Mar 08 2016

Budget 2016 What is in it for Digital and Financial Inclusion?

Budget 2016 What is in it for Digital and Financial Inclusion?

Digital and Financial Inclusion has been a major agenda point for the current government. With initiatives such as the Jan Dhan Yojana, Atal Pension Yojana, Digital India Campaign etc. the government has already taken great strides on this front. But what are the specific points in the Union Budget 2016 with respect to Digital and Financial inclusion? And what more could have been done to further their focus on them? Let us discuss.

The Minister of State for Finance, Shri Jayant Sinha called this budget “Vikas ka Budget” (Budget for development) and the hashtag #VikasKaBudget was used by most government Twitter handles to allude to it. According to Shri Sinha, the main agenda of this Budget is to make every citizen economically secure and help them realize their dreams.

Some of the salient features of Union Budget 2016 (with respect to Financial Inclusion) are

  • To increase the access for the unbanked, the government has announced massive rollout of ATMs and micro ATMs in post offices over the next three years. Postal Bank, which was recently given a payments bank license is also working on interoperability of ATMs with other banks.

  • The government has also promised to give legislative backing to Aadhaar which is the cornerstone for many initiatives the government has taken including the Direct Benefit Transfer (DBT) programme. This move will make sure the benefits and subsidies are delivered effectively reducing the amount of leakages in the system.

  • Rs 38,500 crore has been allocated for the MNREGA

  • A huge chunk of funds (Rs 2.2 Trillion) was allocated for infrastructure development which will have an indirect effect on financial inclusion, especially, the Rs 27,000 crore (including States’ share) to be spent on Pradhan Mantri Gram Sadak Yojana (PMGSY). With better road infrastructure in every nook and corner of the country, the transaction cost of accessing funds for citizens comes down drastically. This will also make sure banks and other financial service providers find it convenient to reach out to unbanked customers.

  • 100% village electrification is also planned to be completed by May 2018.

  • 1500 Multi Skill Training Institutes will be set up under Pradhan Mantri Kaushal Vikas Yojana (PMKVY), thus enabling the youth in the rural areas by training them in various life skills. Also, Higher Education Financing Agency will be set up with an initial capital base of Rs. 1,000 crore to provide educational loans to the deserving.

  • Since its inception, Pradhan Mantri Mudra Yojana has been extremely successful with around with loans worth more than Rs 100000 crore sanctioned. A target of Rs. 1,80,000 crore worth loans was decided to be sanctioned in this financial year. This will help enterprising citizens in rural areas to have access to affordable credit.

  • The government has also planned to automate 3 lakh out of 5.35 lakh fair price shops by March, 2017. This will help the fair price shops to maintain right levels of inventory which will lead to less wastage. It will also help reduce the amount of leakages because of the visibility due to automation.

  • With a deduction of 5% of Non-Banking Financial Company, NBFC’s income for taxation in respect of provisions for bad and doubtful debt, NBFCs will have higher inclination to provide credit thus enabling higher financial inclusion

  • Agriculture and Farmer’s welfare was also a major highlight of this Budget. More than Rs 100000 crore has been allotted to irrigation and allied aspects of farming. To enable fair practices in sale of the produce and to enable digital tracking, a Unified Agricultural E-Marketing platform will be developed. Also, FCI will undertake online procurement of food grains thus bringing transparency in the procurement process.

  • The government also plans to launch a digital literacy mission scheme for rural India to cover around 6 crore additional household in next 3 years which is a welcome initiative

What was missing?

  • A recent report by Standard and Poor indicated that more than 70 percent of Indians lack basic financial literacy which is also a hindrance to the financial inclusion. It would have been beneficial if a special committee on financial skill training was set up along with dedicated funds allocated to it.

  • Cashless transactions are the way forward and a lot has been discussed on how they enable digital and financial inclusion. While there were discussions about bringing tax incentives for cashless transactions, no such announcements were made.Tax breaks to firms in the fintech space would also have mobilized more firms to come up with innovative payment solutions.

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