usha thorat : inclusive financial system for the aged speech by ms usha thorat, deputy governor of the reserve bank of india, at the 8th annual ieef retirement policy conclave, jointly hosted by invest india economic foundation ( ieef ) and the pfrda, new delhi, 30 april 2008. * * * changing contours of indian population india, the seventh largest country in size, continues to occupy the second largest populated country after china. the aged population in india ( i. e. over 60 years ) that stood at 84. 7 million ( 7. 5 per cent ) in 2005 is expected to rise to 141 million ( 10. 2 per cent ) by 2020 and thereafter reach 194 million ( 13 per cent ) in 2030. even though income levels are going up and poverty declining, it can be reasonably expected that a significant number among the aged population would be in the low income category. the aged population requires additional attention both from the society and from the government. more funds need to be allocated for pension, health and other social benefits of the aged people, while declining savings of the aged population could pose a threat in meeting such additional expenditure. india is one of the highest savers among the emerging market economies. gross domestic saving, as percentage of gdp at current market prices, increased from 23. 5 per cent in 2001 - 02 to 34. 8 per cent in 2006 - 07. household savings rose from 22. 1 per cent in 2001 - 02 to 23. 8 per cent in 2006 - 07. financial savings however constituted only 47. 5 per cent of total household savings in 2006 - 07. preserving the value of savings till as late as 10 years ago, we had a fairly long period high inflation and interest rates ; many persons planned their savings for old age, assuming that these rates would continue for long. the drop in rates after 1998 led to decline in returns for the retired who were dependent on interest income. employers providing defined benefit schemes found that the extent of unfunded portion of the liability was increasing. not all persons realised that they needed to save at rates higher than the inflation rate ; inflation could erode the value of their savings and that health care and typical old age expenses could eat into their capital. the reserve bank ’ s goal of inflation of around 3 per cent in the medium term, as articulated in its monetary policy statements, is thus critical not only for maintaining self accelerating growth and greater integration with global economy, but also to ensure

their money is being intermediated by the cooperatives without their having any say in the management. ( vi ) there are other developments that have constrained the growth of cooperatives. they have been unable to cope with the rapid pace of change in the financial sector. new products and services, application of technology and adoption of advanced management practices have improved the efficiency and driven the margins down in the financial sector. while other players have adjusted to these changes, cooperatives have lagged behind. this pulled them into a vicious cycle of falling business, poor governance and weak human resources. 23. the declining share of cooperatives in rural credit is worrisome especially since they are oftentimes the only source of support for small and marginal farmers. the health of the long term cooperative credit structure is also a cause for concern as it affects capital formation and hence productivity in agriculture. yet their outreach is their strength and they need to leverage on this 24. do all the infirmities i have outlined above mean that cooperative institutions do not have any positives and are not relevant today? the answer is clearly no. their vast network, with over 100, 000 live outlets of the short term cooperative credit structure ( stccs ), is a major strength. i believe there is no other institution that has this depth of penetration for purveying credit and mobilisation of resources. how then do we leverage on this strength of cooperatives, especially for furthering financial inclusion in the country? 25. the three tier stccs consists of more than a hundred thousand primary agricultural credit societies, ( pacs ), nearly four hundred district central cooperative banks ( dccbs ) with 13, 000 branches and 31 state cooperative banks with nearly one thousand branches. 26. more significant – besides the numbers – is the location of these outlets. the number of pacs located in hilly terrains, deserts and other areas with poor access far exceed the number of rural branches of commercial banks and rrbs. located as they are in the rural areas, the stccs units have better knowledge of their existing and potential clients. the large cooperative structure with deep penetration and endowment of local knowledge is an ideal platform for furthering financial inclusion. arguably, cooperatives have been in the business of financial inclusion long before the phrase became fashionable. 27. notwithstanding the above advantages, pacs were not formally recognized as business correspondents and were not formally integrated into the financial inclusion programme ( fip ) at par with commercial banks and