Inclusive financial systems

Abstract

India is one of the fastest growing economies in the world.Error! Bookmark not defined. According to IMF, India's nominal GDP is US$ $1.843 trillion for the year 2011 making it as the tenthlargest economy in the world.i At US$4.469 trillion, it is the third largest economy in the world in terms of purchasing power parity (PPP).i India has the world's second largest labour force with about 70% of population dependent on agriculture and its allied sectorsii. India’s service sector makes up to 54% of the GDP, agricultural sector 28%, and industrial sector 18%.iii With Agriculture losing its momentum after mid 1990s, despite an impressive economic growth there was much not much increase in jobs in the organized sector. India continues to face the challenges of growth with equity, corruption, poverty, illiteracy, and inadequate public health.iv According to World Bank’s international poverty line, India has the largest concentration of population living below US $1.25 per day. In India, far too many people still lack access to basic services like education, sanitation, health and financial systems. In a recent report released by The Prime Minister, Dr. Manmohan Singh defined the pillars of inclusion “Through a combination of offering entitlement, ensuring empowerment and stepping up public investment, our (UPA) Government has sought to make the growth process more inclusive.” India has had a long history of engaging diverse section of Indian population mainly poor and un-banked with its financial sector since independence to have an economic growth with equity. The same theme is continued and even included in the 11th Five year plan (2007-2012) “Towards Faster and More Inclusive Growth”. Since the early 2000s, the term "financial inclusion" has gained importance as a result of findings about financial exclusion and its direct correlation to poverty. Financial inclusion is now a common objective for many central banks among the developing nations.v According to Dr. George Mavrotas, the Chief Economist of the Global Development Network (GDN), financial development is important for increasing the efficiency in financial sector which is vital for pro-poor growth. It enhances mobilisation of domestic resources especially in rural areas for the most productive uses. Many researches showed that financial development is correlated to economic growth in a positive way.