Myriad policy prescriptions and awareness creation have passed. But financial inclusion in India is still a distant dream. I'm doubtful about the viability of idealistic recommendations of experts.
India is large country with densely populated and illiteracy rate is also very high. Due to burden of most unskilled human capital the country need time to be financially developed.
Additionally, the Indian banking sector is yet to come of age and be able to fulfil what is required of it. India still does not have a bank branch in each village, which means a lot of people have to travel far to access banking facilities.
ISSUE: The prospect of economic (financial) inclusivity in India.
INCLUSIVITY: In order for inclusivity to be successful, three things must be present: (i) access to market, (ii) access to resources, and (iii) unbiased regulatory environment. The indication that people do not have equal opportunity in these three elements may be seen through India's current Gini and HDI. See below.
CURRENT STATUS: The Gini for India now stands at 33.9 or ranked number 79th in the world. This is not a bad number; the gap between the rich and poor is much below other countries in the region, i.e. the ASEAN's Gini is in the 40s. in this context, India fairs better in income distribution. However, turning to HDI index, Indian HDI is 0.586 which is quite low considering its technical capability, i.e. nuclear player, English speaking populace, high literacy rate, large economy, etc. Part of the explanation has to do with size that results in uneven development. There remains a gap between urban and rural development. Much of the development is seen through the urban centers of India. The rural still moves slowly forward. Nevertheless, if one looks at India's per capita GDI, India performs well for herself. While earning a nominal GDP of $1,625 per annum per person, that same amount of money when adjusted for purchasing power parity (PPP) can allow an Indian citizen PPP of $5,777. This means that for every dollar earns in India, that dollar earns has a purchasing power of 3.55 times its initial value. This PPP factor is share by all citizens in the economy. To that end, this should be seen as an achievement of one step forward in inclusive growth.
http://www.imf.org/external/pubs/ft/weo/2014/01/
I agree with the obove given comments. India has been progressing at a high growth rate and has a great potential to make progress. But its progress on financial inclusion is slow. India ha s a large population with low income and savings; high poverty rate, high income inequalty and low financial literacy. 60 to 65 percent of the population is with out an account with financial institutions.
Although I’m not familiar with details about India’s financial inclusion, I know the literature on the subject and the experience in Colombia. Based on this, I would imagine that some of the issues here may be applicable to India as well. Financial inclusion of the poor and the poorest requires special financial regulation that promotes social banking, which is something very different from commercial baking focused on microenterprises. I’ll spell this out.
Social banking focuses on helping people to insure against adverse shocks, acquire some capacity to invest (though at a small scale) and save. But social banking requires flexibility in approaching clients and getting paid back, which makes it very costly. That is why traditional banking does not feel attracted to this market, so management of such social financial intermediaries demands community leaders behind who have in mind the social benefits of this activity.
I believe regulation is a critical point. First it needs to be designed with sound microeconomic principles including financial sustainability (hard but possible); Second it needs to be politically negotiated and approved in congress (and no doubt traditional baking will be somewhat touched); Third it needs to be implemented and enforced (implying bureaucracy and fiscal resources). It’s certainly a long road.
Yet economic growth is no guarantee for reducing income inequality and even less expanding financial inclusion. It helps, no doubt, but will not automatically close the income gap, that’s why social policy is required. The point is that social policy is effective (not just words or good will as our colleague Pillai suggests) when is backed by a political agreement sufficiently stable and wealthy enough so as to coherently spend resources on social issues.
Finally the link below could be useful; it tells about lessons from failed experiences in microfinances in Latin America (you may find out at the IDB if there is an English version as it's in Spanish).
http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=35404961
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