Post date: Nov 25, 2013 6:34:40 AM
It is fairly obvious that inclusive growth is vital for accomplishing the equity goal. In most of the emerging market economies, the major chunk of population is rural based. In view of this, it is essential to make sure that growth takes place in agriculture, allied sectors as also in secondary and services sectors in rural areas. Growth without inclusiveness is no growth and it is bound to create lopsided development and thereby imbalance in the economy. Over a period of years, it is observed in the rapidly growing economies that growth is happening bye-passing the poor which is not desired for a sustained growth process. ‘Equitable Growth’ is indeed an imperative for ‘Inclusive Growth’. Accordingly, in order to achieve sustainable growth it is vital to achieve inclusive growth. Though there are several determinants for inclusive growth, the principal amongst them is that of finance in order to achieve allocative efficiency through effective credit delivery system to facilitate productive investment in employment impacting sectors. Access to finance by the poor is a prerequisite for poverty reduction and sustainable economic development. Directed credit programme involving loans on preferential terms and conditions to priority sectors has been a major tool of development policy in both developed and developing countries. The rationale behind directed credit is mainly to viaduct the gap between private and social benefits, whilst high investment risk of the projects and problems of information asymmetry discourage lending to priority sector involving agriculture, small and medium sized firms and others.
My research has established that Priority Sector Lending has a strong and significant relationship with inclusive growth process along with other factors such as domestic savings, total bank credit and per capita income. Priority Sector Lending over a period of years in Indian banking has had a positive impact on inclusive growth. In view of the relationship between Priority Sector Lending and inclusive growth, it is imperative on the policy makers in general and the governments in particular to make efforts to motivate the banks and financial institutions in increasing priority sector lending beyond the stipulations laid down by Reserve Bank of India. The banks in India are required to expand their efforts exponentially to reach out to the priority sector in providing evenhanded financial assistance for achieving inclusive growth.