OPINION I The Economic Times

Over the past decade, India has executed one of the world's most ambitious financial inclusion programmes. With over 55 crore bank accounts opened, rapid expansion of digital payments, and deeper access to formal credit and insurance, the financial system has extended its reach across geographies and income segments. This transformation has been widely recognised as a foundational achievement for inclusive growth.

Yet, as policymakers increasingly recognise, access is no longer the binding constraint. The more pressing challenge is whether households have the capability to use financial services effectively in a way that improves long-term welfare.

Evidence from the Financial Maturity Index, based on primary surveys across Gujarat and Rajasthan, suggests that while inclusion has scaled, financial maturity—defined as the ability to make informed, resilient, and forward-looking financial decisions—remains uneven. This gap between access and capability is emerging as a structural constraint on inclusive development.

The Index is grounded in extensive primary fieldwork covering a large and demographically diverse sample of 4,075 respondents across Gujarat and Rajasthan, drawn from a robust sampling frame covering 17 districts and 199 villages and urban blocks. It follows a stratified design across gender, age, earning status, and rural and urban segments. Methodologically, the Index applies rigorous statistical techniques, including standardisation and Principal Component Analysis, to construct a composite measure of financial capability, ensuring that the findings are analytically robust and policy relevant.

The findings point to a clear disconnect. Households are active participants in the financial system, yet many lack a firm understanding of fundamental concepts such as compounding, inflation, and risk diversification. This is not a marginal issue. It shapes real outcomes. It influences borrowing decisions, savings adequacy, and the ability to build assets over time.

At the report launch on April 22nd 2026, Monetary Policy Committee Member Dr Ram Singh observed that India may have achieved near saturation in financial inclusion, but financial awareness continues to act as a binding constraint. This distinction is critical. When households do not fully understand how interest rates, inflation, or risk operate, policy signals, whether monetary or fiscal, are less likely to translate into meaningful behavioural change.

The data supports this concern. A significant proportion of households demonstrate limited understanding of inflation dynamics, resulting in a persistent gap between perceived and actual inflation. This weakens the effectiveness of monetary policy transmission and affects household decisions regarding consumption and savings.

Equally concerning is the weak state of financial resilience. The study finds that fewer than 40 percent of households have emergency savings sufficient to cover three months of expenses, even though more than one third have experienced a major financial shock in recent years. In such situations, households continue to rely heavily on informal coping mechanisms, including borrowing from family networks, liquidating assets, or resorting to high-cost credit.

Findings also emphasised that income and information independently shape financial behaviour. This insight is important for policy design. Even among households with similar income levels, differences in awareness lead to very different financial outcomes. At the same time, some younger and better-educated individuals demonstrate stronger conceptual understanding despite lower income levels. This suggests that financial capability is not purely determined by income. It is also shaped by exposure, education, and access to information.

The study further highlights a strong short-term orientation in household financial behaviour. While more than 85 percent of respondents express a preference for saving over non-essential spending, these intentions do not consistently translate into structured financial planning. Retirement planning remains particularly weak, with most households prioritising immediate financial needs such as education, health, and consumption.

This behaviour is not irrational. It is observed that risk-taking and long-term planning are closely linked to economic capacity. Households with limited income buffers are less able to absorb shocks and therefore rationally prioritise liquidity and security over long-term returns. Financial maturity, in this sense, is both an outcome of economic development and a contributor to it.

Another important insight is the concentration of financial diversification. Meaningful participation in equity or market-linked instruments is largely confined to higher-income households. For the majority, portfolios remain dominated by traditional assets such as bank deposits, gold, and real estate.

From a policy perspective, these findings suggest the need for a fundamental shift.

First, there is a need to move from access-based metrics to capability-based metrics. Account ownership and transaction volumes are no longer sufficient indicators of progress. Policymakers need tools that capture how households actually behave and where capability gaps exist.

Second, financial education must move beyond awareness campaigns. The persistence of financial stress, decision inertia, and low confidence indicates that information alone is not enough. Policies must be designed to address behavioural barriers such as complexity, uncertainty, and lack of trust.

Third, strengthening financial capability must be recognised as essential for macroeconomic policy effectiveness. Without it, the transmission of interest rate changes, inflation expectations, and savings incentives will remain incomplete.

India’s financial inclusion story has been transformative. But inclusion, by itself, is only the first step.

The next phase must focus on building financial capability at scale, ensuring that households are not just connected to the financial system, but are equipped to navigate it effectively and confidently.

Because inclusion opens the system. Financial maturity determines outcomes.