Institutional Data

  • This parameter measures the availability of human resources like food safety officers, designated officers, adjudicating officers, appellate tribunals, state/district-level steering committees, etc.
  • It assesses the participation of other departments and stakeholders in food safety activities at the state and district levels.

Compliance

  • This parameter measures the coverage of food businesses in licensing and registration, the number of inspections and samples drawn for testing, the promptness and effectiveness in issuing licenses and registrations, the special drives and camps organized, and the pendency of cases and their monitoring.
  • It evaluates the promptness in attending to consumer grievances and the availability of help desk and web portals.

Food Testing – Infrastructure and Surveillance

  • This parameter measures the availability of adequate testing infrastructure with trained manpower in the states/UTs for testing food samples.
  • It examines the availability and effective utilization of mobile food testing labs and the registration and utilization of InFoLNet (Indian Food Laboratories Network), a web-based platform that connects all food testing labs in India.

Training & Capacity Building

  • This parameter focuses on training and capacity building of regulatory staff (designated officers and food safety officers), food handlers, food business operators, street food vendors, etc.
  • It considers the number of training held under FoSTaC (Food Safety Training and Certification), an initiative by FSSAI to provide standardized training modules on various aspects of food safety and hygiene.

Consumer Empowerment

  • This parameter measures the performance of states/UTs in various consumer empowering initiatives of FSSAI like participation in food fortification, Eat Right Campus, BHOG (Blissful Hygienic Offering to God), hygiene rating of restaurants; clean street food hubs, etc.

The SFSI has several benefits for the states/UTs as well as for the consumers. Some of these benefits are:

  • It helps in identifying the strengths and weaknesses of each state/UT in terms of food safety and quality.
  • It provides a roadmap for improvement and prioritization of actions by highlighting the gaps and challenges.
  • It fosters a culture of transparency and accountability by making the performance data public.
  • It enhances consumer confidence and trust in the food supply chain by ensuring compliance with food safety standards.
  • It promotes innovation and best practices by showcasing successful models and initiatives.

The SFSI is a commendable initiative by FSSAI that reflects its commitment to ensuring safe and nutritious food for everyone. However, some challenges need to be addressed to make it more effective and impactful. Some of these challenges are:

  • The lack of uniformity and consistency in data collection and reporting by different states/UTs.
  • The need for more frequent updation and validation of data to capture the dynamic changes in the food safety scenario.
  • The scope for improvement in data quality and reliability by incorporating third-party audits and feedback mechanisms.
  • The need for more awareness and sensitization among stakeholders about the objectives and benefits of SFSI.
  • The need for more collaboration and coordination among different departments, agencies, organizations, etc. involved in food safety.

The way forward for the FSI is to address these challenges and limitations through continuous improvement and innovation. The FSI should also be aligned with the national goals and priorities for food safety, as well as the global standards and benchmarks. The FSI should also be integrated with other initiatives such as Eat Right India, One Nation One Standard, etc., to create a holistic and synergistic approach to food safety in India.

Must Read:

Food Safety and Standards Authority of India (FSSAI): https://www.iasgyan.in/daily-current-affairs/food-safety-and-standards-authority-of-india-fssai

Source: https://newsonair.gov.in/News?title=Union-Health-Minister-Dr-Mansukh-Mandaviya-releases-fifth-State-Food-Safety-Index-in-New-Delhi&id=4

MAHIR

Context: The Government of India has launched a National Mission called “Mission on Advanced and High-Impact Research (MAHIR)”.

Details

  • The power sector is undergoing a rapid transformation with the emergence of new technologies that can enhance efficiency, reliability, and sustainability. To harness these technologies and make India a global leader in power system innovation, the Ministry of Power and the Ministry of New and Renewable Energy have jointly launched a National Mission called “Mission on Advanced and High-Impact Research (MAHIR)”.

MAHIR is a visionary initiative that aims to:

  • Identify and develop emerging technologies in the power sector through indigenous research and development.
  • Facilitate their deployment within and outside the country, creating new opportunities for economic growth and social development.
  • Align with national priorities such as achieving Net Zero emissions, supporting initiatives like Make in India and Start-up India, and contributing to the United Nations’ Sustainable Development Goals (SDGs).
  • The mission will span an initial five-year period from 2023-24 to 2027-28 and will follow the technology life cycle approach from idea to product.

Key objectives that will guide its activities and outcomes:

  • To identify emerging technologies and areas of future relevance for the Global Power Sector and take up indigenous end-to-end development of relevant technologies.
  • To provide a common platform for Power Sector Stakeholders for collective brainstorming, and synergetic technology development and devise pathways for the smooth transfer of technology.
  • To support pilot projects of indigenous technologies (developed especially by Indian startups) and facilitate their commercialization.
  • To leverage foreign alliances and partnerships to accelerate research & development of advanced technologies and to build competencies, capabilities and access to advanced technologies through bilateral or multilateral collaborations, thereby facilitating the exchange of know-how and Technology Transfer.
  • To seed, nurture and scale up scientific and industrial R&D and to create a vibrant & innovative ecosystem in the Power Sector of the country.
  • To make our Nation among the leading countries in Power System related Technologies & Applications development.

Funding

  • MAHIR will be funded by pooling financial resources of the Ministry of Power, Ministry of New and Renewable Energy and various Central Public Sector Enterprises under these ministries.
  • Any additional funding needed will be mobilized from the central government's budgetary resources.

Working Structure

  • MAHIR will operate through a two-tier structure comprising a Technical Scoping Committee and an Apex Committee. The Technical Scoping Committee, led by the Chairperson of the Central Electricity Authority, will:
    • Identify existing and emerging research domains on a global scale.
    • Recommend potential technologies for development, outline research plans, and monitor approved projects.
  • The Apex Committee, chaired by the Union Minister for Power & New and Renewable Energy, will:
    • Deliberate on the technologies and products to be developed.
    • Approve research proposals and consider international collaborations.
  • The mission will invite proposals from companies and organizations worldwide for funding based on quality cum cost-based selection. It will also support pilot projects by Indian start-ups and facilitate their commercialization through Central Public Sector Enterprises. The mission will actively seek international collaborations for knowledge exchange and technology transfer.

MAHIR has initially identified eight areas for research

  • Alternatives to Lithium-Ion storage batteries
  • Modifying electric cookers for Indian cooking methods
  • Green hydrogen for mobility
  • Carbon capture
  • Geothermal energy
  • Solid-state refrigeration
  • Nano-technology for EV batteries
  • Indigenous CRGO technology

MAHIR is a game-changing mission that will create a vibrant and innovative ecosystem in the power sector. It will leverage emerging technologies as the main fuel for future economic growth and make India a manufacturing hub of the world.

Source: https://newsonair.gov.in/News?title=Govt-launching-Mission-on-Advanced-and-High-Impact-Research%2c-MAHIR&id=462147 

ANTARDRIHSTI

Context: To enhance the financial inclusion efforts in India, RBI Governor Shaktikanta Das unveiled a new Financial Inclusion Dashboard “ANTARDRIHSTI” on June 5.

Details

  • The dashboard, which means 'insight' in Hindi, will track and measure various indicators of financial inclusion such as access, usage, quality and impact. It will help identify the regions and segments of the population that are financially excluded and need more attention.
  • The dashboard is currently meant for internal use in the RBI, but it may be made available to other stakeholders in the future. It aims to foster a more inclusive and sustainable financial system in India by providing data-driven insights and evidence-based policymaking.

Financial inclusion

  • Financial inclusion is the process of ensuring access to appropriate financial products and services for all individuals and businesses at an affordable cost and fairly and transparently.
  • It is essential for achieving inclusive and sustainable development, as it empowers people to participate in the economic and social activities of their communities.

Some of the features of financial inclusion are:

  • It covers a wide range of financial services, such as savings, credit, insurance, payments, remittances, pensions, etc.
  • It targets both the demand and supply sides of the financial system, by addressing the needs and preferences of the customers and enhancing the capacity and efficiency of the providers.
  • It adopts a customer-centric approach, by designing products and services that are tailored to the specific needs and circumstances of different segments of the population, such as women, youth, rural dwellers, low-income groups, etc.
  • It promotes financial literacy and consumer protection, by educating the customers about their rights and responsibilities and ensuring that they are treated fairly and transparently by the providers.
  • It leverages technology and innovation, by using digital platforms and channels to reach out to the underserved and unbanked segments of the population and to reduce the cost and risk of service delivery.

Financial inclusion has several significances for the economic and social development of India. Some of them are:

  • It enhances financial stability and resilience, by diversifying the sources of funding and reducing the dependence on informal and unregulated lenders.
  • It fosters economic growth and productivity, by mobilizing savings and facilitating investment in productive sectors and activities.
  • It reduces poverty and inequality, by enabling access to credit and insurance for income-generating activities and consumption smoothing.
  • It improves human capital and social welfare, by supporting education, health, housing, sanitation, etc.
  • It strengthens social cohesion and empowerment, by promoting gender equality, financial autonomy, civic participation, etc.

However, financial inclusion also faces several challenges in India. Some of them are:

  • Low financial literacy and awareness among potential customers, especially in rural areas and among women and marginalized groups.
  • High operational cost and risk for the providers, especially in remote and low-density areas where physical infrastructure and connectivity are poor.
  • Inadequate regulatory framework and supervision for emerging players and products in the financial sector, such as fintech companies, microfinance institutions, digital wallets, etc.
  • Lack of coordination and collaboration among the various stakeholders involved in financial inclusion, such as government agencies, regulators, banks, non-bank financial institutions, civil society organizations, etc.

To address these challenges and promote financial inclusion in India, several steps have been taken by the government and the Reserve Bank of India (RBI). Some of them are:

  • Launching various schemes and initiatives to provide basic banking services to every household in the country, such as Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), etc.
  • Introducing various regulatory measures to encourage banks and non-bank financial institutions to expand their outreach and offer diversified products and services to the underserved segments of the population, such as priority sector lending norms, differential licensing norms for small finance banks and payments banks, a regulatory sandbox for fintech innovations, etc.
  • Supporting various institutional mechanisms to facilitate financial inclusion at the grassroots level, such as self-help groups (SHGs), business correspondents (BCs), microfinance institutions (MFIs), etc.
  • Strengthening financial literacy and consumer protection programs to educate the customers about their rights and responsibilities and to ensure that they are treated fairly and transparently by the providers.

Financial inclusion is a dynamic and evolving process that requires continuous efforts from all stakeholders. The way forward for financial inclusion in India is to:

  • Leveraging digital technologies to expand the reach and quality of financial services, such as mobile banking, biometric identification, and online platforms.
  • Strengthening the role and capacity of financial intermediaries, such as banks, microfinance institutions, self-help groups, and cooperatives, to cater to the diverse needs and preferences of different segments of customers.
  • Enhancing financial education and awareness among potential and existing customers, especially women and rural populations, to increase their financial capability and confidence.
  • Creating an enabling regulatory environment that fosters innovation, competition, and consumer protection in the financial sector, while ensuring compliance with prudential norms and anti-money laundering measures.
  • Building partnerships and collaborations among various stakeholders, such as government agencies, private sector players, civil society organizations, and international donors, to align their efforts and resources towards a common vision of financial inclusion in India.

Financial inclusion is a key enabler for achieving inclusive and sustainable development in India. Providing access to formal financial services for all segments of society can help improve the income and livelihoods of millions of people, reduce inequality and vulnerability, and foster social cohesion and stability.

Source: https://newsonair.gov.in/News?title=RBI-Governor-Shaktikanta-Das-launches-Financial-Inclusion-Dashboard---ANTARDRIHSTI&id=462071 

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