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Full financial inclusion can boost GDP by 0.9%, says report

Press Trust of India  |  Mumbai 

British brokerage Barclays today said returns from financial inclusion, in the form of savings through reduced leakages, better tax collection and improved savings, would be much higher than the cost incurred.

"Full financial inclusion will require a capital expenditure of USD 500 million and an additional USD 1.3 billion in recurring annual operational expenses.

"The recurring service cost is about 0.1 per cent of GDP or 0.05 per cent of deposits and loans in the banking system," it said.

Pointing out that total financial inclusion could be achieved with an investment of less than 0.1 per cent (USD 1.8 billion) of the GDP which was USD 1.8 trillion in FY13, it said that this investment would deliver a return of up to 0.9 per cent of the GDP per annum.

The brokerage also said that "detailed modelling" done by its analysts points to a saving of up to 0.3 per cent of GDP through the reduced leakage, 0.4 per cent through better tax collections and 0.2 per cent through improved savings rate.

It described benefits of the Aadhar card, mobile banking and business correspondents model as a "transformational trinity" to achieve financial inclusion.

Pointing out that overall cost of financial inclusion is "manageable", it said that 100 per cent financial inclusion would require setting up 6 lakh customer service points which could service an additional 567 million new accounts which would have to be opened.

However, it said that there should not be worries about cost, adding that a third of the expenses could be recovered through additional revenues.

The commentary comes days ahead of the announcement of a comprehensive financial inclusion plan scheduled to be made by Prime Minister Narendra Modi on August 15.

It also comes a day after RBI Governor Raghuram Rajan stressed on the virtues of undertaking such a drive, saying it that it would help fight corruption.

Barclays said that lack of identity documentation, the key to fulfill know your customer (KYC) requirements and transaction costs are the "key barriers" to financial inclusion.

It may be noted that yesterday, Rajan had said that the RBI is looking at simplifying KYC norms.

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First Published: Tue, August 12 2014. 20:22 IST