Growth, when unevenly spread, dwarfs overall prosperity. History cites a number of instances where inequalities in growth contributed to angst and social unrest. The fruits of economic development must necessarily touch the socially and economically weaker sections of our society. As Pandit Jawaharlal Nehru said: “Democracy means equality, and democracy can only flourish in an equal society.”
Progress must necessarily relate to improving the quality of life of the common man and woman. Only through holistic and inclusive growth can there be sustained consistency in our growth rates. Inclusive and equitable growth, among others, is about solving the paradox of being amongst the world’s top 10 economies in terms of GDP with a large unbanked and underbanked population.
As India moves up the global economic ladder, the imperatives of financial inclusion are well known, and we recognize that the growth has to be equitable and spread out. Several eminent Indian central bankers and other practitioners have advocated many innovative ways in which Indian commercial, cooperative and rural banks can work together, and how they can reorient their strategies to bring in a clearer focus on increasing banking access for the underprivileged. As Usha Thorat, deputy governor of the Reserve Bank of India, aptly commented recently: “There are 93 million mobile users today. The number of mobile phones currently is more than the number of borrowers from the banking system. There is a clear need to increase the outreach and scale up operations at existing outlets.” Many such creative ways have to be thought of, once we ponder over the statistics, which clearly points out that linear growth models may not be sufficient.
When the financial sector reforms were initiated in the 1990s, the banking sector priorities were increasingly aligned to profitability considerations, rather than following the strategy of growing the loan and deposit books. While inclusive practices were never given up, there was a sharper focus on enhancing market share. However, the market penetration today clearly shows we have a long way to go, with only 59% of the adult population having bank accounts. As you unpeel the onion, the situation in the rural sector provides a grim picture—only 39 out of every 100 of the rural population have a bank account. There is also a wide variation across states. While on one hand, 89% of the population in Kerala has a bank account, Bihar is marked by a low coverage of 33%. In the north-eastern states of Nagaland and Manipur, the coverage is a meagre 21% and 27%, respectively. The northern states of Haryana, Chandigarh and Delhi together have a high coverage ratio of 84%.
Also, the number of loan accounts is just 14% of the adult population. Once again the rural sector suffers a greater degree of discrimination
There are global examples that India can benefit from. In the UK, the Financial Inclusion Task Force has identified three priority areas for the purpose of financial inclusion, viz., access to banking, access to affordable credit and access to free face-to-face money advice. Britain has established a £120 million Financial Inclusion Fund to promote financial inclusion and assigned responsibility to banks and credit unions to remove financial exclusion. Basic no-frills bank accounts have been introduced. A Post Office Card Account has been created for those who are unable or unwilling to access a basic bank account.
Financial inclusion and the growing availability of microfinance aims to extricate the poor from dependence on the “moneylender”. However, we have to remember that the bank account is a facilitator, and the microfinance programmes may be solving just half the problem.
The underprivileged don’t just need a transaction platform, or just capital to start that enterprise, they also need the advice to put the debt to use and manage it effectively. More importantly, they also need the forward and backward linkages to the microenterprise they own, or plan to start. The role of financial inclusion will not only be to create these networks, but also to provide funding to ensure sustainability of programmes that enable these networks.
India is a complex country and its potential is inexplicable in mere figures and numbers. In the euphoria about the rising GDP, growth rates and sensex figures, we must not forget the alarming figures of infant mortality, literacy, unemployment and the per capita income of the poorest. A prosperous India can be shaped only by building capacity to deliver at least basic needs to the poorest sections throughout the country. With more than a billion people, of which more than 300 million are still living below the poverty line, and a social fibre meshing multiple religious beliefs, caste and class, it is definitely not an easy task. As India prepares to become an economic superpower, we must expedite socio-economic reforms and take steps to overcome institutional and infrastructure bottlenecks inherent in the system.
Sanjay Nayar is chief executive officer of Citi India