$ 5 Trillion Emerging Indian Economy A Road Map of Central Bank
Meenakshi1, Hem Ritu Verma2
1Assistant Professor, Devsthali Vidyapeeth, U.S. Nagar (Constituent of Kumaun University, Nainital)
2PhD Scholar, Department of Management Studies, Bhimtal (Constituent of Kumaun University, Nainital)
*Corresponding Author E-mail: meenakshi.officialid@gmail.com, vermahemritu@gmail.com
ABSTRACT:
In the cusp of transformation, India is at the times where it is willing to take a big leap in order to become one of the top three economies in the world. To realize this leap India will have to overcome many challenges in order to achieve the target of growth in its seventh decade of independence. India, with this goal set in mind, have already seen big changes, especially in banking sector. Trying to break the new ground by infusing banks with investment and policies with amalgamation on one hand and on the other it is fighting a sluggish GDP. The original plan laid out and quoted “Small steps by millions of people”, by honorable Prime Minister, it is certainly facing powerful repercussions. The government laid out the plans to reform the sectors in order to achieve the milestone and the central bank has also got a crucial role to play with ongoing process of multiple mergers of Indian banks and bringing privatization in them, RBI has to focus on financial inclusion as well. This paper discusses about the central bank’s objectives, current situations, constraints and the way forward for making India a USD 5 trillion economy. RBI’s role in the context of growth has been multi-pronged.
KEYWORDS: Economy, RBI, Growth, Unbanked, Technology, Payment services.
INTRODUCTION:
The Reserve Bank of India was established with a view to encourage the banking business and not to hinder with the growth of such business. The standards for the exercise of the power have been laid down in Section 22 itself. The Reserve Bank is a non-political body concerned with the finances of the country. Being one of two important pillars of Indian economy and promulgator of monetary policy, RBI plays a vital role in nation economic growth. The Reserve Bank’s developmental role includes ensuring credit to productive sectors of the economy, creating institutions to build financial infrastructure, and expanding access to affordable financial services. It also plays an active role in encouraging efficient customer service throughout the banking industry, as well as extension of banking service to all, through the thrust on financial inclusion.
The Central bank has got plenty duties to perform for the USD 5 trillion economy target for India. India standing on a half way hill with an aim to efficaciously move upward to reach the peak of 5 trillion economy target.
“Today, as we sit down and talk here or elsewhere, almost every discussion converges on the state of the Indian economy. Multiple views are expressed, multiple analyses are done, and multiple suggestions are made. The whole country’s interest in the economy is a very good sign. There is indeed a need for very informed and objective conversation on the state of the Indian economy, and more importantly, about our future course of action.” – Mr. Shaktikanta Das, Governor, RBI at his keynote address about USD 5 trillion economy delivered at Indian Economic Conclave held in Mumbai on December 16,2019.
The target proposed by NDA government in 2019 outlined the idea for their second term, prioritizing the first 50 days, it set sight on making India a USD 5 trillion economy by the year 2024 and converting it into a USD 10 trillion economy by 2034 given the base year 2014 when India was USD 1.9 trillion economy.
According to economists, with this aim in perspective, India needed to grow at a consistent pace of at least 8% of GDP and with the need to accelerate the growth with 9% CAGR in next 20 years.
Along with all the key indicating financial measures, RBI has put its major focus on financial inclusion. In 2014, 62% of adults globally reported having a bank account as per global findex. In India this was only 53%. Although with the help of several other schemes and policies, Pradhan mantri jan dhan yojana has played a significant role in closing the gap. As per GOI’s own data as of February 2019, 34.43 crores accounts have been opened under PMJDY. Although this achievement cannot be set aside but it still leaves a question to realize that India yet has a large unbanked population.
Policies and researches has focused onto access the poor and marginalized groups as they require access to all sort of financial services to effectively manage their economic lives. Although inclusion in a diverse country like India cannot afford to ignore the spectrum of its diversity so as to encapsulate the different dimensions of population.
This paper discusses about the objectives, current situation, constraints and the way forward for RBI to contribute to making India a USD 5 trillion economy.
OBJECTIVE:
1. Determine the role of Reserve Bank of India in making the nation a USD 5 trillion economy.
2. Present scenario of hurdles like issues and constraints observed in the financial services and its operations.
3. Discuss the roadmap analyzed by RBI and Government of India.
METHODOLOGY:
This paper discusses India’s economic growth in order to become one of the top three economies in the world by 2024. we have used secondary data to gather all information presented in this paper regarding India’s aim to be a USD 5 trillion economy by the year 2024, from few websites like NITI Aayog, RBI, FINDEX and CSO, India.
we have also taken many journals into account while writing this research paper along with several key note mentions delivered by Finance minister Mrs. N Sitharaman, RBI Governer Mr. Shaktikant Das and other prominent economists.
A Road Map of Central Bank:
The central bank wishes to bank in the unbanked ensuring the universal access to bank accounts and a gateway to all financial services.
RBI has its focus rather centered to untouched rural areas with a precedence and compliance of at 25% of total branches to be opened in such area when and if a business or an individual willing to start a bank in the nation.
The banker’s bank, also wishes to encounter increase in digit payment services. Earlier the govt. mounted the campaign of cashless economy which motivated (somewhat forcefully and somewhat wishfully) many citizens to use services like internet banking, IMPS, UPI, and etc. RBI is constantly working with National Payment Corporation of India (NPCI) to increase its penetration in digital services with utmost safety as well.
RBI’s aim also lies with securing the unsecured with social security and insurance provided through banking channels with coverage for pension and retirement plans.
Current Scenario:
Govt. has launched numerous schemes. to promote financial inclusion to empower the poor and unbanked in the country like Pradhan Mantri Jan Dhan Yojna, Pradhan Manti Mudra Yojna, Stand-Up India, Pradhan Mantra Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana and Atal Pension.
According to world bank data 2014, 53% India held bank account which rose to 80% in 2017, somewhat equivalent to China. Globally 1.7 billion adults were unbanked, the number was 2 billion back in 2014. (source global findex data base, 2017)
Virtually all unbanked population live in developing countries and to account 1.7 billion adults, largest developing economies India and China contributes largely.
If we look for demographics, women are world’s most unbanked. This impact has been a global one, where a significant gap is found on the basis of gender.
Although nationwide from 2014, Indian woman stood forefront for their bank accounts which led to a declination of gender gap from 20% in 2014 to only 6% in 2017. The excessive drive of Pradhan Mantri Jan Dhan Yojna resulted into opening of 31.45 crore accounts with aggregate of Rs .80545.70 crores deposit balance as on April 11, 2018. (source: RBI) despite a rapid growth in financial inclusion, India still stands second for largest unbanked population having over 190 million Indian adults not having a bank account.
If we shed light to seek reasons behind adults not having a bank account, the one prominent reason would be lack of enough money. This includes the population which suffices the problem with reason like not having enough money to put away in a bank account or to have as much as only to meet their ends.
Apart from current scenario of the unbanked, India is also behind in using mobile money services. In 2016 only 1% of population was users of such services while if we compare it with other countries- Bangladesh was at 40% of their population, Pakistan at 9% of their population and Kenya was at 81% of theirs.
How ever after demonetization and the launch of BHIM platform, the user percentage has improved. Many other services motivated people for cashless economy like Paytm, Aadhaar enabled payment system and payment banks have given a boost to mobile payments services.
Undeterred by such improvements financial inclusion is still faced with constraints like lack of financial literacy among low income household, high cost of operations and regulatory requirements with conservative approaches. Thusly central bank is willing to take new measure to old problems as described below.
Financial Inclusion:
Government of India is planning to launch a new comprehensive financial literacy programme i.e. Aarthik Shiksha Abhiyaan which will be integrated in the curriculum of regular schools. Along with above said curriculum mass media campaigns are also said to be under planning for awareness about financial products.
Given the fact that there are still untouched places where there is no banking branches available for operations, bank correspondents are used to reach out to prospective clients. However insufficient compensation structure makes correspondents banking unattractive. RBI addressed the issue and has taken into account the training of correspondents with motivators like better monetary incentives.
Payment Banking Platform:
Like telecom companies in Africa and South Asian countries, post offices are much more accessible as they have widely connected networks and have access to every nook and corner of the country. Payment banks like India Post Payment Bank can be a vantage point with immense potential to revolutionize the payment system. Flexible rules like minimum capital requirements, transaction amounts should be adopted to ensure the scalability and viability of payment banks.
Payment via USSD (Unstructured Supplementary Service Data) channel shows up advantage over internet as it does not require a smart phone. Thus it can easily serve upto the requirement of non-smart phone users especially in rural areas where there is no or minimum access to internet.
Paperless Banking:
In the previous year, Government of India and Reserve Bank of India launched a novel idea with documentation process, verification process and sanctioning of a loan in less than 59 minutes only. This lead to a confidence boost in the citizens who thought of acquiring a loan as a crucial process.
Paperless banking and documentation proof requirements helps reduce the cost of operations. Ease in transaction process has increased via e-KYC based deposits.
Concept of use of Digital Signatures is being pushed by asking public sector banks to carry out at least 25 % of their transactions through paperless accounts by 2022-23.
Digi-locker services were initiated to improve the need of paper in business transactions and thus its expansion in under consideration.
Technological Improvement:
Lack of information is one of the major constraints behind non participatory low-income groups and informal businesses which yields in high cost of credit. This can be overcome via adoption of appropriate technology.
A new data sharing plan can be built on the success of Jan Dhan and Aadhaar platform along with necessary safeguards while maintaining data privacy as well.
Along with above said digitization, RBI is constantly working with National Payment Corporation of India (NPCI) to safeguard the use of different digital framework. Secure transactions are also been made aware about to general public through telecom channels, advertising videos and awareness campaign cars.
Facelift of Regulatory Framework:
Customers rather feel comfortable with easier paper work and regulations that are hassle free. This approach could help get the confidence of the household to invest in further financial products such as insurance, equity etc. Kiosk could be more consumer- friendly and simplified. Disclosures requirements for pension and insurance can meet up on middle ground where they are more into the grasping capacity of consumers and reliable validity of regulatory framework.
The lock in period for bonds could be eased out so as to make them more attractive. Thus in this way it could lead to a rather confident consumer base and could also bring in more transactions from them.
FINDINGS:
According to the study shown above, RBI has got some concrete plans to be executed efficiently to acquire the mark of USD 5 trillion set by government of India. Beginning with the core solution of bringing the scholars into the equation to get them acknowledged about financial markets and services where they can invest in future, to reach the distant rural areas to get unbanked population motivated to open an account for themselves and close the gap as soon as possible.
RBI is also considering to ease out some regulatory procedures to dodge the criticality faced by consumers in availing financial services while encouraging digital payment services as well.
IMPLICATIONS OF STUDY:
The study can provide some insights to policy makers along with academician understand the title more clearly. This also opens doors for future researches in the field.
CONCLUSION:
Central Bank plays a vital role in nation’s economic growth and propulsion could be hoped for along with above mention measures. USD 5 trillion mark can be said to achieve with more access to consumer, gaining their crucial yet important confidence.
In order to remedy this, the central bank needs to extend branch banking to rural areas to make credit available to peasants, small businessmen and traders. In underdeveloped nations, credit facilities are not much in numbers. After 70 years since independence, in rural area, source of credit is still money lenders who asks for inordinate interest in return. This is one of the main reasons why people in rural areas do not put their trust in the banks as well.
Banking with new intuitional arrangements for the unbanked along with technological improvement with consumers will make an efficient improvement in banking industry and thus can help achieve the goal of making India a USD 5 trillion economy.
“With this vision set before us and with the mandate given by its people, we are determined to take India to that height that it rightly deserves. India is now the sixth largest economies in the world, five years ago it was at the eleventh. We need to continue undertaking many structural reforms.” Mrs. Niramala Sitharaman, Finance minister of India in her maiden union budget speech.
REFERENCES:
1. The Global Findex Database 2017, world bank, accessed December 2019
2. “The Progress of Financial Inclusion in India: Insights from Multiple Waves of Survey Data”, Manuela Kristin Günther, Overseas Development Institute, May 2017.
3. “Banking the Unbanked: What Do 255 Million New Bank Accounts Reveal about Financial Access?”, Sumit Agarwal, Shaswat Alok, Pulak Ghosh, Soumya Ghosh, Tomasz Piskorski, Amit Seru, Columbia Business School Research Paper s
4. No. 17-12; Georgetown McDonough School of Business Research 2906523;
5. “Bank Accounts for the Unbanked: Evidence from a Big Bang Experiment”, Yakshup
6. Chopra, Nagpurnanand Prabhala, Prasanna L. Tantri, Robert H. Smith School: Research Paper No. RHS 2919091; Indian School of Business WP 219109, May 2017.
7. Varshney. (2014). ‘Banking Law and Practices’ Sultan Chand and Sons.
8. Bhole L. M. et.al (2004). ‘Financial Institutions and Markets, Structure, Growth and Innovations’ Tata Mcgraw Hill.
9. “$ 5 Trillion Economy: Aspiration to Action”, Keynote Address by Shri Shaktikanta Das, Governor, Reserve Bank of India, Economic Conclave Mumbai, December 16, 2019;
Received on 29.12.2020 Modified on 05.02.2021
Accepted on 12.03.2021 ©AandV Publications All right reserved
Asian Journal of Management. 2021; 12(3):297-300.
DOI: 10.52711/2321-5763.2021.00045