Deepak Mohanty: Economic and financial developments in Mizoram
Speech by Mr Deepak Mohanty, Executive Director of the Reserve Bank of India, at the
Aizawl Club, Mizoram, 19 December 2013.
* * *
The assistance provided by P.K. Nayak, S. Suraj and S. Nath is acknowledged.
I am happy to be in this picturesque state of Mizoram, the land of rolling hills, valleys, rivers
and lakes. The state has a strategic location as it shares much of its border with Bangladesh
and Myanmar. It covers 0.6 per cent of the national geographic area and accounts for 0.1 per
cent of national population. With second highest literacy rate in the country, the state has
great potential for economic development.
Access to finance is an important prerequisite for economic development. In the recent years
the Reserve Bank of India (RBI) has pursued the objective of financial inclusion with renewed
vigour. Some progress has been achieved but there are miles to go. Governor Dr. Raghuram
G. Rajan has emphasised financial inclusion as one of the five pillars of the RBI's financial
development plank : "... to expand access to finance to small and medium enterprises, the
unorganised sector, the poor, and remote and underserved areas of the country, though
technology, new business practices and new organisational structure."1 Financial inclusion
poses additional challenges in the north-eastern states given the relatively low level of
banking penetration and inadequate infrastructure. Against this background, I briefly
delineate the economic and financial structure of the state, highlight our financial inclusion
initiatives and conclude with some thoughts on policy challenges on the way forward.
Economic structure
India experienced accelerated GDP growth rate in the 2000s. Obviously, this growth
experience was shared by many states. In line with the national economy, Mizoram also
experienced pick up in its growth. Even as the growth momentum at the national level was
dented following the onset of global financial crisis in 2007-08, the performance of Mizoram's
economy was better even in the post-crisis period. Consequently, the share of Mizoram's
gross state domestic product (GSDP) in the all-India GDP rose from 0.08 per cent in
2006-07 to 0.10 per cent during 2011-12 (Chart 1).
All the three major sectors of the economy - agriculture, industry and services - contributed
to the improved growth performance of the state. There was, however, significant
year-toyear fluctuation in sectoral growth rates. While variation in agricultural growth is
understandable being weather dependent, volatility in industrial growth needs closer
attention, given the low industrial base of the state (Chart 2).
The sectoral composition of the Mizoram economy has broadly changed in line with the
national economy with declining share of agriculture and increasing share of services. While
the share of industry has picked up, it remains significantly below the national average
underscoring the scope for further industrialisation (Chart 3).
The most significant impact of growth has been improvement of per capita net state domestic
product (NSDP) from ₹26,308 in 2006-07 to ₹39,546 in 2011-12 at 2004-05 prices, despite
a larger decadal population growth rate of 22.8 per cent, which is higher than the rate of
growth at 17.6 per cent at the national level. Notably, per capita income of Mizoram was
about 4.0 per cent higher than the corresponding average national per capita income during
2011-12 (Chart 4).
It is worthwhile to note that while the economy of Mizoram, in line with the national trend, is
getting increasingly dominated by industry and services sectors, labour force is still
concentrated in the agricultural sector (Table 1). Therefore, creating employment
opportunities in the manufacturing and services sectors has become important.
Table 1
Share of employment by broad industry group
A higher proportion of working age (ages 15-59) population in rural Mizoram as compared to
rural India provides a favourable condition for growth (Chart 5). But for this to happen,
industry and services sectors should increasingly provide the employment opportunity.
Social indicators
With greater urbanisation and higher literacy, indicators of human development in Mizoram
are better than the national average (Chart 6).
Share of households having access to the basic amenities like electricity, television,
computers, telephones and four wheelers are significantly higher in Mizoram than the
national average (Table 2). On the other hand, proportion of population having access to
banking facilities, although improved during the decade 2001-2011, was below the national
level. This is a policy challenge in the context of development with increasing emphasis on
financial inclusion.
Table 2
Standards of life indicators: Mizoram and India
State finances
Mizoram is one of the 11 special category states which are characterised by low resource
base and the cost disabilities due to their geography, sparse terrain and remoteness. In order
to overcome these inadequacies, the Centre accords special consideration in devolving
resources from the central pool.
The revenue account of Mizoram showed significant improvement following a rule-based
fiscal policy under Mizoram FRBM Act 2006. However, the correction in revenue account
was largely on account of higher transfers from the Centre, since own tax revenue continued
to remain around 2.3 per cent of GSDP. From the perspective of growth and employment, a
key concern is the decline in capital outlay in terms of GSDP (Table 3).
Table 3
Fiscal position of Mizoram
Banking developments
The banking sector penetration in Mizoram may be seen in the context of its special
characteristics of difficult terrain and economic structure. Agriculture is characterised by hill
and mountain cultivation and industry is dominated by micro and small units. The population
per bank branch in Mizoram declined from 11,400 in June 2001 to 9,100 by June 2013 and
thus was much lower than the all-India average of 11,800 (Chart 7) reflecting better coverage
of banking services.
However, Credit-Deposit (C-D) ratio remained significantly lower than the all-India average
(Chart 8). Moreover, C-D ratio in Mizoram has declined in the more recent years. It could
partly be that deposits have grown faster.
The annual deposit growth rate of Mizoram was significantly higher than the national
average. However, the credit growth rate has fallen short of the national average after
2007-08 (Chart 9). This underscores the need for a deeper analysis of credit information: Is
it lack of demand or lack of supply which is constraining credit flow?
The lower credit flow is also mirrored by credit to GDP ratio which is another measure of
financial deepening. The credit-GSDP ratio in Mizoram has improved more modestly from
13.7 per cent in 2004-05 to 18.7 per cent in 2011-12, as compared to the increase from
39.0 per cent to 57.3 per cent at the national level (Chart 10).
Financial inclusion
The Reserve Bank is committed to Financial Inclusion (FI) so that the banking services touch
every section of our society. It is imperative to bring the poor and under-privileged section of
population under the banking fold for inclusive growth and development. In this regard, the
Reserve Bank has adopted a structured approach towards financial inclusion predominantly
through a bank-led model by leveraging appropriate technology, changing the mode of
delivery and increasing financial literacy. In this context, I may highlight four key elements.
First, ensuring branch expansion in the rural areas by giving full freedom to the banks to
open branches in villages. In fact, recently the branch authorisation policy has been fully
liberalised subject to banks opening at least 25 per cent of their branches in the rural areas.
In addition, the Reserve Bank has enabled commercial banks to operate through their
Business Correspondents (BCs) thus taking banking to the door step in the rural areas.
Second, for providing universal coverage and facilitating Direct Benefit Transfer (DBT) by
leveraging Aadhar identification, banks have been advised to draw up their Financial
Inclusion Plans (FIPs) for the period 2013-16 with greater emphasis on opening of branches
in unbanked rural centres.
Third, provision of suitable financial products aimed towards the vulnerable section of
population such as no-frill account, credit through General Credit Card (GCC) and Kisan
Credit Card (KCC). Moreover, Know Your Customer (KYC) norm required for opening of a
bank account has been relaxed especially for rural and under-privileged population.
Finally, efforts are made towards spread of financial literacy including internet based
curriculum for financial literacy in schools and organising financial literacy camps.
In this direction, banks have covered all the unbanked villages with population over 2,000.
The second phase of this movement aims to achieve the target of financial inclusion in about
4,90,000 villages with population less than 2,000. The identified villages have been allotted
to various banks to ensure availability of at least one banking outlet in each village. The
detailed achievement in the recent financial inclusion drive is summarised in Table 4.
Table 4
Progress made under financial inclusion plans
Progress of financial inclusion in Mizoram
Keeping in mind the topographic challenges and locational disadvantages for the
development of extensive banking outreach, banks have been advised to adopt special
measures for FI in the north-eastern region of India. Since December 2009, the domestic
scheduled commercial banks in the country, excluding RRBs, were permitted to open branch
in any location in the region without taking permission from the Reserve Bank. Let me now
turn specifically to progress of financial inclusion in Mizoram.
As a part of the Financial Inclusion Plan (FIP) adopted in Mizoram, all the unbanked villages
in the state with population of 2,000 or more have been covered by banking facility by
endMarch 2012. Another 700 villages having population below 2,000 have already been
identified. Out of these villages, 106 have been proposed to be covered through brick and
mortar model while rest would be covered through Business Correspondence (BC) model.
As at end-September 2013, there were 2, 27,812 Basic Saving Bank Deposit Accounts
(BSBDAs) in Mizoram, while another 10,777 such accounts with overdraft facilities are
targeted to be opened during the year 2013-14. In addition, 11,642 KCC and GCC are
targeted to be provided to the households during 2013-14. Out of the 8 districts in the State,
so far 5 financial literacy centres (FLCs) have been opened. As of end-September 2013
cumulatively 3,063 Self Help Groups (SHGs) were credit-linked and have been provided with
total credit of ₹1,650 lakh.
Policy challenges
Mizoram economy has performed well in the recent years. However, keeping in view the
young population and high literacy and strategic location, there is considerable scope for
growth and development. Let me conclude by drawing attention to a few challenges.
First, the dominant feature of the hill and mountain farming in Mizoram is sloping marginal
farmlands under rain-fed farming. Subsistence farming on these lands is pervasive.
Expansion of land for cultivation in an environmentally sustainable manner may be limited.
The emphasis in agriculture, therefore, may shift towards high value added horticulture for
which there is tremendous potential. This will also require greater penetration of credit in
agriculture.
Second, industrial development in Mizoram started late in the 1990s, mainly after attaining
statehood. The industrial landscape is dominated by micro and small industries. There is a
need to reinforce this process by facilitating access to markets and formal credit.
Third, weak market linkages with the rest of India coupled with lack of good quality road and
absence of railway network inhibits the effective marketing of goods. Therefore, priority
should be given to the development of infrastructure, especially roads and also provision of
post harvest management, cold storage and processing facilities. There is also the need to
further harness the hydro-power capacity. Better accessibility will also help develop the
services sector, particularly tourism, which could become a significant source of employment
and revenue.
Finally, the topography of the state and infrastructure bottlenecks together work as a
deterrent for the development of physical banking and financial infrastructure. Hence, greater
reliance may need to be placed on technology to make banking more accessible to the
majority of the population. This will require improvement in telecommunication facility.
I thank you for inviting me to share my thoughts on financial inclusion in the state. Tomorrow,
I hope to see some of you at our outreach programme at Tanhril village. With the combined
effort of state administration, banks and the Reserve Bank we could together make a
significant impact in financial inclusion.