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Financial Inclusion and Economic Growth in India

Financial Inclusion and Economic Growth in India


The Indian growth story started unfolding with the IT Sector in the late ’90s. For the first time, global corporates realized the importance of Indian IT because of the Y2K phenomenon. Since then the Indian economy has been going from strength to strength. Today India is the second-fastest-growing economy in the world. The crossing of Indian GDP to over a trillion-dollar mark in 2007 is considered an important milestone. Today India’s economy is the 3rd largest in the world by purchasing power parity.

Of late, the service sector is contributing to more than half of India’s GDP. This is a very healthy sign. The tremendous growth rate has coincided with a better all-round performance. Indian entrepreneurs have registered noticeable global presence not only in IT and ITES and knowledge-based services but also in world-class manufacturing capabilities be it steel, or aluminum or refinery or anything else. The main drivers of the Indian growth story are domestic consumption, service sector, high tech capital intensive industry, human capital, natural resources, and so on. The success of India’s Economy is market-led and entrepreneurs are at the forefront.

Till 2006 it was felt that this growth is location specific and sector-specific. Even this myth has been broken. Relatively laggard states have also started registering a remarkable growth rate. The new wealth has started reaching down to the poorest in form of MNREGA and other social schemes. By 2010, the relatively developed states have started feeling the shortage of even unskilled labor. This shortage is the outcome of better-earning opportunities in relatively poor states which are registering more than the national average growth rate.

Financial Inclusion and Economic Growth in India

The recent recession of 2008 and the failure of financial institutions in western developed countries could not rub on the Indian financial sector and it came out triumphant in difficult times. The whole world took notice of the robust health of Indian financial institutions.

This growth can be felt in terms of purchasing power in the hands of individuals, Indian consumption story, record-breaking auto sales, increasing spending in holidaying and entertainment, regular and increasing flow of foreign funds, the takeover of global giants by Indian companies and so on.

Voluminous spending in terms of expenditure on roads, ports, airports, railways, water, drainage and others reveals the confidence of investors in India’s growth story. Faster recovery of Indian stock market from the shocks of 2008 has compelled the economist all across the world to take note India’s economy.


The financial system serves as a catalyst for economic development. The formal financial channels collect savings and idle funds and distribute such funds to entrepreneurs, businesses, households and government for investment projects and other purposes with a view of a return. This forms the basis for economic development in modern economic theory.

The financial system plays the role of inter-mediation and acts as a buffer in the mobilization and allocation of savings for productive activities in an economy. Managing the financial liquidity to avoid inflationary pressures and to flush out enough liquidity to sustain the growth are the functions of financial systems.

It also assists in managing the risks faced by firms and businesses, improvement of portfolio diversification, availability of a variety of financial instruments to suit the varied needs of the businesses, people and shock-absorbing capacity from external economic changes. Additionally, the system provides linkages for the different sectors of the economy and economies of scale.

Sushma Singh

Sushma Singh

Sushma is an expert in personal finance and business with lots of experience. She loves helping people understand how to make money online, build income without much effort, and become financially independent. Focusing on easy-to-use apps and fun games, she shows people the best ways to earn money online.

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