The Indian economy, though boasted to be the World’s largest growing economies could not bring down unemployment and poverty to tolerable levels and over 25% of Indians continue to live in poverty. Inclusive growth – the mantra of the times, allows people to ‘contribute to and benefit from the economic growth’. Hence it has become a national policy of the Union Government and also a key objective of the Eleventh Five Year Plan.

Banking, a key driver for inclusive growth mitigates the supply side for gaining access to the financial system. Thus it is to be ensured that the weaker sections and low income groups should have an access to appropriate financial services at an affordable cost in a fair and transparent manner. Though the announcement of raise in repo rate to an unexpected 50 basis points (from 7.5% to 8%) by the apex bank has been lauded for the measure to combat inflation; it seems to be a matter of concern for financial inclusion. This short term interest rate could not have significant effect in inflation targetting.

In India, almost half the country is unbanked and of the 6 Lakh villages, only 50000 (approximately) have an access to finance. Will the measure of increasing the rates help to achieve financial inclusion? Will the common man understands what RBI desires? The bank credit which has come down sharply for the month of July 2011 clearly indicates the economic slowdown. Thus the increase of 50 basis points creates a signal for increase in interest rates and that will only impact the credit growth adversely. About 145 million households which are excluded from banking hence cannot enjoy the economic prosperity and the agenda for FIP (Financial Inclusion policy) is never seemed to hit its objective.

The Banks have raised their Benchmark Prime Lending Rates (BPLRs) and this will impact the poor individuals and small and medium enterprises to rely on their personal savings or internal sources to invest in health, education, housing, and entrepreneurial activities. Thus it is evident that banks are also not willing to do greater financial inclusion.

If RBI initiates effective cost control measures instead of passing on the increase in the rates, it could sustain the control of inflation as targeted. Will there be another announcement from RBI about rate hike, would only paralyze the inclusive growth and financial inclusion. If the goal of financial inclusion is to be met then the measures are to be such that it would enable every citizen to participate in India’s prosperity.