Context:
The Reserve Bank of India (RBI) recently released the Financial Inclusion Index (FI Index) for the year ended March 2025, reporting a score of 67.0, marking steady progress since the index’s inception in 2021. While the improvement signals broader access to formal financial services, it lacks transparency on regional disparities and sub-index performance, raising concerns about its effectiveness as a policymaking tool.
Key Components of the FI Index
The FI Index is a composite measure that captures the extent of financial inclusion across India using three key parameters:
- Access – Availability of financial services.
- Usage – Actual utilization of those services.
- Quality – Ease, relevance, and consumer protection within the financial ecosystem.
According to RBI, the improvement this year has largely been driven by better usage and quality, rather than new access.
Concerns with the Current FI Index Framework
1. Lack of Disaggregated Data:
- RBI does not disclose sub-index scores (access, usage, quality) separately.
- No state-wise or district-level disaggregation is provided.
- This limits the utility of the index for targeted policy formulation.
2. Spatial Heterogeneity Masked:
- A single all-India score obscures the deep disparities in financial inclusion across states and districts.
- Remote and underserved regions may continue to face financial exclusion, unreflected in the national score.
3. Incomplete Financial Inclusion:
- Account ownership has expanded under schemes like Jan Dhan Yojana, supported by Aadhaar and mobile penetration.
- However, account usage remains weak; many accounts are dormant due to:
- Distance to banking facilities.
- High transaction costs.
- Low financial literacy.
4. Gaps in Insurance and Pension Inclusion:
- Informal sector workers remain largely excluded from insurance and pension coverage.
- Lack of tailored financial products and inadequate trust in digital systems exacerbate underutilization.
Recommendations for Improvement
1. Publish Sub-Index Scores:
- Disclose separate scores for access, usage, and quality.
- Helps policymakers identify which dimension needs intervention (e.g., quality vs. access).
2. Release State-wise and District-level FI Index:
- Enable data-driven, localized financial inclusion strategies.
- Helps financial institutions allocate resources more effectively.
3. Expand Scope Beyond Bank Accounts:
- Promote adoption of credit, insurance, pensions, and digital payments.
- Strengthen customer protection, affordability, and financial literacy.
4. Improve Digital Infrastructure:
- Increase digital acceptance points.
- Ensure secure, privacy-compliant access to financial services, especially in rural and semi-urban areas.
