Impact of Digitization and Demonetization on Financial Inclusion in India

Financial inclusion is defined as “the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular, at an affordable cost in a fair and transparent manner by regulated mainstream institutional players”. This provision of access to banking services to nearly 47 per cent of the reportedly unbanked population in India has the potential to unfold huge growth opportunities for financial services players. By using digital channels, transaction costs could be lower than those incurred through traditional channels by as much as 90 per cent, thereby bringing down break even costs. This is expected to lead to future benefits from lower operating costs, along with increased business volumes, while also driving financial inclusion. It could also give banks an opportunity to spread the costs or investments in technology over a much larger base and increase the utilization of existing technology. Digital India is not only transforming India but also helping to achieve the United Nations Sustainable Development Goals Agenda 2030. There have been 3264 million digital transactions between Nov 2016

Digital India Initiative - This focuses on the provision of infrastructure as a utility to every citizen, • An investment of USD18.4 billion to provide last mile internet connectivity, better access to government services, and development of IT skills • Provision of Wi-Fi services in cities with a population of more than one million, as well as major tourist centres. • Provision of broadband internet access to 250,000 village clusters by 2019 at a cost of about USD5.9 billion. • Availability of „digital lockers‟ to each citizen, allowing them to store all their original identification documents and records. • Development of 100 smart cities in India, for which USD1.2 billion has been allocate. • Universal phone connectivity. • Setting up of 400,000 internet access points Digital inclusion targeting job creation for nearly 1.7 crore people trained in IT, telecom and electronics. • Creation of at least 8.5 crore indirect jobs related to IT. • Focus on moving towards automation in delivery of government services . • Achievement of a leadership position in IT towards betterment of health, education and banking services. • Widened internet access and an enabled use of shareable private space on a public cloud model in order to empower citizens digitally. Aadhar card An Aadhar card provides a 12-digit individual identification number, issued by the Unique Identification Authority of India (UIDAI), to serve as a proof of identity and address. This card is based on biometrics technology. Over 880 million „Aadhar‟ cards have been issued as on 21 July 2015. The programme aims to achieve 100 per cent coverage by 2016. Direct benefits transfer (DBT) The scheme was initiated to facilitate disbursements of government entitlements such as those under the National Rural Employee Guarantee Act (NREGA), social security pension scheme, handicapped old age pension scheme, etc. of any central or state Mobile penetration and Smartphone usage Mobile penetration of around 90 per cent is likely to drive financial literacy as well as inclusion, as players are betting on mobile-based financial services. An increased Smartphone proliferation, projected at 50 per cent by 2020, and falling handsets costs are likely to increase acceptance, better servicing as well as security. National Digital Literacy Mission (NDLM) –This initiated with the vision to make at least one person in every family digitally literate with digital literacy skills by 2020 and provide digital literacy to 6 crore rural households, including Anganwadi and authorized ration dealers across the country. So far, 8.2 million people have been trained to use digital devices and services and further leverage it to improve livelihoods and access e-governance.

On 8 November, 2016 Prime Minister Narendra Modi announced the demonetization of all 500 Rs. and 1000 Rs. bank notes of Mahatma Gandhi Series. This move was implemented as a tool to measure the stock of black money hoarded, and to make India a cashless digital economy. After demonetization, 23.3 million new accounts were opened under Pradhan Mantri Jan Dhan Yojna. Out of which 53.6 % were in urban areas and 46.4 % were in rural areas. Deposits of Public sector banks ( in million) under PMJDY has increased from 203.6 as on November 9, 2016 to 222.9 as on Ist March, 2017. Out of which increase in rural areas are from 114.3 to 122.1 during November 9, 2016 to Ist March, 2017 and increase in urban areas are from 89.3 to 100.8 during November 9, 2016 to Ist March, 2017. Deposits of Regional Rural banks under PMJDY have increased from 43.1 as on November 9, 2016 to 46.4 as on Ist March, 2017. Out of which increase in rural areas are from 37.1 to 40 during November 9, 2016 to Ist March, 2017 and increase in urban areas are from 6 to 6.4 during November 9, 2016 to Ist March, 2017. Likewise, deposits of Private Sector Banks under PMJDY have increased from 8.4 as on November 9, 2016 to 9 as on Ist March, 2017. Out of which increase in rural areas are from 5.3 to 5.4 during November 9, 2016 to Ist March, 2017 and increase in urban areas are from 3.1 to 3.6 during November 9, 2016 to Ist March, 2017. Likewise, deposits of Scheduled Commercial Banks under PMJDY has increased from 255.1 as on November 9, 2016 to 278.4 as on Ist March, 2017. Out of which increase in rural areas are from 156.7 to 5.4 during November 9, 2016 to 167.5 as on Ist March, 2017 and increase in urban areas are from 98.4 to 110.9 during November 9, 2016 to Ist March, 2017. Jan Dhan Accounts contribute 4.6 percent in aggregation of deposits of commercial banks after demonetization.

Source: “Macroeconomic Impact of Demonetization- A Preliminary Assessment”, RBI, 2017. Thus, demonetization, financial inclusion and digitization are positively related and lead to inclusive growth in the economy.

The findings revealed that that the shift from brick and motor business to digital platforms will help provide the services in rural areas, at a low cost, along with increased business volumes and further increases digital financial access to provide high quality, affordable financial services which further lead to financial inclusion and inclusive growth in the economy. Likewise, one of the biggest components of financial inclusion is financial literacy. No matter how many banks you open, if a person does not know about the financial options that are open to him, policies/schemes and financial instruments will mean little. Thus, digital India is giving thrust to affordable devices, internet access and digital literacy. In order to take the benefits of Digital India to every corner of country, a vast network of more than 2.5 lakh Common Services Centers has been created, expanding from 83,000 CSCs in May, 2014. This has developed digital entrepreneurs among poor, marginalized, dalits and women of India. More than 34,000 women are working in these CSCs that provide digital services like ticket booking, telemedicine, and Aadhaar service to people.

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Assistant Professor, Govt. PG College Sector 1, Panchkula