Bal Samriddhi Yojana - Concept Note

Authors: Eela Dubey (EduFund), Arindam Sengupta (EduFund), Osborne Saldanha
Note dated: Q4 2024

Osborne’s Note: I got into investing purely by luck. The first company I ever evaluated was a payments company, back in 2012/2013 - that was pure serendipity as well. Those two events threw me into the deepest rabit hole I’ve ever been in and continue to be in i.e. the industry of financial services. This journey initiated and strengthened my conviction in financial services as a fundamental right and need for us Indians. Over the years, I’ve seen closely how access to financial products helps communities and people. I’ve now made it my life’s mission to invest in companies that accelerate giving people that fundamental right/need to financial services.

When I took a work break in Oct, 2024, I was unencumbered from any previous obligations and I thought to myself, what’s the highest impact thing I could do to advance this mission which didn’t involve investing in startups - something that would (hopefully) be larger than me or anything I’ve invested in. That’s the germ that set me out down another rabit hole of identifying ways to make societal impact that led to Bal Samriddhi Yojana. The idea is not original in any way. I was inspired by Brad Gerstner of Altimeter who spearheaded something similar in the US.

To implement this in India, I couldn’t think of better partners than Eela and Arindam, founders of EduFund. I was first introduced to Eela and Arindam in 2022/2023 by their then investor Carlos to evaluate investing in their startup. I didn’t end up investing, but we stayed connected over the years and I’ve been a supporter of their work. I reached out to them and without hesitation, they said yes.

Together, we drafted this concept note and worked on potential ways to get government support for this concept. We tried a few ways to get this project going by reaching out to potential advocates within government or with those close to government. I hit a dead end quickly and didn’t know the best way to take this forward. Honestly, I didn’t give this project the attention it deserved - I guess it was part cold start problem, part getting caught up with other projects.

This concept note proposes a universal savings and investment program for every Indian child, one where children, through their parents, participate by default in India’s growth story. The goal: savings that compound over decades, so young Indians enter the workforce with education, skills, and financial stability to contribute confidently to the economy.

The note covers a lot of detail including research findings, global precedents, existing Indian schemes, and a detailed program construct.

I’ve been unable to give this project the attention it deserves for the past year, and I don’t want it to die. So I’m open-sourcing it in hopes that someone else will carry it forward. If that’s you, please reach out at [email protected] - I’m keen to support you with my time, network, and resources.

Summary

The Bal Samriddhi Yojana proposes a savings program for every Indian child, establishing investment accounts at early childhood that grow through regular contributions from parents, employers, and strategic government support. Building on India’s robust digital infrastructure and growing financial markets, the program aims to address low education completion rates, rising education and health costs, low financial literacy, and lack of sufficient financial assets. This initiative will serve as a foundational pillar for improving education completion rates and building financial security among India’s workforce-in-waiting while simultaneously deepening India’s capital markets and supporting the nation’s journey toward a $7 trillion economy.

Overview

India stands out as a bright spot in today’s challenging global economic landscape, driven by robust domestic consumption, young demographic dividend, and ongoing digital transformation. India’s economy remains resilient with projected growth rates exceeding 6% - significantly higher than most developed and emerging economies. Additionally, our rapidly growing digital ecosystem, stable monetary policy, and ongoing infrastructure development create a compelling case for domestic investment, which could help India emerge as an engine of global growth over the next few decades.

Building on our economic potential, the demographic advantage is equally compelling. Currently, about 25% of India’s population i.e. 355 million, is between 0-14 years (ESCAP, 2023), and we are projected to have the largest adult population of any country with more than 50% of population above 25 years of age (Pew Research, 2023). Moreover, India adds approximately 67,000 new births every day (UNICEF).

However, India has been making slow to average progress in participation and completion rates across education levels. For the lower secondary level, India’s completion rate increased from 81% in 2015 to 86%, working towards a national benchmark of 99% by 2025 and 100% by 2030. At the upper secondary level, the completion rate rose from 43% in 2015 to 51%, with targets set at 84% for 2025 and 88% for 2030 (UNESCO, 2024). According to the same 2024 UNESCO report, India needs to accelerate progress to meet these ambitious targets, particularly at the upper secondary level where there is still a significant gap between current rates and the 2025 benchmark.

The ambitious education targets India has set are being challenged by rapidly rising costs across key household expenditure categories. While general inflation hovers around 5.0-5.5%, education inflation has reached concerning levels of 11-12% (CNBC, 2024), with primary education costs rising by over 30% between 2014-2018 (CRISIL, 2024). This trend is particularly evident in higher education, where engineering course fees in major cities have jumped by 70% over the last decade. The impact is notably disproportionate across urban and rural areas - urban households spend 5.78% of their income on education compared to just 3.3% in rural areas (CRISIL, 2024). Moreover, broader inflationary pressures on essential services compound the challenge, with food and beverages seeing a 109.4% price increase between 2012-2024 (MOSPI, 2024), followed by health services at 96.7%, significantly outpacing the overall CPI of 96.8%. This sustained inflation in essential services creates additional pressure on household budgets already stretched by rising education and healthcare costs.

With a gross written premium exceeding $130 billion and new premium added growing 17% from FY2019 to FY2024 (McKinsey, 2024), Insurance penetration in India is 4% of GDP (life is 3%, non-life is 1%), compared to 6.8% global average (IRDAI, 2024). While health insurance penetration has improved modestly from 22% to 27% between 2016 and 2022, about 65% of outpatient department costs are still paid out-of-pocket, directly by patients (McKinsey, 2024). A significant portion of Indians and insurable assets remain uninsured, increasing the risks of high out-of-pocket expenses, adding to overall economic strain, and placing a considerable burden on public finances.

According to ILO’s India Employment Report 2024 (Source), the unemployment rate among educated youths (grade 12 completers and higher level) was merely 18.4% in 2022, exceeding the global average. Given India’s demographic bulge, there is a mismatch between the increasing number of educated young people entering the workforce each year and a lack of work opportunities, which further exacerbates the issue of non-income generating youth entering adulthood.

While multiple factors contribute to India’s lower education completion rates and unemployment at graduation, economic hardship remains one of the most significant yet addressable challenges. Approximately 14.6% of students drop out at the secondary level (USDISE+, 2021) largely due to higher cost of schooling at the secondary level where many households find it difficult to let their children continue education beyond the primary level. According to the Periodic Labour Force Survey (PLFS), during 2020-21 (MOSPI, 2021, Ideas for India), one of the primary reasons, cited by 31% of children, was engagement in work to supplement household income. While 25% reported they stayed away from school to attend to domestic chores, another 18% thought that education was not necessary. This presents a compelling opportunity for a targeted intervention. We could bridge the gap between India’s current completion rates and its ambitious 2025 and 2030 benchmarks, while simultaneously addressing economic inequality and financial stability.

Another US study (Center for Social Development, 2013) on small savings and college education outcomes revealed that 73% of high income (HI) children had savings accounts contrasted with 39% of low-middle-income (LMI) children. Findings from this study indicated the following percentages of LMI children graduate from college: 5% of those with no accounts, 25% of those with school savings of $1 to $499, and 33% of those with school savings of $500 or more.

The financial literacy rate of Indian adults is 27% (NSFE, 2024), which is lower when compared to countries like the United Kingdom (67%), Singapore (59%), and the US (57%). Financial literacy among teenagers is even lower at just 16.7% (News18, 2022). Many teenagers lack basic skills such as budgeting and understanding investments. ~45% do not know how to create a budget, and around 60% lack knowledge about investments and the concept of risk versus reward (News18, 2022). Financial literacy and future stability is also influenced by socio-economic status. Students from families earning over INR 15 lakhs annually showed a more positive financial attitude compared to those from lower-income brackets (IJFMR, 2022). This is unfortunately reflected in the SEBI report from Sept, 2024 which concluded that young investors (less than 30 years) made up a growing share of total stock traders, accounting for 43% in FY24. Of these young investors, nearly 93% incurred higher absolute losses in F&O in FY24 than the average total loss makers in the stock markets.

Today, Indian households play a crucial role in the nation’s savings landscape, contributing approximately 64% to gross national savings - significantly more than both private and public sectors combined (360One Asset, 2024). However, our financial behaviour shows distinct patterns and preferences. The share of physical asset savings grew steadily from 41% in FY21 to 54% in FY23 (Care Ratings, 2024), reflecting a strong cultural preference for tangible assets like real estate and gold. This trend is noteworthy when viewed alongside the decline in financial savings, which dropped to about 29% of total household savings (360One Asset, 2024). This is further compounded by household financial liabilities reaching a post-Global Financial Crisis peak of 5.8% of GDP in FY23, driven by a surge in retail credit. The data signals an urgent need to rebalance household portfolios toward financial assets to ensure long-term wealth creation and financial security (CRISIL, 2024).

Within the financial savings category, Indian households demonstrate risk-averse behaviour, with 56% of our financial assets held in currency and deposits - significantly higher 30% in France and the UK, 20-25% in Australia, Canada, and Brazil, and 13-16% in South Africa, Mexico, and the USA (360One Asset, 2024). Small savings (SS) are an important component of the household portfolio: SS are preferred due to their potential for offering higher returns than bank deposits, along with the perceived added advantages of a sovereign guarantee and tax benefits (360One Asset, 2024).

Recent findings from a report by PMNCH (World Health Organisation) titled Investment Case for Adolescent Health & Wellbeing (WHO, 2024), presents a compelling economic argument for investing in India’s youth, projecting returns of USD 4.6-71.4 for every dollar invested across seven key intervention areas. The report suggests that an annual investment of USD 33 billion could yield returns of USD 476 billion, potentially boosting GDP by 10.1%. The Indian government responded proactively through multiple initiatives, including a comprehensive INR 2 lakh crore package (Ministry of Health and Family Welfare, 2024) in the 2024-25 Union Budget targeting education, skill development, and employment for 41 million youth.

Supporting these initiatives are various national savings schemes and public pension schemes that encourage the population to save for various goals. The success of Jan Dhan Yojana with 80%+ banking penetration and over INR 2.4 lakh crores (PMJDY, 2024) in deposits is well documented. We witnessed a transformative surge in retail investor participation during the 2021-2024 bull market, with the addition of 5 crore unique investors (NSE, 2024) taking the total to 9.2 crore - representing 17% of Indian households (NSE, 2023). Retail investor participation rates grew at a 20% per year from FY13 to FY24 (NSE, 2024). Similarly, the mutual fund industry grew by 18% YoY over the past decade to 5 crore unique investors while total AuM grew at a 19.5% CAGR to INR 67 lakh crore (IIFL Capital, 2024). Despite all this growth, the mutual fund, stock market and insurance participation rates have significant headroom for growth when compared to India’s 110 crore mobile connections, 75 crore PAN numbers and 70 crore bank accounts (IIFL Capital, 2024).

Moreover, small savings schemes continue to dominate household financial assets with growth of 19% CAGR to INR 14.3 lakh crore in gross collections by the National Savings Institute across nine schemes in FY24 (NSI, 2024). The Ministry of Finance also introduced several other schemes including - Atal Pension Yojana, Pradhan Mantri Surksha Bima Yojana, Mudra Yojana and more. However, most schemes are designed for retirement with tax incentives to continue holding assets in these schemes.

Tax breaks on national savings products in India cause households to redirect their existing savings into tax-advantaged products (especially insurance) rather than generate new savings. With only 15-16% of Indian households falling into income tax brackets, these tax incentives have minimal impact on overall national savings and effectively subsidise better-off households who would likely save anyway. (Impact of Tax Breaks on Household Financial Saving in India, 2018). Further there are tax deductions for interest paid on education loans under Section 80E, essentially incentivizing debt highlighting an opportunity to align savings and tax in a way that may contribute to improving household debt levels.

India has witnessed one of the fastest growing SIP (Systematic Investment Plan) books globally, recording about 33% CAGR jump in SIP accounts to 8.4 crore in FY24 compared to 1.5 crore in FY18. Contribution of retail SIPs in total retail AUM rose from 17% to 32% since 2018. Rising penetration of mutual funds in tier 2/3 cities: In MFs, share of top 5 (metro) cities in MF AUM declined from 63% in March 2018 to 53% in March 2024. In the same period, the share of tier 3 cities grew from 8% to 19%.

India’s significant young population with lower education completion rates, lacking skills needed for the workforce and rising costs, may make the future of India as a force to reckon with, less attainable. Creating a policy intervention to lower the burden on public finances for education and health of young Indians could be a game changer. This is an opportunity and responsibility - to educate and economically empower this massive workforce-in-waiting, to fully capitalise on India’s potential as a global superpower.

Proposal

We propose the creation of a policy intervention implementing systematic, monthly contributions from parents and employers to an investment account in the name of the child. The contributions may be invested in an index fund pegging the asset growth to India’s growth. The investment account will have limited withdrawal features until the child turns 18 (or some predefined age) to benefit from compounding. The program leverages the power of compounding and India’s massive potential and growing markets to secure better financial futures for the next generation.

​​Similar to the United States’ 529 program, parents that invest in a similar program in India can stand to benefit from tax deductions. These tax deductions can be structured in such a way that a parent would have to show proof of fee payment to a government authorized school or university.

Inspired by the success of the SIP and starting with a small monthly contribution as low as INR 500, parents could build a strong financial asset for their child that would have appreciated 8x with a return of 27% over 15 years, beating inflation. This will enable them to enter the workforce equipped with a good education, strong skills and enough financial stability to be contributing citizens of India. See investment and return model.

This proposal is in line with the Government of India’s commitment to investing in the future of India’s adolescents and youth, creating the enabling environment and providing them with the necessary resources and opportunities to thrive (MOHFW, 2024; WHO, 2024).

Benefits of implementing the program:

Financial stability: Studies have shown that children with bank accounts and financial assets are more likely to attend college, which can lead to higher education participation rates and subsequent lifetime earnings. This contributes to a more educated workforce, positively impacting economic growth.

Long-term financial success: Financial asset accumulation, not just income, is important for long term financial well-being (US CFPB, 2018). Young adults who had savings accounts as children were more likely to maintain positive relationships with financial institutions and accumulate greater assets over time. They were also found to be twice as likely to have ongoing savings accounts and four times more likely to invest in stocks compared to their peers without early savings experiences (Kansas University, 2013)

Planned spending and stimulating local economies: Investment accounts encourage families to plan for future expenses, such as education and healthcare, leading to more strategic household budgeting and reduced financial stress. When households save, they are more likely to invest in local businesses, contributing to economic activity and job creation within their communities. To has a multiplier effect to GDP growth and is in line with India’s goal of $7trillion GDP by 2030 (GoI, 2024).

Influence on adult saving patterns: A study analysing British panel data found that having savings as a child positively influences the likelihood of saving in adulthood. This early saving behavior establishes a foundation for future financial habits, which can lead to more responsible household expenditure patterns later in life and increased participation in the Indian financial markets (Journal for Banking and Finance, 2016).

Increased financial market participation: Research shows that children with early investment accounts are more likely to develop positive relationships with financial institutions, leading to diversified portfolios and greater asset accumulation as adults. For example, young adults who had savings accounts in childhood are twice as likely to maintain those accounts and four times more likely to invest in stocks compared to their peers without such accounts (Kansas University, 2013). This early exposure to saving and investing cultivates responsible financial behaviors that extend into adulthood, ultimately resulting in increased banking deposits, stock market participation, and insurance coverage. The cumulative effect of these behaviors enhances tax contributions, thereby supporting a robust economy.

Improved benefit-cost ratio: Child investment accounts enhance the already strong benefit-cost-ratio (BCR) identified in the WHO, 2024 report by adding long-term financial returns to health and education investments. While the report shows returns of 9.1 to 28.6 times the investment, these investment accounts could further amplify these returns to support educational and health outcomes.

Health Outcomes: These investment accounts could enhance health outcomes by ensuring families have financial resources to purchase adequate insurance coverage and for preventive care and mental health support. The financial security provided by this financial asset is also associated with reduced stress and better mental health outcomes for both parents and children.

Educational Outcomes: A growing body of research suggests that having even small amounts of savings earmarked for post-secondary education increases a child’s likelihood of attending and completing college. In addition, according to the US Consumer Financial Protection Bureau (CFPB, 2020), research shows that regularly putting money into savings is linked to financial well-being. The proposed investment account could increase education participation and completion numbers by reducing financial barriers to education. Research shows that children with savings accounts are 3-4 times more likely to attend and complete college, amplifying the educational gains projected in the report.

Higher insurance penetration and reduced stress on public finances: With building early financial assets and inculcating better financial habits, insurance penetration could increase while simultaneously reducing the proportion of out-of-pocket healthcare expenses. The government could potentially save about $10 billion annually by implementing this proposal (McKinsey, 2024). It could then redirect these funds to stimulate economic growth.

Global precedents

While there is no direct precedence of the proposed program globally, there are four main models of child savings/investment/contributions programs implemented by various countries.

1. Government-Sponsored Programs

   1. Some countries have initiatives aimed at promoting savings among children & young adults.
   2. Examples:
      1. Canada: The Canada Learning Bond is a government initiative designed to help low-income families save for their children’s post-secondary education.
      2. Singapore: The Baby Bonus Scheme is a two part saving scheme i.e. a Cash Gift and the Child Development Account (CDA). The CDA is a co-savings scheme where the government matches contributions made by parents up to a limit, encouraging savings for children’s education and healthcare. This scheme has a successful 20-year track record.

2. Children’s Savings Accounts (CSAs)

   1. Many countries offer specific savings accounts for children, often with favorable interest rates and tax benefits. These accounts typically require parental oversight until the child reaches a certain age.
   2. Examples:
      1. United States:
         1. The 529 College Savings Plan is a tax-advantaged investment account, supported by the government and managed by private asset management firms, designed to help families save for future education expenses. As of mid-2024, 1.7crore accounts were holding $508bn in assets (various sources)
         2. The Coverdell Education Savings Account (ESA) allows families to save for educational expenses with tax-free growth.
      2. United Kingdom: The Junior ISA (Individual Savings Account) lets parents save up to a certain limit each year, with tax-free interest.

3. Educational Savings Plans

   1. These schemes are specifically tailored for funding education.
   2. Examples:
      1. South Africa: The Tax-Free Savings Account (TFSA) is a tax-free, government savings initiative, used by parents to save for their children’s future expenses, including education. The contributions can be invested up to a limit in money market accounts, fixed deposits, unit trusts, or exchange-traded funds (ETFs).

4. Private Sector Initiatives

   1. In addition to government programs, many banks and financial institutions offer tailored savings products for children.
   2. Examples:
      1. Various banks around the world, including in India, provide special children’s savings accounts that often come with educational resources and incentives for saving.
      2. These schemes not only help families save for future expenses but also instill the importance of financial literacy and responsibility in children from a young age.

Future state

If this program is implemented successfully, we envision the following transformative outcomes for India and its households by [2030]:

Universal Coverage: The program will achieve universal coverage by establishing itself as a fundamental component of child development, comparable to obtaining a birth certificate or passport. The initiative will be integrated into formal sector employment benefits functioning similarly to EPFO contributions. Furthermore, the program will be seamlessly integrated with existing government schemes such as Jan Dhan Yojana to facilitate efficient account creation.

[₹10 trillion] assets under management: This AuM will be achieved through a structured combination of monthly contributions, potential strategic government contributions for low-income families, and employer contributions. This scale of investment would constitute approximately [3%] of India’s projected GDP by [2030], thereby establishing a substantial pool of domestic capital for national development.

Improved financial literacy: Adult financial literacy will increase from the current 27% to 50%, while youth financial literacy will advance from 17% to 40%. These advancements will manifest in quantifiable behavioral changes: account holders will demonstrate comprehension of fundamental investment concepts by age 15, families will maintain consistent monthly contributions, and F&O trading losses among young investors will decrease.

Reduced wealth inequality: The initiative introduces substantial reductions in wealth inequality. Educational metrics will improve significantly, with dropout rates decreasing from 14.6% to below 8%. Higher education enrollment among lower-income segments will increase, while out-of-pocket healthcare expenses will decrease through enhanced insurance coverage. The disparity in urban-rural education spending will be reduced from the current, fostering more equitable access to education opportunities and health services.

Increased financial market participation: Mutual fund and insurance penetration will increase. Systematic Investment Plan accounts will grow, concurrent with a reduction in physical assets as a percentage of household savings. Geographic diversification will improve materially, with Tier 2/3 cities increasing their share of total AUM, while rural participation in financial markets increases.

Economic impact: The program will contribute [0.5-1]% to annual GDP growth through increased domestic investment, generate substantial direct and indirect employment opportunities in the financial services sector, and reduce government expenditure on social security. We will see new financial products specifically designed for young investors.

This future state aligns with India’s macroeconomic objectives, including contributing to achieve a $7 trillion GDP by 2030, while fostering a more financially resilient, educated and skilled workforce. Through this simple intervention, the Bharat ka Siksha Fund will facilitate the development of a more equitable, financially literate, and economically robust India for future generations.

About

EduFund: EduFund is an Indian fintech startup founded in 2020. It is a comprehensive platform to assist parents in planning, saving, and investing for their children’s education. EduFund has worked with over 2 Lakh families, and manages Rs. 600 Cr in education savings for these families. The company is founded by Eela Dubey (CEO - 12 years exp, ex-US Freedom Capital, Quest Partners and others) and Arindam Sengupta (COO - 20years exp, ex-US Freedom Capital, Citadel, Reliance Capital and others). EduFund raised a total of $6M from leading global investors including MassMutual Ventures, DSP Mutual Fund and others.

Osborne Saldanha: Osborne Saldanha is an investor in early stage India technology startups. With 12+ years of investing experience, Osborne has a strong background in fund management, investment sourcing, and portfolio management. He is dedicated to making financial services more accessible, affordable, and transparent through his investments and expertise in technology. In addition to his investment activities, he shares insights on Indian fintech through two newsletters Fintech Inside and This Week in Fintech (Asia) and hosts offline community meetups in India and Southeast Asia.