The Policy of Financial Inclusion in India: The Paradox of Inclusive Governance

Abstract

The idea of inclusive development has acquired a new dimension in recent times, with rising emphasis of the state policy on resolving socio-economic exclusion through the mechanism of the market, as evidenced by the rise of the ‘semi-formal sector’ and NGO/private sector-led microfinance initiatives in countries like Brazil, Bangladesh and India. In India, this has produced a consolidated discourse of the policy of Financial Inclusion. The main aim of this paper is to study the wider social and political contradictions implicit in the idea of Financial Inclusion in the specificity of the Indian context.
Given the manner in which the initiatives to achieve socio-economic inclusion through the formal financial system are being undertaken, the policy of inclusive finance has become an instrument for the accommodation of socially-inclusive development within the neo-liberal paradigm of individual enterprise, thereby subverting the very rationale of development.

While inclusive development through the formal financial system was a core area of the state policy since the 1950s and was subsumed under the wider imperative of social inclusion, the current policy reveals itself to be more inclined towards accommodative inclusion under a neoliberal financial system, with the consensus that the merits of the ‘strategy’ of Financial Inclusion lie in that it will hike the profitability of banks if they are able to tap the potential ‘market’ of the rural poor. This has led to a proliferation of the norm of developmental self-reliance based on entrepreneurship rather than the realization of well-being as an important developmental outcome.