High growth can bring inclusiveness in wealth creation: Shaktikanta Das

The theme of “Broad-based Prosperity: Tackling the Fundamentals”, chosen by Mr. Shanmugaratnam for today’s lecture, is relevant globally and also for the Indian economy. The importance of broad based prosperity has been well recognised for a long time and there is a consensus on the need to ensure that the benefits of economic growth reach the populace at large. As an idea and a policy objective, it is similar to the concept of inclusive growth. While there is consensus on the need to achieve a more egalitarian social and economic order globally as well as within a country, it is equally important to focus on the fundamentals and create an eco system that facilitates greater inclusion. The underlying theme has to be structural reforms.

In this context, let me mention that the mandate given to RBI on maintaining price stability, financial stability and economic growth is not only important from macroeconomic perspective, but also for the objective of inclusive growth. Persistently high inflation adversely impacts the 4 economy’s allocative efficiency and impedes growth. It also contributes to a worsening of income distribution by depreciating the real income of the poor. In the backdrop of very high domestic inflation as compared to G20 countries, we adopted a flexible inflation targeting (FIT) framework in 2016 under which primacy has been accorded to the objective of price stability, while simultaneously focusing on growth when inflation is under control.

Similarly, high growth with financial stability augurs well for inclusive growth. High growth can bring inclusiveness in the process of wealth creation and its spread effect. I need not elaborate, but higher growth also improves tax-GDP ratio which enhances the resource availability with Government to undertake social and infrastructure expenditure. Again, a sound financial system with healthy banks and NBFCs can play an important role in meeting the credit requirements of the bottom of the pyramid. Therefore, we have been focusing on strengthening regulation and supervision to develop a robust framework of financial stability where the banks and the NBFCs are able to fulfil the expectations of the society.

The Government and the Reserve Bank of India have also taken several micro-level initiatives to achieve social and financial inclusion and to bridge income inequalities. Financial inclusion in the Indian context is seen as part of a broader structural reform agenda. The Jan Dhan Yojana to provide access to banking services has enhanced the opportunities and scope for wider population to share the benefits of the growth process. Other schemes such as PM-KISAN, e-NAM, etc. have been launched with the objective of providing income support and doubling of farmers’ income.

In the area of agricultural market reforms, there is consensus that improvement in the supply chain could become a major channel for promoting inclusive growth, as this can increase the share of farmers in retail prices paid by the consumers. A survey conducted by the RBI in 2018 covering farmers, traders and retailers in 85 mandis spread across 16 states found that the difference between retail prices that consumers pay and mandi prices that farmers receive (i.e., margins or mark-ups) varies across crops and centres. The average share of farmers in retail prices of major primary food items varies between 28-78 per cent. It is lower for perishables and higher for non-perishable items. Higher share of retail prices going to farmers augurs well for the rural economy, which in turn, could help sustain domestic demand. Initiatives towards wider rural roads network, better communication facilities for faster exchange of information and easier access to micro credit will contribute to better price realisation for the farmers. This ongoing process needs to be sustained alongside further agricultural market reforms. Prioritizing food processing industries in the policy agenda, encouraging direct sale of farm produce by farmers to consumers, strengthening e-NAM for better price discovery and promoting storage facilities near producing centres will boost farm income and rural employment opportunities.

...The Reserve Bank of India has also taken various measures to increase the level of penetration of banking services to unserved and underserved areas. Recently, the National Strategy for Financial Inclusion (2019-24) prepared by the RBI has been approved by the Financial Stability and Development Council (FSDC). It sets forth the vision and key objectives of financial inclusion policies in India and aims to provide access to formal and affordable financial services; broaden and deepen financial inclusion; and promote financial literacy and consumer protection.

Leveraging latest technology for benefit of the people is also on the policy agenda of the Reserve Bank. To fulfil the vision empowering every Indian with access to a bouquet of e-payment options that is safe, secure, convenient, quick and affordable, a focused effort has been made to develop a state of the art national payments infrastructure and technology platforms. Recently on December 16, 2019, we rolled out the 24x7x365 NEFT facility. With this, India has joined an elite club of a handful of countries having payment systems that ensure round the clock funds transfer and settlement on real time basis. For ease of settlement, RBI has also enabled liquidity support facility on 24x7 basis to participating banks. We have removed the charges levied for offering NEFT. Savings bank customers can now initiate online NEFT transactions free of cost. Going forward, this can pave way for the large value Real Time Gross Settlement (RTGS) system to be offered to the country on 24x7 basis. As of now, we have extended the timing of Real Time Gross Settlement (RTGS).

To give impetus to small value digital payments, a new type of prepaid payment instrument (PPI) with amount outstanding not exceeding Rs 10,000 has been introduced recently... 

Edited excerpts from the speech by RBI Governor Shaktikanta Das to introduce Singapore senior minister Tharman Shanmugaratnam who delivered the third Suresh Tendulkar memorial lecture in Mumbai on January 7