Inclusive Growth & Economic Development

Model Answer

Introduction

Financial inclusion aims to provide vulnerable groups, such as low-income households, with access to financial services and credit at affordable rates. The Government of India defines this process as ensuring that these groups can avail themselves of necessary financial services. The Pradhan Mantri Jan-Dhan Yojana (PMJDY) is a significant initiative in this context, having successfully banked over 46.25 crore beneficiaries since its inception.

PMJDY’s Role in Financial Inclusion

PMJDY is crucial for bringing the unbanked into the institutional finance fold through several mechanisms:

1. Universal Banking Access: The scheme aims for every household to have at least one basic banking account, promoting financial literacy and access to credit and insurance. This is facilitated through zero-balance accounts, ensuring that even the poorest can engage with financial institutions.
2. Facilitating Banking Services: The Direct Benefit Transfer (DBT) system allows government subsidies for kerosene, LPG, and fertilizers to be transferred directly to Jan-Dhan accounts, familiarizing beneficiaries with banking services.
3. Enhanced Credit Penetration: The zero-balance account enables previously unbanked individuals to access credit. The Kisan Credit Card scheme further supports farmers with affordable loans, enhancing their financial security.
4. Formalizing the Financial System: PMJDY provides a pathway for the poor to integrate their savings into the formal financial system, reducing reliance on usurious moneylenders.

Challenges and the Path Forward

While PMJDY has made significant strides, challenges remain. A World Bank study highlights that over 43% of bank accounts in India are dormant, indicating low engagement. To prevent accounts from becoming inactive, it is essential to promote financial literacy, ensure effective DBT, and encourage a cashless payment system.

Conclusion

PMJDY is a landmark step towards financial inclusion for the poorer sections of society. However, continued efforts are required to keep these accounts active and ensure that the benefits of financial inclusion are fully realized. A collaborative approach involving the government and civil society will be key to achieving these objectives.

Model Answer

Introduction

Inclusive growth is defined by the OECD as economic growth that benefits all sections of society and creates opportunities for everyone. The UN Brundtland Commission’s report, “Our Common Future” (1987), emphasizes sustainable development as meeting present needs without compromising future generations. This dual focus underscores the relationship between inclusiveness and sustainability in growth strategies.

The Essence of Inclusive Growth

Inclusive growth embodies the principle that when economic growth benefits all segments of the population, it reduces poverty and generates employment without jeopardizing future needs.

1. Long-term Perspective

Inclusive growth policies prioritize access to essential services such as education, healthcare, and housing. These investments lead to long-term gains in societal development and economic stability.

2. Wealth Distribution and Demand Creation

By promoting productive employment rather than merely redistributing income, inclusive growth fosters a wider distribution of wealth. This approach creates domestic demand, driving sustainable economic growth over time. For example, creating jobs in sustainable sectors like textiles and leather, which utilize biodegradable materials, shows a commitment to both inclusiveness and environmental sustainability.

3. Addressing Structural Issues

Inclusive growth tackles fundamental societal and economic problems, laying strong foundations for sustainable transformations. Initiatives like the Jan Dhan Yojana have successfully integrated unbanked populations into the financial system, enhancing savings and investments, which initiates a virtuous economic cycle.

4. Economic Resilience

By promoting inclusiveness, economies become more resilient to shocks, making growth sustainable in the long run. This resilience is crucial for maintaining stability during economic fluctuations.

5. Environmental Sustainability

Inclusive growth policies also aim to protect natural resources. As wealth is distributed more equitably, communities are likely to shift from polluting energy sources to cleaner alternatives, aligning economic activities with environmental sustainability.

Conclusion

Inclusiveness and sustainability are intrinsically linked within the framework of inclusive growth. By ensuring that the benefits of economic progress are shared equitably and that growth respects environmental boundaries, inclusive growth strategies contribute to achieving the Sustainable Development Goals (SDGs). This holistic approach is essential for fostering a resilient, equitable, and sustainable future.