India makes reform progress one (expert) committee at a time. Committees of differing quality come and go. The better ones propose solutions—some bold, some not so—to tricky issues. Governments of the day wholly ignore the reports or pick and choose an idea or two from them for implementation. Excellent recent committees whose ideas have been partially implemented have been the Kirit Parikh committee to rationalize fuel prices, the Vijay Kelkar Committee on fiscal consolidation and the Justice J. S. Verma committee on updating criminal law for sexual assault against women. Committees that have largely been ignored include the Raghuram Rajan committee (imagine that!) on financial sector reform, and the high-powered committee to make Mumbai an international financial centre.

Internal dissent in a committee is often reflective of the openness and quality of debate in the committee. By that measure, the Nachiket Mor-led committee on Comprehensive Financial services for Small Businesses and Low Income Households is an excellent contribution to the elusive idea of “financial inclusion and deepening". It is a bold report that goes where no previous committee of this type has gone before. But more will need to happen before financial access becomes ubiquitous in our country.

First, the basics of the report. In the Reserve Bank of India’s (RBI) words, the committee, while laying down its vision statement for financial inclusion and deepening, has suggested providing a universal bank account to all Indians above the age of 18 years and has recommended a vertically differentiated banking system with payments banks for deposits and payments and wholesale banks for credit outreach with relaxed entry point norms. It proposes an adjusted 50% priority sector-lending target with adjustments for sectors and regions based on the difficulty in lending. It advocates fewer non-banking financial company (NBFC) categories and substantial regulatory convergence with banks on non-performing assets and the applicability of the The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The committee will allow non-deposit taking NBFCs to become a banking correspondent. It suggests the creation of a state finance regulatory commission in each state that consolidates supervision of all financial non-governmental organizations and money service businesses.

The committee has taken on some sacred cows and completely ignored others.

On the one hand, it boldly proposes universalizing bank access, yet on the other hand, it does not tackle the idea of mobile phone banking. It suggests some very clever new categories of banks, but does not appear to know precisely why customers do not bank with institutions situated at their doorstep (leave alone within a 15 minute distance as suggested in the report). The whole report has been written from the point of view of the supply of services—types of banks, regulatory convergence, and mandatory bank accounts. Little, if any, effort has been made on understanding consumers, figuring out method and access in terms of the last mile. The committee pegs the universal electronic bank account (UEBA) with the expanding footprint of Aadhaar. If RBI does indeed endorse this method of universalization then it should become an active champion of Aadhaar in the parliamentary process that is not yet complete. Otherwise, linking a mandatory UEBA with a voluntary Aadhaar programme will make little sense.

Overall, the biggest failure of the report is that it is addressing financial inclusion solely from the point of view of a financial regulator. Financial inclusion cannot be an isolated financial sector goal. India’s excluded are outside the mainstream, without formal employment, without papers and without access to any real form of insurance. In a society that is divided on the basis of caste, class, level of education and gender, mere supply of services does not ensure equality of opportunity to those services. An equal amount of thought needs to go into the frictional gap between supply and demand. 93% of India’s labour force of approximately 500 million people work outside the formal employment sector. Until there is a material dent in this percentage, it is unlikely that there will be any real financial deepening. Formality of workplace identity—employment, unique identification, basic insurance—must precede formality of wide-spread banking access. Universalizing bank accounts, electronic or otherwise, is an unnecessary, paternalistic and unachievable goal. At the very least it is a misguided priority when we do not have universal sanitation, basic health care and school education. A more practical alternative would be to focus on a framework for rapid inter-operability of banking and mobile phone institutions.

Even this is unlikely to result in universal financial access, but it will greatly improve the chances of expanded access and some financial deepening. Combined with an Aadhaar programme that passes the legislature, it will enable many households and small businesses to be finally counted in the mainstream.

P.S. “No culture can live, if it attempts to be exclusive," said Mahatma Gandhi.

Narayan Ramachandran is chairman, InKlude Labs. Comments are welcome at

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