INTRODUCTION:

Indian Economy is considered as one of the fastest growing economy in the world. But the Indian economy is dualistic in a sense that there is a growing disparity between the rich and poor. At one end we see growing companies, booming stock market, soaring profits, rich are becoming richer, and on the other end we see that poor are becoming poorer. One of the thrust area in which we need to focus is poor and deprived people in our country. 20 percent of the world’s poor are in India. Majority of them are living in rural area. To bring them into the mainstream of the country the Government is running several programmes and schemes like IRDP, NREP, NREGA. But this process will be accelerated if different banks and financial institutions at the same time will provide access to some of the basic financial facilities / services to the people who are poor and deprived and termed as financially excluded. Presently Banking sector has reached to 30 percent rural people only. As a result more than 65 percent financial needs of the rural people are being met by informal entities. The remedy is Financial Inclusion.

Financial inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups in a fair, transparent and equitable manner at affordable cost. Households with low income often lack access to bank account and have to spend time and money to avail the banking services. This again limits the opportunity to come out of poverty. These families find it more difficult to save and to plan for the future. Since these families are financially excluded, they have to avail funds for their different needs from local money lenders, shop-keepers, and others including friends and relatives at higher interest rates and on some conditions. Since in most countries of the world poor are not considered bankable, they don’t have had access to the financial services.

Financial inclusion can be exercised in two ways:

(a) Through state-driven intervention by way of statutory enactments (e.g. to have bank account is statutory right in France).

(b) Through voluntary effort by the banking community itself for evolving various strategies to bring within the ambit of the banking sector the large strata of society.

Reasons for Financial Inclusion

The growth trend in the Indian economy is witnessing an era of high growth. National Account Statistics contrasted the economic growth rate of select economic factors to analyse the income, expenditure and saving scenario in India. On a close scrutiny of growth periods of different time intervals, it can be seen that how Indian economy has registered economic growth

Table 1: Select Macro Economic Indicators (Percent Growth)

Factors	1970-1990	1991-2001	2001-2005
Per Capita Income*	2.0	3.5	5.3
Population	2.2	2.0	1.7
GDP at (Constant Prices) Agriculture Manufacturing Industry Services	4.4 2.9 5.7 5.3	5.7 2.6 6.1 7.4	6.7 6.2 6.8 8.6
Gross Domestic Savings (as Percent of GDP) Household Corporate Public	18.7 13.7 1.7 3.3	23.2 18.7 3.9 0.7	27 22.7 4.2 0.1
Gross Domestic Investment (as percent of GDP)	19.8	24.3	26.4

NNP (Factor Cost)* Source: National Accounts Statistics

Table 1 indicates that per capita income has registered an increasing trend over the years. It registered a double growth rate of 5.3% in the period of five years in 2001-05 in comparison to 2.0% in the time span of 1970-1990. In the same period GDP also registered high growths in the same time frame. Gross Domestic Savings also increased from 18.7% to 27% but the deposits made by general public have witnessed a steep decline from 3.3% to 0.1%. Furthermore the growth rate visible in agricultural, manufacturing and service industry also highlights that more and more savings schemes must be made available so that gross domestic investment can also increase.

Barth, Caprio and Levine (2001) highlighted that the existence of financial network in India is still in its adolescent stage in comparison to world scenario. Majority of rural population is still dependent on informal channel of savings in comparison to formal channels. All India Debt Survey (2002) indicted that still non institutional money lenders still amount to 38.9% of the debt market.

India has an underdeveloped financial system which is categorized by high risk. Information management and appraisal systems are still weak which hampers the guarantee of judicious analysis of all schemes and its availability for all segments in the society. A developed financial system will broaden the investment base. Reserve Bank of India in its annual policy statement for the year 2005-06 has directed the Indian Banks to make available a basic banking ‘no frill’ account either with nil or very minimum balances as well changes that would make such accounts accessible to vast sections of population.

Further more in order to ensure that persons belonging to low income group in both in urban and rural areas do not face difficulty in opening the bank accounts due to procedural problems; the KYC (Know Your Customer) Procedure for opening accounts has been simplified. Opening an account is the first step toward financial inclusion. Opening an account in the bank will establish banking habits among poor and they will avail further benefits of variety of financial products such as short term loans. Availability of credit at affordable rate will ensure fair and transparent systems and will lead to lower dependence on local money lenders.

Banking and non banking financial corporations with the Self Help Groups and government institutions can reach the wider base of Indian population and thus will lead to financial development of poor and deprived people leading to accelerated economic growth.

Framework for Financial Inclusion

India continues to languish at 127th position among 177 nations in this year's Human Development Index, even as it has been hailed as a major success story on globalization. In a study Bose had offered insights into how Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh were blocking India's progress and had coined the descriptive 'Bimaru' for them, which literally means sick in Hindi. The term draws its name from the first letters of the four states. The differences in economic and population growth rates between the BIMARU states and other Indian states sharpened over the 1990s. The economy of the four BIMARU states grew at an average of 4.6% per year in the 1990s, compared to 6.5% per year for India as a whole. Since population growth in the BIMARU states was much higher that the Indian average in this period, the income disparity between the BIMARU states and India as a whole also increased. Among the 20 big States, the rankings are 12 for Rajasthan, 14 for MP, 17 for UP and 20 for Bihar, with Chattisgarh and Jharkhand carved out of Bihar and MP some time ago being placed at 15 and 19. Going by the specific aspects of governance and growth such as law and order, primary health, primary education, literacy, agriculture, consumer market, investment scenario and budget and prosperity, the BIMARU States and their offshoots occupy conspicuously low positions with Bihar being the last in most tables.

The statistical data highlights that economy and development in the BIMARU States are highlighted by poor overall performance and hampering the growth rates of India. Thus this paper is an attempt to provide a framework for the development of BIMARU States through Financial inclusion. Following parameters have been chosen to understand the level of financial deepening in the above mentioned states:

1. Population Below Poverty Line in BIMARU States

2. Economic Survey in BIMARU States

3. Human and Social Development Index

4. Coverage of banking Services in BIMARU States

5. Self Help Group Linkage in BIMARU States

Table 2: Population Below Poverty Line in BIMARU States

States	Rural Population		Urban Population		Total Population
States	%	No. in Lakhs	%	No. in Lakhs	%	No. in Lakhs
Bihar	32.9	262.92	28.9	27.09	32.5	290.01
Chhattisgarh	31.2	54.72	34.7	16.39	32	71.11
Jharkhand	40.2	89.76	16.3	10.63	34.8	100.39
Madhya Pradesh	29.8	141.99	39.3	68.97	32.4	210.97
Utter Pradesh	25.3	357.68	26.3	100.47	25.5	458.15
Rajasthan	14.3	66.69	28.1	40.50	17.5	107.18

Source: Government of India Press Information Bureau “Poverty Estimates for 2004-05” on March 2007.

Table 3: Summary of Ranking from India Today survey on Economy and development in India

State	Overall	Law	Agriculture	Education	Health	Infrastructure	Consumer Market	Investment Environment	Budget
Rajasthan	12	5	9	17	14	13	12	11	12
MP	14	3	11	16	12	12	14	15	15
Chhattisgarh	15	10	18	15	15	15	17	9	14
UP	17	19	8	18	18	18	16	14	16
Jharkhand	19	18	18	19	19	19	18	13	19
Bihar	20	20	14	20	20	20	20	20	20

Source: India Today Survey, Special Issue, Summary of the Survey on Sept 11^th 2006.

Table 4:Human and Social Development Index for Rural Areas

States	Demography	Healthcare	Basic Amenities	Education	Unemployment & Poverty	Social Deprivation	Aggregate Index
Bihar	3.49	7.28	32.61	0	30.99	22.4	16.13
Chhattisgarh	27.32	1.61	27.85	33.59	30.59	52.29	28.87
Jharkhand	19.31	2.19	9.45	6.16	30.99	29.23	16.22
Madhya Pradesh	15.96	4.63	37.17	34.37	30.59	36.63	26.56
Uttar Pradesh	1.38	8.12	41.41	23.87	31.42	35.73	23.65
Rajasthan	13.91	11.78	42.71	30.53	57.1	53.52	34.93

Source: Social Development Report 2006.

Table 5:Human and Social Development Index for Urban Areas

States	Demography	Healthcare	Basic Amenities	Education	Unemployment & Poverty	Social Deprivation	Aggregate Index
Bihar	4.4	11.85	45.95	3.07	31.26	66.05	27.1
Chhattisgarh	38.45	0	47.42	38.77	57.74	36.35	16
Jharkhand	9.67	17.91	41.71	41.42	38.77	57.74	36.35
Madhya Pradesh	26.92	20.54	63.5	51.14	38.77	48.93	41.63
Uttar Pradesh	5.62	12.82	73.32	23	38.49	50.36	33.94
Rajasthan	17.92	18.3	81.03	37.36	68.5	53.46	46.09

Source: Social Development Report 2006.

Table 6: Coverage of Banking Services In BIMARU States

State	Current Account	Saving Account	Total Population	Total No. of Accounts	No. of accounts per 100 of population
Bihar	464511	13225242	82878796	13689753	17
Chhattisgarh	192067	3346898	20795956	3538965	17
Jharkhand	166007	5834341	26909428	6000348	22
Madhya Pradesh	553381	11731918	60385118	12285299	20
Uttar Pradesh	1324509	45804350	166052859	47128859	28
Rajasthan	689657	12139302	56473122	12828959	23

Table 7: SHG Bank Linkage in BIMARU States

State Name	2002	2005	2006	2007	Growth 2006-07	Growth (2006-07) %
Bihar	3957	28015	46221	72339	26118	56.51%
Chhattisgarh	3763	18569	31291	41703	10412	33.27%
Madhya Pradesh	7981	45105	57125	70912	13787	24.13%
Uttar Pradesh	33114	119648	161911	198587	36676	22.65%
Jharkhand	4198	21531	30819	37317	6498	21.08%
Rajasthan	12564	60006	98171	137837	39666	40.41%

Source: Compiled from NABARD Annual Reports 2006-07.

Table 2 indicates the scenario of rural and urban population in the BIMARU States. Nearly 40.2 % of rural population in Jharkhand and 39.3% of urban population in Madhya Pradesh are below poverty line. This shows the alarming state of affairs in the focus states. Majority of the population in these states are dependent on agriculture which is traditional and dependent on monsoons, therefore their source of income is highly restricted. Financial Institutions in these states must try to disperse their financial services to the maximum extent in these states through their financial schemes and Government aided programmes so that the BPL population of these states can be benefited.

Table 3 highlights the overall performance of selected states with respect to their performance in various areas. The BIMARU states are affected by underlining poverty. Underlining poverty in these states is characterized by poor law and order, low agricultural productivity, lower education outreach, poor health facilities, inadequate infrastructure and underdeveloped consumer markets. The investment environment in these states is poor so external investment flows very poorly. Furthermore to aggravate the situation the budget allocation in these states is fairly low. The economic scenario in these states highlights the need for financial deepening

Table 4 indicates the low human and social development index in the above states. The people in rural areas have a meager income of Rs. 50/- day which is very low to sustain their basic needs further more the low level of employment and education subjects them to misery and hardships.

Table 5 indicates that social and human development index in urban areas are also poor. These states are basically concentrated in the central part of India which houses the deprived social classes of the society who has low land ownership and less facility for education therefore they confined themselves to small employments which brings low incomes. The lower income is insufficient for poor health care facilities, educational setup and social deprivation.

Table 6 highlights the degree of financial coverage by studying the quantum of deposits (Current and savings account) in comparison to total population. Chhasttishgarh and Bihar states have the lowest financial coverage. Lower financial deepening in the BIMARU States is also responsible for low economic development.

Table 7 highlights the unique phenomenon of financial intermediation in India. SHG (Self Help Group) supported by NGO’s or Government are committed towards providing financial support to lower class people in their states. The number of SHG operating in the states have grown frail over the years but still more growth is required in states like Jharkhand, Uttar Pradesh and Madhya Pradesh.

CONCLUSION:

The Road Map for Financial Inclusion of BIMARU States can take following steps:.

(1) Financial Intermediation: the financial institutions can use local intermediaries like NGO’s, Cooperative Societies, panchayayts, to understand the needs of local population and provide financial services. The help of local intermediary can be taken to identify the borrowers, qualify the borrowers, processing of loan forms and its verification, awareness about saving and saving schemes etc. This will help in better understanding of financial requirements and will facilitate financial inclusion.

(2) Business Correspondents: RBI Bulletin (2005) highlighted the use of business correspondents in the disbursement of rural credits and micro financing. Any NGO/ MFI established under mutually aided cooperative society act or the cooperative society act of states may act as business correspondents. The role of business correspondents can be defined to collect small savings and disburse small loans.

(3) Priority Sector Lending by Banks: lending targets should be directed to “priority sectors” such as agriculture, weaker sections of the population etc.

(4) Know Your Customer Norms: RBI circulars dated Nov 29^th 2004 and August 23, 2005 has provided sufficient flexibility to Indian banks to understand their customers and make tailor made services for them. KYC believes that opening of saving banks account will activate the habit of investment among the customers and will increase the base to avail financial services. A new customer can now be introduced by existing customer as well as designated financial intermediaries and business correspondents.

(5) Self Help Groups: The success of Bangladesh Gramin Bank is an Indicator of wave of change. The dream of noble laureate Shri. Mohammad Yunus was to bring the underprivileged under the umbrella of financial security. He made pool of self help groups to collect savings and extend credits to poor in both rural and urban areas. The dependence on money lenders and financial institutions was minimized by this activity. He made a bank of the people, for the people and which was operated by the people.

REFERENCES:

· Barth, J., G. Caprio and R. Levine. The Regulation and Supervision of Banks around the World : A New Database. World Bank Policy Research Working Paper No. 2588, Washington DC, 2001.

· Fagare, Gurunath, J. Banking with Unbankables through Microfinance. Southern Economist, Vol. 48, N0. 8, August 15, 2009. P.P. 15-16.

· Leeladhar,V. Taking Banking Services to the Common Man: Financial Inclusion. Commemoraative lecture at F. H. M. Foundation, Ernakulam, December 2, 2005.

· Mohan, R. Economic Growth, Financial Deepening and Financial Inclusion. Address at Annual Banker’s Conference 2006, Hyderabad, November3, 2006.

· Purushotham, E. and Anjaneyulu, M. Micro Finance Institutions and Determinants of Technical Efficiency. Southern Economist, Vol. 48, N0. 8, August 15, 2009. P.P. 29-30.

· http://timesofindia.indiatimes.com/articleshow/1223697.cms

· http://en.wikipedia.org/wiki/BIMARU

· http://timesofindia.indiatimes.com/articleshow/1223697.cms http://rbi.org.in

Received on 03.11.2010 Accepted on 10.11.2010

Asian J. Management 1(2): Oct. – Dec. 2010 page 84-89