Financial Inclusion In India
Uploaded by abhishek.kr.sharma on Mar 26, 2008
Financial Inclusion
Benefits, Issues and Challenges
Contents
Introduction 3
Financial Inclusion 5
What Financial Inclusion Is All About 5
Why is financial inclusion important? 5
What are the reasons behind financial exclusion 5
Main Drivers of Financial Exclusion 6
Financial Exclusion - The resulting problems 6
Banking in India 7
Financial Inclusion - Issues and Challenges 10
Appendix 11
Hon’ble Union Minister of Finance Union budget speech 2007-08 11
June & July Session: June 15-July 30, 2007-The Oberoi Grand, Kolkata 11
References 18
Introduction
The growth trend of the Indian economy over the last few years appears to indicate the beginning of a new phase of higher growth. From an average growth rate of around 6.0 per cent for a quarter of a century, the growth rate has accelerated to 8.1 per cent over the last few years. The per capita income growth is now 6%. On the savings front, the increasing trend in gross domestic saving as a proportion of GDP witnessed since the early 2000s has also continued unabated. The gross domestic savings rate has improved from 23.6 per cent of GDP in 2001-02 to 29.1 per cent in 2004-05. Along with the improvements in savings and investment rates, there has also been a marked lowering of inflation from 7.8 per cent in the 1990s to 4.7 per cent in recent years. There has also been a resurgence of manufacturing activity. The high industrial growth is also corroborated by the record of very healthy performance of the corporate sector, which has recorded unusually high profit growth over the past three years: over 40 per cent growth in profit after tax for 11 successive quarters from Q3 2002-03 to Q1 2005-06.
There are certain concerns which can be summarized as follows:
• High growth has not been matched by adequate deposit growth. The growth in deposits since 2001-02 has been far lower than that required to support overall credit expansion (Graph 1)
• Banks have been financing much of the incremental credit expansion by unwinding their surplus investments in government securities.
• Deposit growth concentrated in the larger cities (helped by the high corporate profitability)
• Trend: banks may have been proactive in credit deployment but their focus on deposit mobilisation may have been less than adequate.
• Slow deposit growth in non metro areas: possible suffering of financial inclusion
Table 1: Relative Share of Borrowing of Cultivator Households (per cent)
Sources of Credit 1951 1961 1971 1981 1991 2002$
1 2 3 4 5 6 7
Non-institutional 92.7 81.3 68.3 36.8 30.6 38.9
of which:
Money lenders 69.7 49.2 36.1 16.1 17.5...