Paper Title Micro-Macro Potpourri as a means to make India

financially literate
Author Aditya Wadhwa
Affiliation M.Com (2015-17), Department of Commerce,
University of Delhi
Mailing Address P 42 Pratap Nagar, Delhi – 110007
Contact Number +91-9354191808, 9999298950
E-mail Address wadhwa.aditya93@gmail.com

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 Micro-Macro Potpourri as a means to make India financially literate
-Wadhwa, Aditya

Technical Session: Innovations in Financial Practices

Abstract
This paper aims to understand how the micro and macro elements are working hand in hand to make India
financially literate. Currently, India is growing at a rapid speed when it comes to investing the savings out of
the household income into various financial instruments. With the advent of macro policies like demonetisation,
GST and other reforms each and every citizen of India whether a child, an adult or an old age person have
started to talk and think about managing or planning their finances. Also, with policies eyeing on black money,
people are both scared and are becoming financially aware than they were ever before. Lately, people are
reluctant to hold or make payments in cash. The mood of the country is such that managing and planning
finances has touched each and every element, be it micro or macro. Corporates and start-ups are eyeing this as
an opportunity by offering huge benefits on paying via mobile wallets and introducing more such schemes.
Banks along with RBI learning from their mistakes and scams are making sure the NPAs go down and loans are
sanctioned to people/companies/institutes which have enough credit worthiness. SEBI is playing its important
role to involve more and more people investing in share market, mutual funds and other such securities. Media
is now and then discussing and publishing extensively about how the government is performing at the financial
front before the 2019 Lok Sabha elections. For the first time income became a criterion to position itself in the
reservation system. At the micro level, an individual person is also influenced by and interested in how its
counterparts are managing their finances. The iron is hot, striking it hard is both the opportunity and need of the
hour.
Keywords: Micro-Macro elements, Demonetisation, GST, Mutual Funds, Black Money

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Introduction
The Indian economy and its financial marketplace have grown at an immense rate post 1991 industrial policy.
Since then, a lot of new financial products and instruments have emerged for trading, investment and
speculation purpose. The number of financial products offered is unceasing to an extent that it sometimes
creates complexities and confusion in the minds of investors. Such a problem of choices is progressive for the
country if majority of its population is financially literate. But in India, where minority population is confused
with the investment decision, there is a majority which is still untouched by the term ‘finance’ due to lack of
knowledge / interest / resources or ignorance towards personal financial management. A major portion of such
people belongs to rural India which still lacks financial awareness, infrastructure and accessibility. In the recent
years, government along with various institutions such as RBI, SEBI, National centre for financial education,
etc. has devised various schemes and plans to educate the citizens on financial front. Private players have also
understood that to sell their financial products and schemes they need to first educate the investor. Various
mutual fund and insurance companies have set up their systems to educate the investor as a part of their
promotion campaign. In a developing country like India, to eradicate problems at macro level such as poverty,
tax collection, low per capita income, bad loans, fiscal deficit, etc. the vision should be to infuse financial
knowledge and soundness at personal level.
Financial literacy helps to distribute the wealth in proportion and create a balance among the people of the
country. More the people become financially literate, less will be the inequalities of per capita income. In a
developing country like India, financial literacy is one of the most important steps to increase per capita income
which still stands at Rs. 1.13 lacs for FY 18 and to rectify the distribution of wealth. As per Oxfam India,
India’s top 1% bag 73% of the country’s wealth. The balance of per capita income helps in eradicating auxiliary
problems such as improving standard of living and providing financial stability. Financial stability plays a vital
role in economic growth and human development of a country. Financial stability also has an impact on
resolving socio-cultural problems like dowry, female foeticide, etc. and helps to reduce societal problems like
corruption and terrorism since financial stability in a country brings along employment and rationality in the
minds of people.
In India, knowledge of finance is being acquired by the people either in an unsystematic manner through the
mass events like demonetisation, tax reforms, etc. where financial knowledge is inherent as an aftermath or
deliberate efforts are made by government to educate the people. Majority of the people who still lack financial
knowledge live in rural India and are women who till date do not have the right to manage their personal
finances or household finances. They are even unable to develop financial attitude since they are less exposed
to the financial instruments and due to existence of male dominance over household decision making.
All segments of the society require financial literacy in some form or the other. However, a large segment of
our society is financially excluded. Financial literacy programs should primarily focus on the individuals who
are vulnerable to persistent downward financial pressures due to lack of knowledge in the matters relating to
personal finance.
“Antecedent work has concluded that financial literacy is an antecedent to various healthy behaviors” —
Fernandes, Lynch, and Netemeyer [2014]

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Research Methodology

The paper with the help of literary resources such as magazines, journals, economic and financial surveys,
newspapers, business articles and online media has tried to conclude the impact of macro and micro events on
Financial Literacy of the country. The research is empirical and observations and conclusions have been made
on the basis of secondary data available on authenticated websites and government sources through which it
tries to stand by its aims and objectives.

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Literature Review

To begin, Remund [2010] provides a useful definition of financial literacy: “Financial literacy is a measure of
the degree to which one understands key financial concepts and possesses the ability and confidence to manage
personal finances through appropriate short-term decision-making and sound, long-range financial planning,
while mindful of life events and changing economic conditions.”
Organisation for Economic Co-operation and Development (OECD), defines financial literacy as “a
combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound
financial decisions and ultimately achieve individual financial wellbeing.” The definition given by OECD is
used widely by different nations and a lot of research work on Financial Literacy has been conducted taking this
definition as a benchmark. Using this, comparisons can be drawn on the condition of Financial Literacy in India
versus other nations.
Authors Sobhesh Kumar Agarwalla, Samir Barua, Joshy Jacob and Jayanth R Varma conducted a research at
Indian Institute of Management, Ahmedabad on ‘Financial Literacy among Working Young in Urban India’
considering few factors like joint family and consultative decision making which is specific to India. The
research was conducted among 6 cities using a sample of 754 responses and concluded that 24% respondents
possessed high financial knowledge which is relatively low based on the similar surveys conducted by OECD
in 13 countries where average respondents possessing high financial knowledge was more than 40%. One-third
respondents were unable to perform basic calculations and only 19% understood the effect of inflation on rate
of return. The researched showed that financial knowledge increased with the increase in family income of
respondents.
Defining financial knowledge as financial literacy, Lusardi et al (2010) investigated financial literacy among
the young in US using data collected through the National Longitudinal Survey of Youth in 2007-08. The
research questions to which they sought answers to related to readiness of the young students to make sound
financial decisions, determinants of financial literacy among the young and policy initiatives needed to improve
financial literacy. It was found that the level of financial literacy among the young is low. This inference is in
conformity with findings across the world that despite collective efforts to improve financial literacy, it
continues to be inadequate. It was found that the level of financial literacy was notably influenced by socio-
demographic factors and the financial situation and sophistication of the family.
Specifically, significant difference between women and men were found with women showing lower level of
financial literacy. This was consistent with similar conclusion reported in Lusardi and Mitchell (2008), Lusardi
and Tufano (2009), Agnew and Szykman (2005) and studies in other countries such as those by Smith and
Stewart (2009), Lusardi and Mitchell (2007), Van Rooij et al. (2007). This conclusion is in conformity with
conclusion reached by Mandell (2008) among school students and by Lusardi and Mitchell (2007), Lusardi and
Tufano (2009) among other age groups.

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Various events affecting the levels of Financial Literacy

1. Pradhan Mantri Jan Dhan Yojana (PMJDY)

As per the press release of Ministry of Finance, Government of India, total bank accounts opened under
Pradhan Mantri Jan Dhan Yojana (PMJDY) till February 6th, 2019 are approximately 34.26 crores. A
brief statistics on the same is given in the table below:

Bank Type Number of Number of Number of Rural Number of total

Beneficiaries at Beneficiaries at Urban female Beneficiaries
rural/semi-urban Urban metro centre beneficiaries
centre bank bank branches
branches
Public Sector Banks 14.83 12.62 14.45 27.45
Regional Rural Banks 4.83 0.90 3.17 5.74
Private Sector Banks 0.62 0.45 0.57 1.07
Grand Total 20.28 13.97 18.19 34.26

PMJDY is one of the biggest steps in Indian banking history making an entry into Guinness Book of
World Record, which directly included people into the financial system. With the inclusion in financial
system through banking, probability of people getting exposure to the knowledge of banking increases.

2. Postmen to tutor Rural India

As per the latest programme of Indian Post Payment Bank, postmen and gramin dak sewaks have been
given a responsibility to reach out to rural households with smart phones and biometric devices for
opening new bank accounts and to serve as a door to door tutor to teach banking operations to people
living in rural India. The syllabus for training the rural household includes operating bank accounts,
making basic transactions, using mobile banking and transferring money via NEFT, RTGS and IMPS.
Camps will also be put up on regular basis in rural parts. Since, the Indian Post has a wide rural reach,
this idea of tutoring people seems hopeful and promising.

3. New Pension Scheme under the National Pension System

The Government of India has replaced its old pension scheme with new pension scheme. The old
scheme was benefit defined wherein the employer and the Government of India used to make
contribution for the fixed amount of pension that the employee will be receiving as a lump sum or
annuity payments after retirement from the service. Government was planning on behalf of the
employee. But under the new scheme, government has abolished fixed pension of those employees who
joined the government services after January 1, 2004. Now, employees can subscribe to National
Pension Scheme by contributing a fixed amount during his/her working life, withdraw a part of the
corpus in a lumpsum and use the remaining corpus to buy an annuity to secure regular income after
retirement.

Earlier, government was planning retirement income on behalf of the employee but the shift from
compulsory deduction by the government to voluntary contribution by the employee has provided a
setup for the employee to manage his/her finances for which he/she needs to further dig down the
knowledge of finance. The scheme was open for government employees only but now even private
sector employees / businessman / self-employed professionals can opt for this.

4. Goods and Service Tax (GST)

This indirect tax was long awaited in our country and in the current government regime the GST was
successfully implemented in July 2017. With the implementation of GST a majority of sellers and
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 producers in unorganized sector came under the ambit of Indirect Tax which was not the case earlier.
Due to this a lot of people have been affected since they lack financial knowledge which includes
managing taxes. A lot of them protested when GST was implemented but ultimately to run their
businesses they had to learn about GST. So indirectly when a new system comes up it has a spill over
effect on the auxiliary things (financial literacy being one of them). With GST in exercise, items either
got cheaper, unchanged or expensive. A lot of people still lack knowledge regarding what percentage of
GST is chargeable on what items.

5. Income as a benchmark for reservation

Recently in January 2019, Government of India declared 10% reservation in employment and education
for ‘economically weaker sections’ of the society. For the purpose of reservation, Economically Weaker
Sections shall be notified by State from time to time on the basis of annual family income and other
economic indicators. For now at the time of launch until further notice / information, a person is
supposed to fit in this category if he/she fulfils all of the below mentioned criteria:

a. Family income less than Rs 8 lakh per annum

b. Farm land less than that of 5 acres
c. Residential house less than 1,000 sq ft
d. Residential plot below 100 yards in a notified municipality
e. In case of a non-notified municipality area, the residential plot below 200 yards

In the economically dynamic country like ours, to survive in a better way one should have the basic
knowledge of economics and finance. A person might be fitting into EWS category but due to lack of
knowledge might not use this reservation bestowed upon him or there might be case wherein a person
might not be filing income taxes and due to lack of ITR filing he/she may miss the reservation. To take
benefits of policies, programmes and schemes offering economic benefits one should have knowledge
about finance.

Steps taken by Reserve Bank of India (RBI)

1. In 2013, then RBI Deputy Governor K.C. Chakrabarty, released a guide on training people in rural and
remote areas to literate them about banking services and gaining easy access to financial services. The
guide is developed to be used by Branch Managers of rural banks and Lead District Managers in their
monthly financial literacy camps. Its aim is to impart knowledge to enable financial planning and to
instil a habit of saving. It focuses on teaching rural people on how to gain access to financial
information so that they can utilise such information timely to gain control over financial matters. The
people are informed in a lucid manner about importance of loans, savings, making savings with the
bank, how to avoid debt trap and management of their money. The sessions are held after regular
intervals and the progress is measured using follow-ups of previous sessions. Charts, models and other
content related materials are put up in panchayat and other local offices where in people can visit for
revising or learning anything after the camps complete their program.

2. Mandating KYC (Know Your Customer) of accounts with the banks, mobile wallets, de-mat accounts
and any other such platform where there is monetary transaction of INR 10,000 or above. This step
came right after demonetization and is considered a big move towards eliminating black money. A lot of
people got cautious and prudent after this and started planning their finances. A lot of them had to get
their PAN and Aadhar Card made since the government had linked all accounts with the same.

3. Unified Payments Interface (UPI) – Earlier, to transfer money from one bank account to another, details
like account number, IFSC, name, etc. were required and RTGS, NEFT and IMPS were the sought after
payment options. NEFT and RTGS could be done during the banking hours on working days while
IMPS could be done anytime with an additional charge. The process was quite complex and required
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 time. RBI in association with National Payments Corporation of India developed an instant real-time
payments system which was quite easy and fast. Under UPI system, a person who opts for UPI
payments / receipts registers himself / herself just once and gets a unique ID just like an e-mail ID. With
the advent of this feature transferring money at any point of time became quite easy and fast. Majority
of the e-commerce companies added this payment options within a couple of days of its launch and
capitalized on it. A person who would know this feature would save time and efforts by not having to
wait for days to get the cheque cleared or wait for the banks to operate in the banking hours to get
NEFT/RTGS complete. This feature is also helpful in the case of emergencies and urgencies since it can
be done at a click of a button.

Steps taken by Private Players & Non-Governmental Organisations (NGOs)

1. The biggest thing that became quite famous in recent years is mobile wallets. PayTm, an Indian e-
commerce company, got the first mover advantage in its segment and due to its huge offers / cash backs
on paying via mobile wallet on websites, cabs, grocery stores, local shops, movie halls, etc. it spread
rapidly through word of mouth. In urban areas, paytm barcode and stickers could be seen on almost
every shop. Paying indirectly via cards and net banking by adding money into Paytm wallet became a
new trend inculcating a habit of using e-money instead of cash among people. Later on a lot of big
names like google, amazon, etc. entered into mobile wallet segment and this has replaced traditional
cash payments / receipts system to a major extent since even the smallest unit like next door grocery
shop accepts money from these wallets. Each day, millions of new users are registering on mobile
wallets and companies are ensuring to serve more and more users each day.

2. There are not much NGOs in India which are currently focusing on Financial Literacy as a societal
problem. Though there are few which have understood that a large section of our country lacks financial
knowledge and it is a national problem. Sanchanyan, Educare, Sanjeevani and few more NGOs have
taken steps to teach and create awareness about finance among rural and urban population. They have
also tied up with big corporates, companies, factories and small workspaces to teach low income
workers, cleaning, house-keeping and security staff about money management.

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Limitations and Prospects

1. Most of us have generally seen in Indian banks people asking out for help in filling forms or procedures
to make certain transactions since these people lack basic knowledge. Not being able to operate a basic
bank account minimises the advantage of investing so much into opening of bank accounts which
happened under PMJDY.

2. The plan where in services of postmen are being used to train rural India, mass impact should be created
with well-equipped devices and trained postman. Instead of deploying experienced postmen who are in
service since a lot of years or nearing retirement, young postmen should be deployed and result based
incentives should be provided. Also, the training should not be just limited to operating accounts or
making transactions but should also include importance of insurance, investments and retirement plans.

3. For organizing financial literacy camps as recommended by RBI to banks, the programme should ensure
that organizers understand the demographics and cultures of rural crowd in the location where they are
putting up the camps. Educated locals of the particular village or rural area should be made the part of
the training team as locals of the area would be able to better understand the needs and will be able to
deliver the content in an effective manner.

4. Most of the savings of the Indian households is still into bank fixed deposits, government backed
securities or risk free instruments yielding low returns. Though, the investment in other financial
instruments is in a growth stage but the growth is still slow. Financial literacy and awareness will act as
a catalyst to accelerate this growth. A reason why most of the people are still afraid to invest in modern
day financial securities is the fear of frauds, scams and wrongdoings by a lot of people in the financial
infrastructure. Along with adding knowledge to the people, steps should also be taken to infuse ethics
into the system and strict punishment should be given to those involved in the wrongdoings.

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Conclusion and Recommendations

1. Bank accounts under PMJDY got a large chunk of people into the banking system. As the saying goes
‘a bird in hand is better than two in the bush’, the probability of using the banking services increases
once you have an account rather than encouraging people to have one and then use it.

As per an article by ‘The Wire’, approximately 22-28% (ranging from time to time) bank accounts
opened under PMJDY were zero balance and government added Re. 1 in these accounts to reduce the
count of zero balance accounts. Instead, efforts should be made to educate the account holders and
include them under the formal financial system. For this, in all the banks, whether nationalised or
private, customers should be classified into categories depending upon their knowledge of banking
system. Accordingly, training programs should be devised to educate each customer. For instance, a
person knowing about basic services like deposit and withdrawal should be taught how to operate an
ATM/debit card. A dedicated team of personal bankers should administer such programs in each bank.

2. This is the time to upgrade India’s financial literacy model as a sustainable, scalable and viable business
opportunity which would enable the transition from poverty to financial empowerment, while ensuring
profitable business opportunity to all the sections of the society.

3. India is moving from a nation of savers to nation of investors but people are still intrigued by where and
how much to invest without losing their money. Government, RBI and private companies should launch
aggressive financial literacy schemes to capitalize this opportunity by eradicating wrong doers and
misleading people, ensuring transparency and punishing the culprits. To earn easy and more money in
the short term a lot of people resort out to investing / trading in equity shares without having knowledge
of the market by influence of the brokers or experts advising on TV news channels. Still aggressive
disclaimer as to investigating carefully before investing and not to totally depend on the advice of the
expert is not advertised. Sometimes operators and experts play foul by recommending stocks which they
themselves deal in without providing any disclaimer.

4. The shift from government and employers planning about the retirement and other saving options of
their employees to employees needing to do it themselves requires employees to understand and plan
about their finances in a better way. People not only lack financial literacy but sometimes people think
they are financially literate when in reality they are not. Just like there is CIBIL to measure credit
information of people, a scale should be developed to measure financial literacy levels of people in our
country. Based on that scale classifications should be made at certain intervals and financial literacy
schemes and programs should be developed to move the people up on that scale.

5. In India, we do not even have a basic curriculum at senior secondary school level wherein a student who
is already 18 years or will be 18 in a year or two knows how to manage his personal finance and taxes.
Since filing personal income taxes is specific to a person and obligatory (not mandatory if income is nil
or below slab rates), it should be made part of the syllabus in class 11th and 12th irrespective of what
stream whether science / commerce / humanities / arts the student has.

6. Government with the help of NGOs and corporates should make a provision of organizing financial
literacy camps and workshops in companies. Workshops should be conducted based on income levels,
designation and nature of job. The main focus of the workshops should be on employees or workers
with low income since their propensity to consume is more than what employees with high income
have. Government with the help of anaganwadi workers should devise a programme or a regular
monthly camp in all the anganwadis wherein women are taught about basic ways to manage their
money.

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 7. A list of GST percentage on common consumable items should be put up in various government offices,
schools, colleges, ration shops, kendriya bhandar, Mother Dairy and other places wherever possible so
that people could get to know what is the percentage of GST on the items that they are purchasing. In
fact government can make a rule to put up GST percentages on the items that the business is dealing in
upfront in the premises in which the business is operating. To instil a habit of asking for bill among the
citizens government should launch more programmes like Delhi Government launched under which few
winners selected on lucky draw get some prize on submitting the image of the bill to the government.

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References

1. Selected Topics in Financial Research, Aslam, John A.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2515891

2. To measure the levels of Financial literacy among individuals of Delhi, Gupta, Sangeeta
http://shodhganga.inflibnet.ac.in/bitstream/10603/184907/20/20_reprint_of_reserach_paper.pdf.pdf

3. https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/NSFE016072012.pdf

4. https://www.ncfe.org.in/financial-education/financial-literacy

5. https://economictimes.indiatimes.com/industry/banking/finance/banking/government-plans-to-focus-on-
financial-literacy-postmen-to-tutor-rural-india-on-banking-system/articleshow/49512186.cms

6. https://www.businesstoday.in/current/economy-politics/oxfam-india-wealth-report-income-inequality-
richests-poor/story/268541.html

7. https://www.rbi.org.in/scripts/BS_SpeechesView.aspx?id=779

8. https://www.rbi.org.in/financialeducation/content/GUIDE310113_F.pdf

9. Financial Literacy among Working Young in Urban India, Agarwalla, Sobhesh Kumar; Barua, Samir
K.; Jacob, Joshy; Varma ,Jayanth R.
https://faculty.iima.ac.in/~jrvarma/papers/2013-10-02-literacy-working-young.pdf

10. https://www.pmjdy.gov.in/account

11. https://thewire.in/economy/jan-dhan-yojana-one-rupee-balance-dormancy-duplication-problem

12. https://www.thehindubusinessline.com/news/armed-with-smartphones-and-biometric-scanners-the-
postman-leads-india-posts-banking-push/article24786300.ece

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 Autobiography

Scoring more than 90% marks in Class XII made me realise my potential and prepared me to take a journey of an
academician. I went on to complete my graduation in Commerce from Deen Dayal Upadhyaya College,
University of Delhi and wih the aim to pursue research I took admission to Post Graduate course in Commerce
(M.Com). After completion of my post graduation, I joined Deloitte, one of the big four audit firms to have a first
hand experience of the corporate commerce world. I worked there for 16 months.

(Aditya Wadhwa)

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