More than four out of 10 adults in India still do not have a bank account — a statistic that tellingly brings home the importance of financial inclusion in India’s development strategy.
The success or otherwise of the direct benefit transfer scheme that promises to deliver cash right in your bank accounts and plug leakages in India’s notoriously leaky subsidy regime will critically depend on how wide we have been able to cast the net of banking access.
In its conventional definition, financial inclusion means making available banking services at an affordable cost to low income, marginalised and disadvantaged groups of people. Any such blueprint, besides covering the rural poor, should also seek to bring within its ambit the large number of poor people in towns and cities who survive on a throbbing informal economy but remain outside any formal banking network.
To be sure, banking penetration in India has improved substantially over the last few decades. From about 8,000 bank branches in 1969 — the year when the government decided to nationalise banks — there are more than 100,000 bank branches in India now. A bank branch, on an average, services close to 16,000 people, jumping by more than a quarter since the beginning of the new millennium. Yet, from a global perspective, India still has a lot of catching up to do. In India, for every 1,00,000 population there are 10.64 bank branches and nine automated teller machines (ATMs) that dispense cash and offer sundry other banking facilities. In Brazil, one of the four pillars of the famous BRIC quartet, the same population is served by 47 branches and by about 120 ATMs. The contrast tells a story on how, and why, Brazil — a country roughly at a similar rung on the development scale as India — has been successfully able to put in place efficient delivery systems for its State-administered welfare schemes. In addition, there exists a wide regional disparity in India as far as financial inclusion is concerned. A latest study by CRISIL — a credit rating and research firm — has shown the southern region leads in financial inclusion, followed by north, east and the North-east. Wide disparities exist across India and within states in terms of access to financial services. India’s six largest cities have 11% of the country’s bank branches, while four districts have only one bank branch each.
Financial inclusion has a direct correlation with overall economic growth — a useful guide in times of a crippling slowdown. As banks were forced to open up branches in remote areas, after their nationalisation in 1969, India’s savings and investment rate rose ste-eply from 13% to 23%. Higher investment feeds into growth and by the early 1980s India was able to put the embarrassing Hindu rate of growth of 3-3.5% well and truly behind. Pressing the accelerator on financial inclusion can possibly yield similar results now, especially when the economy is battling to claw out of a decade-low growth.