Driving financial inclusion for 2024

India’s journey towards financial inclusion is a testament to the power of innovation and accessibility. The country’s Unified Payments Interface (UPI) system has revolutionised financial transactions, facilitating an extraordinary 13116.5 crore transactions in FY24, amounting to ₹199.9 lakh crore. This surge in digital payments highlights the growing trust and reliance on digital platforms for financial activities across urban and rural areas alike. As we look ahead, the measures outlined in the 2024 budget aim to build on this momentum, ensuring that the benefits of financial inclusion are widespread and sustainable.

The focus is on creating an ecosystem where every individual, regardless of their socio-economic background, has the tools and opportunities to participate fully in the economy. This commitment to financial inclusion is not just about economic growth but about fostering a more equitable and inclusive society.

India’s journey towards financial inclusion is advancing through a series of strategic initiatives outlined in the 2024 budget.

Advancing Financial Inclusion through Digital Innovation

Recent strategic initiatives that are engrained in the budget of 2024, aim at revolutionising financial inclusion and digital development. By expanding access to essential banking services and creating scalable digital applications across various sectors, these efforts aim to enhance economic participation and stimulate innovation. These advancements reflect a commitment to leveraging technology for widespread sectoral growth and development.

• The establishment of over 100 new branches of India Post Payment Bank in the North-Eastern region is a strategic move to bridge the banking gap in remote and underserved areas. This expansion is anticipated to enhance financial inclusion, improve access to banking services, and foster economic participation among isolated communities, thus addressing regional disparities in financial services.
• The development of Digital Public Infrastructure (DPI) applications in areas such as credit, e-commerce, education, health, and urban governance is set to drive productivity gains and create business opportunities. These scalable applications are expected to spur innovation and contribute to a vibrant services sector, reflecting a forward-looking approach to leveraging technology for sectoral advancements.

Strengthening Support for MSMEs and Facilitating Business Growth

The budget of 2024 significantly enhances support for MSMEs and facilitates their growth. These efforts aim to improve financial access, stimulate business expansion, and foster a more inclusive and dynamic economic environment by increasing loan limits, introducing credit guarantee schemes, developing new credit assessment models, reducing turnover thresholds for financing platforms, and expanding branch networks.

• Increasing the Mudra loan limit to ₹20 lakh for successful Tarun category borrowers reflects a commitment to supporting small entrepreneurs and facilitating business expansion. This measure is expected to enable more businesses to scale up their operations, contributing to economic growth and enhancing the support available to burgeoning enterprises.
• The introduction of a credit guarantee scheme for MSMEs aims to facilitate term loans for machinery and equipment purchases without requiring collateral. By providing up to ₹100 crore in guaranteed cover, this initiative is expected to empower MSMEs to expand their operations and contribute to industrial growth, addressing financing barriers and fostering business scalability.
• The development of new credit assessment models by public sector banks for MSMEs, based on digital footprints rather than traditional criteria, represents a shift towards more inclusive financial practices. This approach aims to improve credit access for MSMEs with limited formal accounting systems, thereby boosting entrepreneurial activities and diversifying the business landscape.
• Reducing the turnover threshold for mandatory onboarding on the TReDS platform from ₹500 crore to ₹250 crore aims to unlock additional working capital for MSMEs by converting trade receivables into cash. This adjustment is anticipated to improve liquidity for medium enterprises and increase participation, fostering a more dynamic and accessible business environment.
• SIDBI’s plan to open new branches to serve major MSME clusters, with 24 new branches planned within a year, is designed to extend direct credit access to a larger number of businesses. This expansion will increase financial support coverage to 168 out of 242 major clusters, thereby enhancing service availability and support for MSMEs across key growth areas.

Rural Development through Financial Inclusion

The budget of 2024 introduces substantial measures to enhance rural and tribal development. By allocating significant funds for rural infrastructure and launching targeted programs for tribal communities, these initiatives aim to improve socio-economic conditions, stimulate local economies, and promote inclusive growth.

Allocating ₹2.66 lakh crore for rural development underscores a strong commitment to improving rural infrastructure and quality of life. This investment is poised to stimulate local economies, enhance connectivity, and generate job opportunities, thereby driving overall prosperity and development in rural areas through targeted infrastructure improvements and economic activities.

The launch of the Pradhan Mantri Janjatiya Unnat Gram Abhiyan signifies a significant governmental effort to address the needs of tribal communities by targeting saturation coverage in 63,000 villages, impacting 5 crore individuals. This ambitious program aims to significantly improve socio-economic conditions, driving inclusive growth and development through broad-based intervention strategies.

Conclusion

In conclusion, the multifaceted initiatives outlined represent a robust and strategic approach to addressing key developmental challenges across various sectors. From enhancing financial inclusion and infrastructure in underserved regions to fostering growth and innovation through targeted support for MSMEs and entrepreneurs, these efforts collectively aim to drive inclusive economic development and prosperity. The anticipated impacts of these initiatives underscore a commitment to comprehensive and equitable growth, setting a foundation for long-term progress and resilience across the nation.

This article first appeared in ET Insights on 26 August 2024.