Financial Inclusion in India: Panacea or Mirage to Rural Economic Development

This paper highlights basic features of financial inclusion and its need for social and economic development of society. It particularly focuses on the role of financial inclusion in strengthening India’s rural economy and discusses the role of the Government of India, Reserve Bank of India (RBI), and regional rural banks in facilitating the same. The paper states that even after 60 years of independence, a large section of the Indian population still remains unbanked and out of 199 million households, only 68.2 million households have access to banking services. It suggests that this inability to access financial services has led to generations of financial instability and pauperism among the lower income group. The paper also provides recommendations for improving access to the underserved in the country. Key recommendations include:

• Financial products and services should be promoted through educational institutes;
• RBI should mandate commercial banks to have a certain percent of their portfolio in small loans to be disbursed based on social considerations;
• Government of India should help to develop financial literacy among the population, particularly in low-income families;
• Community-based financial systems like chit funds need to be revived and strengthened;
• Banks should encourage people to access banking services through no frills account, financial inclusion campaigns, and business correspondents.