Economic Growth Strongest Form of Financial Inclusion, Says Chief Economic Adviser
Chief Economic Adviser V Anantha Nageswaran emphasized that economic growth serves as the most sustainable foundation for financial inclusion, enabling natural entry into financial systems through job and income generation. He highlighted PM SVANidhi's success in empowering pandemic-affected street vendors to expand businesses and build sustainability. The CEA stressed that banks must integrate proven borrowers from government schemes into core portfolios while investors should accept lower financial returns for social impact, warning against indiscriminate lending that leads to over-indebtedness.
*this image is generated using AI for illustrative purposes only.
Chief Economic Adviser V Anantha Nageswaran delivered key insights on financial inclusion at the Global Inclusive Finance Summit, emphasizing that economic growth itself represents the strongest and most sustainable pathway to bringing people into the formal financial system. His remarks highlighted the critical relationship between economic expansion and natural financial system adoption.
Economic Growth as Natural Financial Catalyst
Nageswaran explained that when economies actively generate jobs, incomes, markets, and demand, individuals do not require forced integration into financial systems. "They enter naturally because they see opportunities, they invest, because the future looks larger than the present," he stated. The CEA emphasized that no amount of financial institutions can substitute for what economic growth provides, positioning finance as a complement to growth rather than a replacement.
The relationship between economic activity and inclusion follows a clear pattern: where livelihoods remain stagnant, inclusion becomes fragile, while expanding livelihoods create self-reinforcing inclusion processes. This dynamic demonstrates why properly aligned finance can serve as a powerful catalyst for growth when connected to real economic activity.
PM SVANidhi Success Story
The PM SVANidhi scheme exemplified successful inclusive finance implementation during challenging economic conditions. Street vendors, who faced severe impacts during the pandemic, utilized working capital access not merely for survival but for business expansion and asset investment.
| Scheme Impact: | Details |
|---|---|
| Target Beneficiaries: | Street vendors affected by pandemic |
| Primary Use: | Working capital for business expansion |
| Key Outcomes: | Asset investment, improved margins, sustainable business building |
| System Integration: | Bridge between formal and informal sectors |
This initiative demonstrates how inclusion should function—enabling people to move from fragility toward economic independence and transitioning from survival-based trading to productive operations.
Banking Integration and Investment Approach
Nageswaran outlined specific requirements for financial institutions to maximize inclusion effectiveness. Banks must integrate individuals graduating from government credit support schemes into their core portfolios, while investors in inclusive finance institutions should accept lower financial returns in exchange for social returns.
The CEA emphasized that mainstream banks must actively absorb proven borrowers, such as PM SVANidhi beneficiaries, into regular banking relationships. This integration should include:
- Regular loan products
- Insurance coverage
- Working capital credit lines
- Full portfolio inclusion beyond scheme-specific benefits
Measuring True Financial Inclusion
Traditional metrics focus on quantitative measures like bank account numbers, loan disbursements, and mobile wallet activations. However, Nageswaran stressed that genuine inclusion represents a journey rather than a destination. "The real question is not whether people have entered the financial system, but whether finance is helping them move towards economic independence," he explained.
The CEA warned against indiscriminate lending practices that destroy financial inclusion's fundamental purpose, leading to stress and over-indebtedness rather than empowerment. Inclusive finance institutions serve as crucial intermediaries for economically vulnerable populations, requiring careful balance between accessibility and responsible lending.
Impact Investment Framework
True impact investing requires explicit social return pricing while accepting reduced financial returns. This approach recognizes that inclusive finance institutions operate differently from traditional financial entities, prioritizing social outcomes alongside financial sustainability. The PM SVANidhi scheme creates transaction records for millions previously invisible to formal banking systems, establishing essential bridges between formal and informal economic sectors.
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