k c chakrabarty : financial deepening by putting financial inclusion campaign into mission mode address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the 23rd skoch summit, mumbai, 17 june 2010. * * * 1. dr c rangarajan, hon ’ ble chairman, economic advisory council to the prime minister, mr hari sankaran, managing director and ceo, il & fs, shri s. s. tarapore, distinguished fellow, skoch development foundation, shri j sriram, ceo mobile commerce venture, bharti airtel ltd, and of course the main organiser of this function mr sameer kochhar, distinguished guests, ladies and gentlemen. i have come here to say a few words about financial inclusion which is closely related to the topic of this summit, i. e. financial deepening. one of the preconditions for deepening of any process is the existence of a large number of participants. hence, financial inclusion is a necessary condition for financial deepening. 2. let us consider how financial deepening can address concerns of growth with equity and ensure pro - poor growth. financial sector development and deepening drives economic growth by mobilizing savings and investing in the growth of the productive sectors. the institutional infrastructure of the financial system contributes to reducing information, contracting and transaction costs, which in turn accelerates economic growth and promotes pro - poor growth. we firmly believe that increasing financial inclusion reduces the economic vulnerability of households, promotes economic growth, alleviates poverty and improves the quality of peoples ’ lives. thus, expansion of banking leads to increasing availability of finance to spur economic growth and helps alleviate poverty. barriers to this process 3. barriers for poor people to access appropriate financial services include socio - economic factors e. g., lack of education - illiteracy, gender and age, low and irregular income, and geography, regulatory factors e. g. mandatory requirements of identity documentation and product design factors. 4. a major barrier cited to expand appropriate services to poor by financial service providers is the cost of providing those services including administering small loans. while transaction costs do not vary in direct proportion to a transaction ’ s size and larger number of transactions bring down the costs, serving the poor with small value services is not viable using conventional retail banking or insurance approaches. we have to promote technological and institutional innovation as a means to expand financial system access and usage, including addressing infrastructure weaknesses. 5. innovation

food inflation over the past decade. in the years selected for display, cereals and sugar have clearly receded into the background, while proteins and fruits and vegetables have begun to play a more important role. in the earlier part of the decade, proteins and fruits and vegetables swapped roles, much like cereals and sugar did in the previous decades. however, in the last four years, which roughly correspond to the most recent episode of persistent high inflation, the contributions of proteins and fruits and vegetables, in both absolute and relative terms, have clearly been the dominant drivers of food inflation. cereals and sugar have made some contributions, but they have been of a one - off nature, not sustaining over the entire period. let me place this significant shift in the drivers of food inflation, which was clearly accentuated in the most recent episode, in the context of the notion of “ this time it ’ s different ”. there are obvious similarities between the earlier prolonged episodes – early 1970s and early 1980s – and the most recent one. in both these, two major food categories both saw sharp increases in their prices, presumably because of a combination of steadily increasing demand and a sharp fall in supply, usually because of an inadequate monsoon. in the most recent episode, 2009 was a bad monsoon year and this many have been the trigger for prices of pulses to rise sharply, adding their own burden to the steady pressure from demand. in the following year, fruits and vegetables added their contribution, reinforcing and prolonging the inflation trajectory, despite 2010 being a decent monsoon year. while the contribution from proteins has gone down somewhat in 2011 – 12, the pressure from fruits and vegetables have sustained. given the significance of proteins and fruits and vegetables in food inflation in the recent episode, let us look at the contribution of some major items in the protein category. slides 7 and 8 show the contributions of the major protein items – pulses, milk and eggs, meat and fish – over a five - year period. in slide 7, we see the sharp increase in the prices of pulses in the first year, but this did not persist for very long. however, milk was a significant contributor throughout the period, as is seen on slide 8. in the later part of the period, eggs, meat and fish gained in significance, more or less matching the contribution of milk. the contribution from pulses virtually disappeared in these years. beyond proteins, fruits and vegetables were a significant, though somewhat volatile contributor. in the context of the