Financial Inclusion of Rural Markets: Understanding the Current Indian Framework

Abstract

History bears the testimony to the relationship between development of financial markets and economic growth, thus leading to the reduction of poverty on a larger scale. It has become more so crucial for economies like India because the lack of it inevitably prevents people from gaining access to available resources and thus pushes them to an inescapable cycle of poverty. Secondly, access to adequate financing for small, medium and even micro sized enterprises is essential for an economy considering the reach and numbers such markets offer. Also, these enterprises while working closely with the roots are better equipped to reduce poverty in the region through the better inclusion factor. Finally, financial inclusion comes as an omen, a sign for better future and seamless social inclusion because a population that identifies itself best with the rest of the society contributes more positively towards economic progress. Many banks, such as Union Bank of India, Yes Bank etc. have started several programs specially targeted towards rural people in India. But unfortunately, financial systems in India till date have not seen enough in uplifting the lives of the bottom of the pyramid masses because providing basic financial services such as bank accounts, credit, and insurance have a higher cost for those people. Thus a gap is created that inhibits broad based economic growth and helps to perpetuate inequality through the system. The proposed paper attempts to address this gap and also to develop a framework of financial inclusion well within the propositions of the current Union Budget which is expected to work for the Indian scenario. It also tries to hit on several flaws in the current mass debt waiver policy for farmers announced in the Union Budget and its implications. Within such policy frameworks, the paper is an attempt to weave an argument starting from the mismatch of credit and deposit growth of banks, steps taken by the Reserve Bank of India, role of IT as an enabling agent, role of government, future challenges and how all this has shaped the present degree of inclusion in India.