Nearly half of farmer households in India do not have access to credit either from the banks or other non-banking sources, said the Reserve Bank of India deputy governor Dr. K.C.Chakrabarty, speaking at a conference held recently in Chennai, India and focused on the theme ‘Banking: Key Driver for Inclusive Growth’. In his address, Dr. Chakrabarty pointed out that as per figures published by the National Sample Survey Organization (NSSO) in 2008, 45.9 million farmer households out of a total of 89.3 million households do not have access to credit either from the institutional or non-institutional sources and that as of NSSO’s 2007 figures, a single branch caters to the banking needs of a population of about 16,000 [2]. He also pointed out that for every 100 persons, there are only 17 credit accounts and 54 saving accounts with all institutions put together. Commenting on the sources of loans, Dr. Chakrabarty added that of the people having annual income less than Rs.50,000 (USD 1100), only 28.3 percent had bank accounts, with just 13 per cent availing loans from the banks and 53 per cent people still taking loans from the institutional and non-institutional sources only for emergency purposes. He pressed that the above facts underscore the ‘urgent need’ for extending the banking and financial services to every part of the country for achieving the objective of inclusive growth and that the recent focus of the RBI has been on providing access to affordable banking services to every person.
Though the Indian economy achieved high growth during 2003-04 to 2007-08, it could not bring down unemployment and poverty to tolerable levels, he noted. The latest seventh survey by the NSSO reveals that the growth rate of employment increased from an annual 0.98 percent in the period 1993-94 to 1999-00 to 2.89 percent in the period 1999-2000 to 2004-05 [2]. Also, the poverty ratio has been declining during the recent period, down from 36 percent in 1993-94, but it still continues to remain at a very high level of 27.5 percent in 2004-05. Stressing on the need for inclusive growth by encompassing the hitherto excluded population, Dr. Chakrabarty stated that the concept of ‘inclusion’ should be seen as a process of including the excluded as agents whose participation is essential in the very design of the development process, and not simply as ‘welfare targets of development programs’.
Focusing on the country’s microfinance sector, Dr. Chakrabarty said that ‘since micro finance has been accepted as the main vehicle to address the issue of lending to small borrowers dispersed over vast expenses of geographical areas involving high transaction costs and also as a business opportunity, it would be worthwhile to devote some time to this’ [1]. Currently, Indian Small-scale industries (SSI) have a share of over 40 percent of the gross industrial value added in the economy. About 44 percent of the total manufactured exports of the country are directly accounted for by the SSI sector. In terms of employment generation, this sector is next to the agriculture sector, employing approximately 29.5 million people [1].
Several constraining factors of inclusive growth in India were also discussed by Dr. Chakrabarty, including the high operational cost for serving remote areas, the small size of loans, the languages and modes of communication and the idea of proving loans based on just credit flows and not basing on anything else. Dr. Chakrabarty mentioned that with the arrival of technology and Governmental developmental programs in India, realization that the poor are bankable with good business prospects and extending the banking services to everyone in the country will be the key driver to economic development in India.
With a doctorate in statistics, Dr. Chakrabarty started his career in teaching and research at the Benaras Hindu University and later went on to have a long career of 26 years at the Bank of Baroda in India at various capacities. He was posted as Chief Executive overseeing the bank’s United Kingdom operations between 2001 and 2004 before being elevated as Executive Director of the Punjab National Bank in 2004. He held the posts of Chairman and Managing Director of Indian Bank and Punjab National Bank and Chairman of the Indian Banks’ Association before taking charge as Deputy Governor in the Reserve Bank of India [3].
The Reserve Bank of India is the central bank of India, and was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Though originally privately owned, the RBI has been fully owned by the Government of India since nationalization in 1949. Its main objectives are to regulate and supervise the financial system, manage exchange control, issue currency and cater to the banking needs of the Government and other banks in the country [3].
By Bharathi Ram, Research Assistant
Bibliography:
[1] The Reserve Bank of India, Speech by Dr. Chakrabarty, http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=432
[2] Government of India, Ministry of Statistics and Program Implementation, http://www.mospi.gov.in/mospi_nsso_rept_pubn.htm
[3] The Reserve Bank of India, http://www.rbi.org.in/
[4] Bank of Baroda, www.bankofbaroda.com/
Similar Posts:
- MICROFINANCE EVENT: Sa-Dhan National Conference on Inclusive Growth; November 8-9, 2023; New Delhi, India
- MICROFINANCE EVENT: Sa-Dhan Conference on Financial Inclusion; November 14-15, 2022; New Delhi, India
- MICROFINANCE PAPER WRAP-UP: “Microfinance in India: Issues, Challenges and Opportunities;” by Mohammad Abu Saleh, Zubair Ahmad
- MICROFINANCE EVENT: 19th Inclusive Finance India Summit; January 17-18, 2023; New Delhi, India
- MICROCAPITAL BRIEF: Abler Nordic Sells Equity Stake in Satin Creditcare, Provider of Microfinance to Low-income Women in India
