January 27, 2025
4 mins read
While the Indian economy has grown considerably in the last few decades, financial literacy is one area that needs a lot of improvement. A significant number of people, especially in small towns and villages, are not aware of financial products, like shares and debentures. Besides, not everyone knows how to plan, save, budget, and invest for retirement. Many members of the young workforce are not equipped enough to work in the finance sector. To deal with these challenges, stakeholders expect the Union Budget 2025 to announce several measures because if India wants to become a developed country, its people have to become financially literate.
India faces many hurdles when it comes to financial literacy, which poses a number of societal and economic challenges. For example, a vast number of people in small towns and villages do not understand basic financial products, like shares, bonds, and debentures. As a result, they cannot invest in such products. Besides, a lot of youngsters in such places are not equipped enough to work in the finance sector.
Lack of sufficient knowledge about financial products also prevents a lot of people from planning for their retirement. As life expectancy is increasing in India and a significant number of people are living well beyond their 80s, it is important to plan for a long-retired life.
The Central Government has taken several initiatives through its earlier budgets to promote the cause of financial literacy. Hence, even in the Union Budget 2025, the industry expects Finance Minister Nirmala Sitharaman to continue placing emphasis on financial literacy through a variety of measures.
Why Financial Literacy is a Key Focus Area?
There are two reasons why financial literacy is a key focus area in the upcoming Union Budget 2025. First, without financial literacy, people cannot secure themselves financially for their lifetime. Second, without adequate financial literacy and skills, people cannot be employed in the financial sector. Based on a report published in Firstpost, a Securities and Exchange Board of India’s (SEBI) study revealed worrying insights, as it said that only 27% of India’s population is financially literate.
Role of Union Budget in Shaping Financial Literacy
The Union Budget 2025 can give a boost to financial literacy in India through a number of policy initiatives. For example, it can announce programs that will improve financial literacy in Tier 2 and 3 cities. In such smaller cities, people tend to be less financially literate than their counterparts in Tier 1 cities. In the past, the Union Budgets have placed emphasis on financial inclusion. Continuing that tradition, the Union Budget 2025 could announce broader measures that can help people gain skills regarding budgeting, saving, and navigating the formal financial system.
Expected Budget Allocations[1]
Policy Updates Likely to Impact Financial Literacy
A number of key policy announcements are expected in the Union Budget 2025 to promote the cause of financial literacy. According to a report published in The Economic Times, the industry expects the government to revamp the landscape of financial education in India through edu-fintech partnerships. The report further stated that stakeholders expect Ms. Sitharaman to boost digital financial literacy by announcing tax incentives for those platforms that provide financial education and programs for skill development. As per a report published on the portal of CNBC TV18, industry experts also think that the government should announce measures to promote the creation of financial products for the post-retirement financial security of older people. In addition, the report said that policy measures should educate people that insurance is not just to save tax; instead, it is important for the overall financial safety of a family.
The Central Government has been working hard to promote financial literacy for a while now. For example, while presenting the Union Budget 2023-24, Ms. Sitharaman urged financial sector regulators and organisations to provide age-appropriate reading material to improve the financial literacy of children and adolescents. The Budget 2023 also announced initiatives to promote collaboration with non-governmental organisations (NGOs) to give a boost to financial literacy. Going back further, in Budget 2022, Ms. Sitharaman announced that 75 digital banking units (DBUs) would be set up in India with the objective of spreading digital financial literacy by focusing on customer education on cybersecurity awareness. Based on the earlier budgets, it is expected that the government will continue its focus on digital financial literacy in the Union Budget 2025 as well.
Existing Issues in Financial Literacy
When it comes to financial literacy, the major challenge is the wide gulf between Tier-1 cities and smaller towns. In Tier-1 cities, a much higher number of people are aware of several kinds of financial products, like shares, bonds, bank accounts, debentures, etc. However, in Tier-2 and Tier-3 cities, a significantly lesser number of people are aware of all financial products. Besides, only a few people in smaller towns have access to the formal system of finance, which makes them turn to unorganised sources of finance, which charge exorbitant interest rates.
Industry Expectations to Overcome Hurdles
The government is expected to take measures to bridge the divide between metro cities and small towns with regard to financial literacy. Then, there is another pressing challenge, as a number of young people in India’s workforce are not equipped enough to work in the financial industry. To deal with it, an Economic Times report said that stakeholders expect the budget to announce policy initiatives to encourage collaboration between industry and academia so that the workforce can become financially more literate and is adequately equipped with skills in banking, fintech, and investment management. Further, a CNBC TV 18 report said that industry leaders want the government to make financial literacy a national priority to achieve the aim of “Viksit Bharat” by 2047.
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The stakeholders expect the Budget 2025 to revamp the landscape of financial education through edu-fintech partnerships. They also expect the government to support digital financial literacy by providing tax incentives for platforms that provide financial education.
Budget 2025 can announce measures to make people in Tier 2 & 3 cities more aware of financial products so that they can invest better. It can also announce programs to make youth better skilled to become employable in banking, fintech, and investment management sectors.
The government could make financial sector regulators and organisations work more towards the cause of financial literacy of children and young adults. It can also announce measures to improve the education of people regarding cybersecurity, especially when digital finance has become so popular.
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