• Sat. Dec 2nd, 2023

India’s digital economy and financial inclusion take a giant leap

While virtually addressing the G20 Digital Economy Ministers’ Meet, last week, Prime Minister Narendra Modi highlighted the scale and pace of India’s digital transformation. Prime Minister Modi noted India’s 850 million internet users who benefit from some of the world’s most affordable data costs. He commended the use of technology to enhance governance, mentioning Aadhaar, a unique digital identity platform that covers over 1.3 billion people and the transformative JAM trinity that has revolutionised financial inclusion. India’s UPI payment system, facilitating nearly 10 billion monthly transactions and processing 45 per cent of global real-time payments, also garnered praise from Prime Minister Modi. The prime minister showcased various digital initiatives including direct benefit transfer (DBT), which has saved over $33 billion by plugging system leakages and the CoWIN portal, a crucial tool during India’s extensive COVID-19 vaccination campaign.

Pradhan Mantri Jan-Dhan Yojana (PMJDY), which is the focus of this piece and is today the world’s largest financial inclusion scheme, was launched on 28 August, 2014, with the motive of ‘Banking the Unbanked’, with 179 million accounts being opened in the first year itself. PMJDY’s objective has been to ensure accessibility to various financial services like availability of basic savings bank account, need based credit, remittance facility, insurance, micro-credit and pension to excluded sections, that is, weaker sections and low-income groups. PMJDY accounts crossed the 500 million mark this August, as in, over 50 crore accounts in the last nine years, with deposits at over a solid Rs 2.03 lakh crore.

Operative accounts as a percentage of the total accounts stood at well over a healthy 81 per cent. Average deposits rose to Rs 4,076 in August 2023, from Rs 3,398 in 2021. The average deposit per account is up significantly from Rs 1,279 in August 2015. The increase in average deposit is an indication of increased usage of accounts. PMJDY has expanded its coverage to over 67 per cent of the rural and semi-urban areas and has over 56 per cent women account holders, in a remarkable example of not only being the world’s largest financial inclusion scheme, but also being gender sensitive. About 55 million PMJDY account holders receive direct benefit transfer (DBT) from the Modi government. Barely less than 8 per cent of the accounts have zero balance.

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The public sector banks are the key drivers for the scheme, holding over Rs 1.55 lakh crore with them as deposits, followed by Regional Rural Banks (RRBs) with Rs 38,832 crore while the private sector banks hold the remaining deposits. Digital transactions have seen an increase with over 340 million RuPay debit cards being issued under PMJDY, installation of point of sale (PoS) machines and introduction of UPI, taking total such transactions to over 72 billion in FY22 from only 9.78 billion in FY17.Total RuPay card transactions at PoS and e-commerce have increased from 282.8 million in FY17 to over 1.51 billion in FY22. Clearly, the digital revolution under the Modi government and financial inclusion via PMJDY, have been feeding off each other in a seamless manner.

The Modi government has given a further fillip to PMJDY, by extending the benefits of its flagship insurance schemes, Prime Minister Jeevan Jyoti Bima Yojana (PMJJBY) and Prime Minister Suraksha Bima Yojana (PMSBY) to PMJDY account holders and thereby improving of these account holders, to micro-credit and micro investment plans such as flexi-recurring deposits.

PMJDY is a national mission on financial inclusion. In addition, the beneficiaries get RuPay Debit card, having in-built accident insurance cover of Rs 2 lakh for accounts opened after August 2018 and Rs 1 lakh cover for those accounts opened prior to that period. Technological issues like poor connectivity and glitches in on-line transactions have been effectively addressed in mobile transactions in the last seven years. In fact, technology has been used befittingly as a big enabler, something that never happened meaningfully, prior to 2014, under successively incompetent Congress regimes. As of the beginning of FY 2022-23, RuPay was accepted in over 200 countries at 42.4 million PoS locations and 1.90 million ATMs. So yes, strong steps are being made by the Modi government to globalise this indigenous payment method.

Former prime minister Rajiv Gandhi had said that in India from the 1980s, out of 100 paise of benefits, only 15 paise reached the true beneficiary. The remaining 85 paise was gobbled up by middlemen and sarkaari babus. Thanks to Prime Minister Modi’s Digital India, 100 per cent of all benefits reach the beneficiary through DBT. Coming back to Jan Dhan, more than 1.48 lakh ‘Bank Mitras’, became a part of PMJDY, to ensure it reached India’s remotest and the poorest. Under PM Garib Kalyan Yojana (PMGKY), a sum of over Rs 30,945 crore was credited into accounts of women PMJDY account holders during the Covid lockdown.

“Banking the Unbanked” pertains to opening of basic savings bank deposit (BSBD) accounts with minimal paperwork, relaxed KYC, e-KYC, account opening in camp mode, zero balance and zero charges. “Securing the Unsecured” pertains to issuance of indigenous debit cards for cash withdrawals and payments at merchant locations.” Funding the Unfunded” pertains to other financial products like micro-insurance, overdraft for consumption, micro-pension and micro-credit. Jan Dhan accounts are online accounts in the core banking system of banks, in place of the earlier method of offline accounts. Interoperability through RuPay debit card or Aadhaar enabled Payment System (AePS) have been force multipliers.

The Modi government decided to extend the comprehensive PMJDY programme beyond 2018, with some modifications. Focus shifted from ‘Every Household’ to ‘Every Unbanked Adult’. Free accidental insurance cover on RuPay cards was increased from Rs 1 lakh to Rs 2 lakh for PMJDY accounts opened after 28 August 2018. The scheme also provides Rs 2 lakh for accidental death and full disability, and Rs 1 lakh for partial disability for a premium of just Rs 12 per annum. Enhancement in overdraft (OD) facilities was enabled with OD limit doubled from Rs 5000 to Rs 10,000 and with OD upto Rs 2000, given without conditions. The upper age limit for OD was also raised from 60 to 65 years.

PMJDY has been the foundation stone for people-centric economic initiatives. Whether it is direct benefit transfers, COVID-19 related financial assistance, PM-KISAN, increased wages under MGNREGA, life and health insurance cover, the first step of all these initiatives is to provide every adult with a bank account, which PMJDY has been doing on a war footing. One in two bank accounts opened between March 2014 and March 2022, was a PMJDY account. Within 10 days of nationwide lockdown, more than 20 crore women PMJDY accounts were credited with ex-gratia. PMJDY provides an avenue to the poor for bringing their savings into the formal financial system, an avenue to remit money to their families in villages besides taking them out of the clutches of the infamous, usurious money lenders. PMJDY has brought the unbanked into the banking system, expanded the financial architecture of India and brought financial inclusion to almost every adult. In today’s post COVID-19 times, we have witnessed the remarkable swiftness and seamlessness with which DBTs have empowered and provided financial security to the vulnerable sections of society.

The Modi government is further strengthening the PMJDY by extending facilities for micro insurance including life and accident cover for all account holders under the scheme. It is working out a roadmap for greater financial inclusion which will focus on doorstep banking, digital financial products and convergence with its flagship pension and insurance schemes.

Financial inclusion is a national priority of the Modi government, as it is an enabler for holistic growth. The journey of PMJDY led interventions undertaken over a short span of nine years have in effect, produced both transformational as well as directional change, thereby making the emerging financial ecosystem, capable of delivering financial services to the last person of the society and the poorest of the poor. The underlying pillars of PMJDY, namely, ‘Banking the Unbanked’, ‘Securing the Unsecured’ and ‘Funding the Unfunded’, have made it possible to adopt a multi-stakeholders’ collaborative approach while leveraging technology for serving the unserved and underserved areas as well. No government in post-Independent India has embraced welfarism within the larger framework of a capitalist order as seamlessly as the Modi government and that speaks volumes about Prime Minister Narendra Modi’s commitment to a socio-economic order that encourages all the three — egalitarianism, free markets and competition.

While virtually addressing the G20 Digital Economy Ministers’ Meet, Prime Minister Modi, last week, also spotlighted the Gati-Shakti platform, utilising technology for infrastructure and logistics mapping, reducing costs and accelerating delivery. He highlighted the government e-Marketplace and open network for digital commerce, platforms that have brought transparency and probity into public procurement and e-commerce. Furthermore, Modi mentioned the development of Bhashini, an AI-powered language translation platform aimed at promoting digital inclusion across India’s diverse linguistic landscape.

Prime Minister Modi also underlined that India’s Digital Public Infrastructure offers scalable, secure, and inclusive solutions for global challenges, with its rich diversity making it an ideal testing ground. He asserted that solutions that succeed in India can be readily applied worldwide.

The prime minister welcomed the creation of a G20 virtual Global Digital Public Infrastructure Repository and underscored the importance of a common framework for digital public infrastructure. He also praised efforts to facilitate cross-country comparisons of digital skills and the establishment of a virtual center of excellence on digital skilling. Recognising the cybersecurity challenges in the expanding digital economy, Prime Minister Modi urged consensus on G20 high-level principles for a secure, trusted and resilient digital economy.

In conclusion, Prime Minister Modi emphasised the promise of technology for inclusive and sustainable development. He encouraged G20 nations to lay the foundations for a prosperous and secure global digital future, advocating for digital technology adoption by farmers and small businesses, the creation of a global digital health ecosystem, and responsible AI use. In effect, India’s significant digital progress and its potential to serve as a testing ground for innovative solutions with global applicability, has been one of the hallmarks of Prime Minister Modi’s tenure.

The Modi government in the last few years weeded out 1.86 crore fake farmers, 2.5 Lakh fake companies, 4.2 crore fake ration cards, 2 crore fake MNREGA cards, 4.11 crore fake LPG connections and 28 lakh fake madrasa students. This entails cumulative savings of Rs 2.73 lakh crore to the nation and this has been made possible due to the effective use of technology, which has bridged the erstwhile digital divide and given financial inclusion a whole new dimension altogether something which is at the heart of Modinomics.

The author is an Economist, National Spokesperson of the BJP and the bestselling Author of ‘The Modi Gambit’. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.

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