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Strengthening India’s backbone

business Updated: Sep 23, 2007 23:39 IST
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On September 24, members of the US-India CEO Forum will meet in New York on the sidelines of the Confederation of Indian Industries’ “India@60” event, a week-long tribute to India’s 60th anniversary of independence. Noting the event’s theme — democracy, diversity, demographics and development — it seems only fitting for the Forum to focus on how the private sector can participate, contribute and embed themselves in these four dimensions, and in particular bring finance, opportunities and education to rural India.

With more billionaires than any other Asian nation, a middle-class estimated at 350 million, and an average growth rate of over 9 per cent, most of the world's major corporations factor India into their business plans. Yet far too often the investments they make in India, and the resulting economic development, do not extend beyond India's boom towns.

Rural areas currently are home to 70 per cent of India's population and have historically accounted for more than half of Indian consumption. Even with increasing urbanisation and migration, it is estimated that 63 per cent of India's population will continue to live in rural areas in 2025. In terms of economic output, rural India accounts for almost half (48 percent) of the country's economy, and the rural markets have the potential to reach $500 billion by 2020. Thus, the rural market has been, and will remain, vitally important to the Indian economy. The key, however, is to empower this market by introducing financial services that link rural India to the world economy.

The last few years have witnessed a genuine banking revolution in rural India. According to a recent report, rural and semi-urban centers now account for 66% of total bank branches. But these changes have only scratched the surface. As Finance Minister P. Chidambaram stated last year, about 58 percent of farm households and 70 percent of non- farm households in the countryside still lack access to banking services.

As a corporation with more than a 100-year history in India, we certainly recognize that opportunities within India's urban boundaries remain plentiful, but we believe it is our responsibility to 'give back' and implement initiatives to better the lives of India's rural population.

Challenging the prosperity of rural India, is the unfortunate truth that a large percentage of this population lives in high-risk and unpredictable environments. They are particularly vulnerable to floods, droughts and other natural disasters, which threaten their livelihoods and often deplete what minimal savings, if any, they have. In this context, learning to manage the scarce money that they have is vital. Specifically, the rural population must learn to meet their day-to-day needs, deal with life cycle events and unexpected emergencies, take advantage of opportunities when they present themselves, and plan for the future.

It is critical that rural banking initiatives be linked to education and training programs to achieve a sustainable and inclusive rural banking service. Further, appreciating India's diversity, these training modules must be tailored for different market segments including men and women, young and old, literate and illiterate. This financial literacy will provide rural India with powerful knowledge which can never be taken away from them.

One such example is the Indian School of Microfinance for Women in Ahmedabad, which has served as a beacon of hope in enhancing the capacity of the microfinance sector in India. The school focuses on instructing Indian women in financial planning and its importance, savings, borrowings, spending, investments, and insurance. According to the school's Chairwoman Mrs. Ela R. Bhatt, "The biggest accomplishments in microfinance in the past ten years has been that poor and low income women have led the way, showing that they are the world's best bankers. They build their bank balance through tiny savings from their hard earned money, and, use financial services to build income, assets and raise the quality of life of their family."

Providing rural India with better access to finance, technology and education will reduce inequality, alleviate poverty for hundreds of millions of India's citizens, and add an additional engine of growth to India's prospering economy. In addition, it buffers the volatile, uncertain and irregular income and expenditure patterns traditionally associated with this segment of society. We are deeply committed to facilitating this noble process.

The writer is chairman and CEO, Citigroup Inc.