usha thorat : financial inclusion – the indian experience speech by ms usha thorat, deputy governor of the reserve bank of india, at the hmt - dfid financial inclusion conference 2007, london, 19 june 2007. * * * ladies and gentlemen, i thank her majesty ’ s treasury and dfid for organising this conference and inviting the reserve bank of india to share india ’ s experiences in achieving greater financial inclusion ( fi ). we, in india, have been greatly impressed by the focused attention being paid by the uk government to the subject of fi. i had read a very detailed report by the british banker ’ s association in 2000 dwelling upon the issues involved in providing greater access to financial services and the concept of a basic banking account. the setting up the financial inclusion task force and the financial inclusion fund reflect the priority attached by the government to the subject. dfid has been involved in a number of livelihood diversification projects in india and other countries especially for the marginalised and dfid ’ s stake in the subject obviously derives from the development aspect of fi. the interest shown by authorities in different countries in fi clearly show that there are concerns that large segments of the world ’ s population are excluded from formal payments system and financial markets while financial markets are developing and globalising rapidly. there is an obvious market failure and thus governments and financial sector regulators are seeking to create enabling conditions such that markets become more open, more competitive, affordable and inclusive. focus of financial inclusion in india the indian economy is growing at a steady rate of 8. 5 % to 9 % in the last five years or so. most of the growth is from industry and services sector. agriculture is growing at a little over 2 %. the potential for growth in the primary and sme sector is enormous. limited access to affordable financial services such as savings, loan, remittance and insurance services by the vast majority of the population in the rural areas and unorganised sector is believed to be acting as a constraint to the growth impetus in these sectors. access to affordable financial services – especially credit and insurance – enlarges livelihood opportunities and empowers the poor to take charge of their lives. such empowerment aids social and political stability. apart from these benefits, fi imparts formal identity, provides access to the payments system and to savings safety net like deposit insurance. hence fi is considered to be critical for achieving inclusive growth ; which itself is required for ensuring overall sustainable overall growth in the

unique at this level of per capita income. in order to assess our growth and inflation dynamics, we need reliable indicators of services sector production and prices. admittedly, the output of services sector is less tangible than that of the traditional industrial sector, and that makes measurement of output and price levels of services intellectually challenging. i understand our official statistical agencies are engaged in addressing this challenge. i urge them to expedite their efforts. financial stability financial stability has come centre stage post crisis. as much as we now know that price stability and macroeconomic stability do not guarantee financial stability, we need to develop additional metrics to monitor financial stability. the imf initiative on financial soundness indicators offers a model in this regard. its “ monitoring grid ” focuses on four major areas, the first of which is financial market surveillance. for evaluation of the risk arising from imbalances or shocks, we need data on asset prices, as also on early warning indicators. the second area of focus of the imf grid is macro - prudential surveillance, which concentrates on the impact of shocks on the financial sector. the third area consists of the analysis of macro - financial linkages, particularly on the credit spreads, credit to the private sector and balance sheet data for different sectors of the economy. the fourth area of focus is the surveillance of macroeconomic conditions. to get started on adopting the imf framework, we need to take stock of what data we have and of what quality. off - hand, i can say that we need to improve our data and data analysis skills relating to real estate, capital flows, and with reference to banks and non - banks, data relating to credit, liquidity and market risk indicators. summing up let me now conclude. to sum up very briefly indeed, i have tried to communicate to you the importance of statistics and statistical analysis to the quality of rbi ’ s policy formulation and emphasized areas where we need to improve the quality of data, areas where we need to learn to better interpret data and areas where we need to explore new frontiers. my exposition is, by no means, intended to be comprehensive, but i do hope it conveys the importance the reserve bank, as an institution, should attach to statistical analysis. i wish this conference all success. © reserve bank of india. all rights reserved. best viewed in 1024x768 resolution in ie 5 and above. bis central bankers ’ speeches