The country’s monetary policy is, by design, financially inclusive and this strategy will result in policy effectiveness and welfare maximisation going ahead, Reserve Bank of India’s Deputy Governor Michael D Patra said. Speaking at an event organised at Indian Institute of Management (IIM), Ahmedabad, he said monetary policy maximises human welfare by minimising the deviations of output from its potential and inflation from the target.

The evidence is still forming and strong conclusions from its analysis may be premature, but India’s monetary policy is, by design, financially inclusive and it will reap the benefits of this strategy in the future in terms of effectiveness and welfare maximisation, Patra said.

He said the financial inclusion in the country ap- pears to have gone up, with the level of the RBI’s financial-inclusion index (Fl-index) rising from 49.9 in March 2019 to 53.1 in March 2020 and further to 53.9 in March 2021, he said.


The index, which was released in September 2021, takes values from 0 to 100 and implicitly sets the goal for the RBI100 percent financial inclusion for India.

Patra said although it is empirically observed that there is a two-way relationship between monetary policy and financial inclusion, it is unambiguous that financial inclusion is able to dampen inflation and output volatility. This, he said, is achieved by smoothing consumption by enabling people to draw down financial savings in difficult times for everyday needs. In the process, it makes people interest-sensitive.

Moreover, inflation targeting monetary policy ensures that even those at the fringe of financial inclusion are secured from adverse income shocks that hit them when prices rise unconscionably, the deputy governor said.

Looking ahead, as financial inclusion rises even further in India, consumption volatility as a source of output volatility can be expected to wane, providing headroom for monetary policy to remain focused on minimising inflation volatility, which brings welfare gains for all,” he said.