43
(xiii) The last decade has seen significant financial innovation in terms of
financing farmers through Joint Liability Groups (JLGs), ‘aggregation
models’ and developing Primary Agricultural Credit Societies (PACS)
into multiservice centres especially to
meet the credit and non-
credit services required by small and marginal farmers (
Verbatim
from RBI Governor’s speech cited above).
Finally, the ‘agency model’ with business correspondents (BCs) and
business facilitators (BFs) as ingredients has been adopted so as to fill the
vacuum in bricks and mortar bank branches.
Evidence of Success
The post-Independence banking development, and in particular post-
nationalisation banking progress continued for two decades until the end of
the 1980s, received approbation in literature on the positive role played by
finance in the process of development in India in general and that of rural
development in particular. Studies by Burgess and Pande (2003), Burgess and
Pande (2004) and Burgess, Pande and Wong (2004) conclusively prove that
state-led branch expansion into rural unbanked locations reduced poverty
across Indian states; in addition, the directed bank lending requirements was
associated with increased bank borrowing among the poor, in particular low
caste and tribal groups. Their studies go further and notice that while the
presence of a nation-wide bank branch licensing rule between 1977 and 1990
caused banks to open relatively more branches in Indian states with lower
initial financial development during the period, the reverse was true outside
this period; they also found that rural branch expansion in India significantly
reduced rural poverty and increased agricultural output. Earlier, Bell and
Rousseau (2001) brought out how financial intermediaries in India played a
leading role in influencing her economic performance; their results suggested
that the financial sector, amongst other things, was not only instrumental in
promoting increased aggregate investment and output but also in attaining
finance-led industrialisation.
Much earlier in 1975, an
Asian Survey
article (Torri, Michelguglielmo
1975) on “Factional Politics and Economic Policy: The Case of India's Bank
Nationalization”, concluded that “the progress of the newpolicywas noteworthy”.
There were large increases in amount outstanding and number of accounts for
agricultural credit as well as in advances to small-scale industries; the new
policy also brought about an impressive increase in smaller accounts. More
importantly, the paper opined: “as a conclusion, our hypothesis is that this
complex of policies....... had a powerful political impact, winning over to Mrs.
Gandhi an extremely wide coalition of social classes”.
