The target audience are students and general population interested in Sustainable Development Goals 2030. They will learn about the scale of financing needs of India required to achieve SDG 2030. They will learn about the importance of domestic resource mobilisation to achieve the SDG 2030. They will get a perspective on gross domestic savings, foreign capital flows, public private partnerships and their role towards achievements of SDG 2030. The need is to sensitize towards the role of savings towards achievement of SDG 2030.

1. A Perspective:
Role of Commercial Banks in Financing
Achievement of Sustainable Development Goals
2030 in India
FOR COURSE FINANCING FOR DEVELOPMENT BY WORLD BANK GROUP
DEVELOPMENT SPECIALIST TRACK
BY
RAVI CHANDRA
EMAIL: RCHANDRA1231@GMAIL.COM , PHONE-+91 97714 38191
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2. Disclaimer: The data and figures taken are from
secondary sources readily available on internet. The data
is used only for academic purpose only.
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3. India SDG 2030 Financing Need
• Middle-income countries or emerging economies like India occupy a very
interesting space in the world today.
• Moved from being recipients to becoming providers of capital, technical
assistance and foreign aid to the rest of the developing world.
• Simultaneously, home to two-thirds of the world’s people living in absolute
poverty.
• A study of India’s financial requirements and gaps by Development Alternatives
indicated that investment requirement for India to meet it’s SDG goals till 2030 is
USD 13.5 trillion, of which USD 1 trillion is apportioned to ensuring sustainable
consumption and production patterns.
• However, the current gap in investment already stands at USD 8.5 trillion.
• Mobilising domestic resources is emerging as a preferred source of financing for
development which is stable and fosters democratic ownership and accountability
of the development process.
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4. Introduction to Banking Sector In India
• Indian banking system consists of 26 public sector banks, 20 private sector banks,
43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and
93,550 rural cooperative banks, in addition to cooperative credit institutions.
• The Indian banking sector’s assets reached US$ 1.8 trillion in FY14 from US$ 1.3
trillion in FY10, with 70 per cent of it being accounted by the public sector.
• Total asset size of banking sector assets is expected to increase to US$ 28.5 trillion
by FY25.
• Deposits have grown at a CAGR of 13.6 per cent during FY05–15 to an estimated
US$ 1.48 trillion in FY15.
• Deposit growth has been mainly driven by strong growth in savings amid rising
disposable income levels.
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5. Introduction to Banking Sector In India Continued…
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6. Relevant Sustainable Development Goals 2030 in context
of Commercial Banks
• Commercial Banks play a key role in Domestic Resource Mobilisation.
• Commercial banks role in financial inclusion, saving growth and capital formation
makes them an important tool for achieving SDG 2030 in Indian context.
• The relevant goals and sub goals where commercial banks play an important role
are
• Goal 1. End poverty in all its forms everywhere
• 1.2 By 2030, reduce at least by half the proportion of men, women and
children of all ages living in poverty in all its dimensions according to
national definitions
1.3 Implement nationally appropriate social protection systems and
measures for all, including floors, and by 2030 achieve substantial
coverage of the poor and the vulnerable
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7. • 1.4 By 2030, ensure that all men and women, in particular the poor and the vulnerable, have
equal rights to economic resources, as well as access to basic services, ownership and control
over land and other forms of property, inheritance, natural resources, appropriate new
technology and financial services, including microfinance
• Goal 2. End hunger, achieve food security and improved nutrition and promote sustainable
agriculture
• 2.c Adopt measures to ensure the proper functioning of food commodity markets and their
derivatives and facilitate timely access to market information, including on food reserves, in
order to help limit extreme food price volatility
• 5.a Undertake reforms to give women equal rights to economic resources, as well as access to
ownership and control over land and other forms of property, financial services, inheritance and
natural resources, in accordance with national laws
• Goal 8. Promote sustained, inclusive and sustainable economic growth, full and productive
employment and decent work for all
Relevant Sustainable Development Goals 2030 in context
of Commercial Banks Continued…
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8. Role of a Commercial Bank in a Developing Country
• Mobilising Saving for Capital Formation
• Financing Industry
• Financing Trade
• Financing Agriculture
• Financing Consumer Activities
• Financing Employment Generating Activities
• Help in Monetary Policy
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9. Mobilising Saving for Capital Formation
• Capital formation is the most important determinant of economic
development.
• The basic problem of a developing economy is slow rate of capital
formation.
• Banks promote capital formation. They encourage the habit of saving
among people.
• They mobilise idle resources for production purposes.
• Economic development depends upon the diversion of economic resources
from consumption to capital formation.
• Banks help in this direction by encouraging saving and mobilising them for
productive uses.
• This role of commercial banks is most important for developing country
like India in context of domestic resource mobilisation.
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10. Financing Industry
• The commercial banks finance the industrial sector in a number of ways.
• They provide short-term, medium-term and long-term loans to industry.
• In some of the Latin American countries like Guatemala, they advance medium-
term loans for one to three years.
• In Korea, the commercial banks also advance long-term loans to industry.
• In India, the commercial banks undertake short-term and medium-term financing
of small scale industries, and also provide hire- purchase finance.
• They underwrite the shares and debentures of large scale industries. Thus, they not
only provide finance for industry but also help in developing the capital market
which is undeveloped in such countries.
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11. Financing Trade
• The commercial banks help in financing both internal and external trade. The
banks provide loans to retailers and wholesalers to stock goods in which they
deal.
• They also help in the movement of goods from one place to another by providing
all types of facilities such as discounting and accepting bills of exchange,
providing overdraft facilities, issuing drafts, etc.
• Moreover, they finance both exports and imports of developing countries by
providing foreign exchange facilities to importers and exporters of goods.
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12. Financing Agriculture
• The commercial banks help the large agricultural sector in developing countries in a
number of ways.
• They provide loans to traders in agricultural commodities. They open a network of
branches in rural areas to provide agricultural credit.
• They provide finance directly to agriculturists for the marketing of their produce, for
the modernisation and mechanisation of their farms, for providing irrigation
facilities, for developing land, etc.
• They also provide financial assistance for animal husbandry, dairy farming, sheep
breeding, poultry farming, pisciculture and horticulture.
• The small and marginal farmers and landless agricultural workers, artisans and petty
shopkeepers in rural areas are provided financial assistance through the regional
rural banks in India. These regional rural banks operate under a commercial bank.
Thus the commercial banks meet the credit requirements of all types of rural people.
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13. Financing Consumer Activities:
• People in underdeveloped countries being poor and having low incomes do not
possess sufficient financial resources to buy durable consumer goods.
• The commercial banks advance loans to consumers for the purchase of such
items as houses, scooters, fans, refrigerators, etc.
• In this way, they also help in raising the standard of living of the people in
developing countries by providing loans for consumptive activities.
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14. Financing Employment Generating Activities:
• The commercial banks finance employment generating activities in developing
countries.
• They provide loans for the education of young person’s studying in engineering,
medical and other vocational institutes of higher learning.
• They advance loans to young entrepreneurs, medical and engineering graduates,
and other technically trained persons in establishing their own business.
• Such loan facilities are being provided by a number of commercial banks in India.
• Thus the banks not only help in human capital formation but also in increasing
entrepreneurial activities in developing countries.
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15. Help in Monetary Policy:
• The commercial banks help the economic development of a country by faithfully
following the monetary policy of the central bank.
• In fact, the central bank depends upon the commercial banks for the success of
its policy of monetary management in keeping with requirements of a developing
economy.
• Thus, the commercial banks contribute much to the growth of a developing
economy by granting loans to agriculture, trade and industry, by helping in
physical and human capital formation and by following the monetary policy of
the country.
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16. • Savings provides the means for investments for financing growth in any country.
• Typically, investments are funded through domestic savings mostly and the
remainder through foreign capital.
• Domestic savings are from three sources -- households, private and public sector.
Household savings form the largest part of total savings.
• Gross domestic savings stood at 9.7% of GDP in 1951-1960. Savings improved
gradually in the 1980s and 1990s as the economy started opening to reforms.
• Sharpest rise in savings was in 2000-2010.
• Household savings at present is 23.5% of GDP and constitutes around 70% of total
savings. With rise in incomes, household savings have risen. Household savings
comprises physical and financial savings.
• Corporate savings have improved in recent years while public savings have declined.
History of Savings in India
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17. • Traditionally, physical savings have always exceeded savings in financial products.
• This trend has been reversed during FY10.
• Financial savings have improved with rise in financial inclusion and reach of banking
industry.
• Private savings account for 24% of total savings. It stood nearly around 10% of total
savings for four decades since independence.
• As India embraced a market-based economy, corporate savings started increasing.
• Corporate savings have risen sharply because open markets provided competition,
market access and better efficiency.
• Economic reforms in the 1990s increased corporate savings sharply to around 17% in
the same decade. It improved further in 2001-2010 to 21%.
History of Savings in India Continued…
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18. • Public sector has been the worst performer among the three sectors.
• Public sector savings stood around 21% in 1951-1960 and increased to around 25%
in the next two decades. In subsequent decades, it lost its share.
• In the 1990s, it fell to 5.2% of total savings. 1990s saw losses in public enterprises
and huge deficits by government that pushed public savings into negative territory.
• Household savings being the largest provides resources not only for household
investments but also for private and public investments.
• Household savings through bank deposits, small saving schemes, mutual funds,
equity market, insurance, corporate bonds gets channelled to private and public
enterprises that then use it for investments.
History of Savings in India Continued…
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19. Gross Saving Rate in India
• The biggest source of savings is the
• Household sector (22% of GDP)
• In 2008, the gross household saving rate was 38.1% of GDP
• The gross household saving rate has reduced around 22% of GDP in 2014-
2015
• The rate is falling consecutively for last seven years. It has recently started
moving up indicating improvement in business sentiments.
• Private corporate sector (7% of GDP)
• Public sector ( reduced from 2.3% of GDP in 2003-2004 to 1.2% in 2012-2013)
• The reduction in saving rates indicate that there is shift in savings away from
financial to physical assets such as real estate and gold.
• The fall in savings has undercut the very basis of growth in India. This has reduced
the domestic resource mobilisation capacity of India to finance its development goals.
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20. • There is switch in the composition of household savings—from financial to
physical assets due to uncertain business environment and lower business
confidence.
• The gap between financial and physical savings is now the widest in the last
decade.
• This decrease in financial savings has increased the current account deficit (CAD)
around 5% of GDP.
• One reason for this was the huge and almost insatiable demand for gold which is
being imported in a major way.
• This reduces the policy space to budget for financing achievement of SDG 2030.
Impact of Reduced Saving on Domestic Resource
Mobilisation
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21. • With liberalisation of economy and favourable business environment over two
decades Private sector leads in investments in the economy at approximately 37%
of total investments.
• Private investments are largely funded by household savings. Over the years,
private savings have also improved, which have further aided private sector
capital formation.
• Public investments are around 26% and household investments account for 32%.
Public share in investments has fallen over time, which indicates the government’s
inability to stimulate investments in the country.
• The private sector, being the biggest contributor to gross capital formation, now
has a crucial role to play in leading India’s economic growth.
• The way forward is to boost investments through private-public partnerships that
can help India solve its infrastructure problems which is being explored in a big
way by government.
Private Sector Contribution in Gross Capital Formation
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22. Public Private Partnership Status in India
• The PPP India database (Department of Economic Affairs, Ministry of Finance)
indicates that
• 758 PPP projects costing INR3,833 ( USD 58 Billion) is awarded/underway
status
• There exists significant untapped potential for the use of the PPP model in e-
governance, health and education sectors.
• Karnataka, Andhra Pradesh and Madhya Pradesh are the leading states in terms of
number and value of PPP projects. At the central level, the National Highway
Authority of India (NHAI) is the leading user of the PPP model.
• This has been mostly financed by commercial banks in India and they are playing a
lead role in financing for infrastructure in India.
• With commercial banks reaching the sectoral exposure limits, and large Indian
Infrastructure companies being highly leveraged, funding the PPP projects is getting
difficult.
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23. • Savings Investment Gap Domestic savings largely fund investments in India, but
tapping foreign capital flows is also crucial to improve capital formation further.
• The historic savings-investment gap of 1-3% of GDP has traditionally been funded by
foreign capital flows. Thus, the importance of foreign investments gets highlighted.
• Foreign capital can bridge the gap in capital formation if domestic savings are not
sufficient enough to address investments constraints in infrastructure and other
areas.
• However, the continuing economic crisis in the US and the Euro-zone raises concerns
about sustainability of capital flows into India.
• There has always been talk of outflow of capital if there is quantitative easing of Fed
USA but India is one of the top nations attracting Foreign capital to meets its
domestic needs for growth. Hence, contributing towards financing the SDG 2030.
Role of Foreign Capital Flows to meet Saving Investment
Gap
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24. Positive Effect on Tax Collection by Financial Inclusion
• Increase Government revenues, at the Central and State levels, by bringing a far greater
number of transactions within the tax net.
• VAT revenues would increase, with consequent positive impact on direct tax revenues,
given increased transparency in operations, and reduction in unaccounted transactions.
• Work hand in hand with electronic invoicing and thus set the stage for enabling smooth
introduction of GST.
• Use of electronic payments would allow the newly banked poor and low income customers to
start building a transaction history, which will enable them to obtain other credit-related
financial services.
• Save thousands of crore of money for banks, which is currently being spent by them to
subsidize inefficient / non-transparent cash transactions.
• business efficiency and enhance India's global competitiveness by engaging customers on
digital channel for transactions & sales thereby improving staff productivity.
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25. Proposed Policy Suggestion to Improve Domestic
Resource Mobilisation
• Government could consider granting 5-10% income tax rebate for all taxpayers
making more than 85% of their payments in the cashless mode (percentages could
vary).
• The required percentage of cashless transactions for rebate eligibility could be even
higher for very high income groups.
• This percentage can be quite easily determined from banking systems. A routine bank
statement / certificate stating percentage of cash debits separately would suffice to
claim the rebate.
• This would also not burden taxpayers, as they do furnish personal banking
information showing interest income accrued and tax payable / deducted.
• Administering such incentive should involve no extra load, either on the banks or on
the taxpayer.
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26. Conclusion
• India needs trillions of dollar to finance to achieve SDG 2030.
• Commercial bank deposits are at the level of USD 1.5 trillions at current level.
• India current account deficit is hovering around 4-5%
• India has limited policy space to improve capital formation through public
expenditure.
• India needs to improve financial inclusion and move towards streamlining tax
collection process through banking systems. GST seems to be effort in this direction.
• Improved tax collection can be important source in financing the achievement of SDG
2030.
• Streamlined tax process and ease of business can play an important role in attracting
foreign direct investment in PPP projects which can bridge the gap between savings
and investment.
• Improved household savings in financial assets will play an important in financing
the achievement of SDG 2030.
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