Running With the Baton

It’s been precisely 13 years since the idea of financial inclusion was first introduced in India. Back in April 2005, RBI governor Y.Venugopal Reddy used the term ‘financial inclusion’ in the Annual Policy Statement. 12 years down the line if we take a look at the report card of this concept then there’s a lot that comes with it, because let’s face it, guaranteeing the financial inclusion of every citizen in a country like India is a mammoth task.

The question that arises is one regarding financial inclusion. As Dr. C. Rangarajan the chairman of The Committee on Financial Inclusion defines it, it is the process of ensuring access to financial services along with the required timely and adequate credit for vulnerable groups such as weaker sections and low income groups at an affordable cost. Dr Raghuram Rajan further adds the availability of other financial services such as insurance and equity products in the list.However, the query that follows is one that questions financial inclusion. The answer is quite definite.By bringing low income groups within the perimeter of formal banking sector, financial inclusion protects their financial wealth and other resources in exigent circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the usurious money lenders by facilitating easy access to formal credit.

The country’s primary agenda is economic development and growth with equity. However, it is also one of the prime concerns. Banking services are far-fetched luxuries to someone who sustains on a daily wage and happens to be the only breadwinner in a family of perhaps more than ten people. For such a person, savings are either nil or meagre and any kind of illness, accident, or any other expense of such kind would not only blow away savings but may also force them into borrowing massive amounts, most of which is informal eventually trapping them into the vicious circle of poverty.

Taking a look at the various data sources in order to analyse our improvement, we find that according to NSSO over the period of five decades, there has been an overall improvement in access to formal sources of credit by the rural households. As per census 2011, only 58.7% of households are availing banking services in the country. However, as compared with previous census 2001, availing banking services increased significantly, largely on account of increase in banking services in rural areas CRISIL Inclusix is a one-of-its-kind tool to measure the extent of inclusion in India, right down to each of the 632 districts. Three critical parameters of basic banking services are branch penetration, deposit penetration, and credit penetration, which were combined into one metric. It was launched to assess the status of financial inclusion in India. Th Inclusive score of 40.1 in 2011 may be low, however, there are clear signs of progress as this score has improved from 35.4 in 2009. Deposit penetration was higher and 618 out of 632 districts reported an improvement in their scores during 2009-2011. With Pradhan Mantri Jan Dhan Yojna this issue got fresh attention in 2014. With its RuPay cards, insurance cover of Rs 1 lakh, no frill accounts, basic banking accounts and kisan card 15 million bank accounts were opened on the first day of the scheme and the target is now 75 million.

Looking at the current status of financial inclusion in India, the CRISIL Inclusix Index shows remarkable improvement. There is both overall and region wise improvement. According to Ashu Suyash, Managing Director & CEO, CRISIL Ltd, “Policy measures such as the Pradhan Mantri Jan-Dhan Yojana, and steadfast focus on the unbanked regions have driven India’s financial inclusion agenda over the past 3 years. As many as 336 out of 666 districts have scored ‘Above-average’ on the CRISIL Inclusix index this time.”This time despite rebasing the index and excluding the life insurance dimension, the score shot up to 62.2. Kerala had an CRISIL Inclusix score of 90.9, while Rajasthan for the first time, moved up from ‘below average’ to ‘above average’ and Haryana climbed to a ‘high’ from ‘above average’. The North East also benefited from the Micro-finance Institution.The government is running with the baton at a speed that is only increasing. One bank account per family is still a dream with loads of technological and social hurdles, yet we are sure that our steps are in the right direction.

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