Inclusive Growth - The Role of Banks in Emerging Economies

Read full story here

Inclusive Growth - The Role of Banks in Emerging Economies

('Independence Commemoration Lecture, 2008' delivered by Deputy Governor, Smt. Usha Thorat at Central Bank of Sri Lanka, Colombo on February 28, 2008.)

Ladies and Gentlemen,

I am delighted to be here in Colombo and honoured by the invitation of the Central Bank of Sri Lanka to deliver this year's 'Independence Commemoration Lecture'. It is my proud privilege to join the illustrious list of previous speakers, who have added laurels to this prestigious lecture series. Today, I would like to share with you India's experiences on 'Inclusive Growth' - a topic which is both current and close to the hearts of public policymakers and central bankers of emerging economies.

Having chosen my topic, I am faced with the, not so unusual, speaker's dilemma as to from where I should begin. And I thought it is best to begin at the very beginning – some three millennia ago. Yes, some three millennia ago!! I refer to the 'Shanti Mantra' – a peace hymn – from the 'Kato Upanishad' of the Hindu scriptures which runs like this:

"Om Sahana Vavatu Sahanau Bhunaktu, Saha Viryam Karawavahai, Tejasvinavaditamastu, Ma Vidvishavahai, Om Shanti hi Shanti hi Shanti hi"

and translates to:

"Together may we be protected, together may we be nourished, together may we work with great energy, may our journey together be brilliant and effective, may there be no bad feelings between us, Peace, Peace, Peace"

Indeed, the significance and importance of the 'inclusive' concept has been well recognised millennia ago.

Coming to current times, there is growing realisation that while the 'trickle down' effect of economic growth no doubt works, it takes too long a time and hence there is a need to focus on inclusive growth. "Inclusive growth", is a little more than just the benefits of growth being distributed equitably and evenly; it is the participation of all sections and regions of society in the growth story and their reaping the benefits of growth.

I. Why inclusive growth?

While it is quite evident that inclusive growth is imperative for achieving the equity objective, what is, perhaps, not so obvious is, why inclusive growth is now considered essential even to sustain the growth momentum.

First, in many of the emerging market economies, the major chunk of population is based in rural areas. Significant increase in demand for manufacturing and services sectors has to come from the rural population. The average monthly per capita consumption expenditure (MPCE) in urban areas in India is almost double that of rural areas. In some States, the disparities are even more glaring. Therefore, it is important to ensure that growth takes place in agriculture, allied sectors as also in secondary and services sectors in rural areas, and amongst urban poor to provide a growing market for the goods and services produced by the expanding corporate sector.

Second, from supply-side management, growth in agriculture is necessary in order to keep manufacturing prices under check, provide food security and keep inflation under control. Price stability is not merely important as an anti poverty measure but also as an instrument to ensure stable and sustained growth.

To read full story - click here