The first phase of financial sector reforms started with the objective of strengthening the financial sector and ensuring adequate flexibility and autonomy in its operation. In the meantime, globalization of the financial sector called for integration of financial services. Therefore, the second phase of reforms, which began during the mid-1990, aimed at structural reforms of the financial sector. Through this move, the authorities wanted to march towards international best practices. To ensure this, a number of advisory groups were set up to upgrade the Indian practices to bring them on par with international standards in crucial areas like banking sector performance, monetary policy, data dissemination, corporate governance, etc. But the consequent reforms stressed the need for strengthening the financial system so as to enable it to compete in an environment of global integration.
In the process, it relegated another vital aspect, the linkage between growth and finance, into oblivion. A strong financial sector supports and stimulates growth. Recent literature has underlined that access to finance may not be the single most important factor of growth but there is definitely a link between access to finance, growth and poverty reduction (Claessens, 2005). Yet, at a conference on microfinance, Union Finance Minister P Chidambaram expressed his concern that nearly 60 to 80% of enterprises and individuals in India were not able to avail themselves of basic financial services like savings and credit. The case of less-developed regions is still more deplorable. And that seems to be one of the reasons behind the widening regional disparities. Without such a drawback, i.e., failure of access to finance, the growth of the Indian economy would have escalated to 8 to 10% (Mor, 2005) and regional growth could have converged.
The effort to extend financial support to the remote areas of the country started with widened branch network of the commercial banks, regional rural banks, post offices and cooperatives of all kinds. Observing the success of the Gramin Bank of Bangladesh and Bank Rakyat Indonesia (BRI), India also started the movement of microfinance with a view to extending financial support to the people at the grass-root level. The National Bank for Agriculture and Rural Development (Nabard) functions at the apex as the regulator and coordinator of facilitating credit supply to the less developed regions. Despite all these, Orissa, a less-developed state in India, stands out as a neglected area as far as financial services are concerned. |
