Navigating Financial Inclusion Amidst Left-Wing Extremism: Policy and Practice in Conflict Zones

Overview

Industry and commerce are the prime movers of any economy; if that is disrupted, the economic machine of the country comes to a grinding halt along with the fact that the disruption of the financial services leads to a vertically downward spiral of the economy by triggering a cascading effect leading to stagflation and dissatisfaction causing weaponization of chaos and disturbing the harmonious balance of Clausewitz’s trinity between Government, Citizens and Security agencies. Left Wing Extremism, since its advent created several conflict zones which further leaded to security challenges coupled with a multitude of problems like regulatory uncertainty, infrastructure deficiencies and poor financial inclusion in affected areas, which in turn inhibited business performance of the area and investment decisions, ultimately delaying the mainstreaming of the region with growth aspirations of India. There is a need to put emphasis on extracting logical flow and doctrinal synergies between various policies and practices of financial Inclusion in LWE affected areas and analyze the causal primacy taking into account increasing dynamicity of sub-conventional threats and emerging challenges of external theatres, technology and material conditions post 2020.

Disruption of Economic Activities

The frequent tussle between the left-wing extremists and the security forces impacts daily economic activities. One of the significant activities affected is agriculture, the primary livelihood for a major share of the population in the areas affected by Naxals. Conflicts in LWE areas impact business and trade by extortion, threats, and destruction. A study estimated that extremists collect a levy of around 10% from road work, 3% from construction of educational institutions, and about 5 million INR from each factory and mine in the affected areas.  Market access is usually curtailed by the security situation, making local producers suffer when selling their goods and others buying the same.

Ongoing conflicts like roads, communication networks, and electricity hamper state’s infrastructure. A large number of mobile towers, electric transformers, roads, bridges, govt. guest houses were destroyed in LWE-affected districts all across the country. The adverse impact on infrastructure development and maintenance further weakens the economic growth and isolates the area from the rest of the state. Overall quality of life and economic productivity are deeply impacted due to a lack of essential services like healthcare and education. Schools and other educational institutions in LWE-affected areas are forced to close frequently or get destroyed, creating severe disruption in the education of the resident children. Because of this hurdled education system, the majority of the young generation is deprived of a job-oriented education. In an answer to Smt. Sumitra Mahajan in Lok Sabha, Minister of Human Resource Development, Govt of India in 2013 stated that the annual average dropout rate in LWE districts in the states of Andhra Pradesh, Chhattisgarh, Jharkhand, Maharashtra, Odisha, and West Bengal is higher than the respective states’ overall annual average dropout rates i.e 9.8 against 9.1 in 2009-10, 7.3 against 6.7 in 2010-11 and, 7.3 against 6.6 in 2011-12. However, a few government initiatives like vocational training and skill development are creating employment opportunities.

Any private or public investment requires persistent stability in the area, which is lacking in the conflict zones, resulting in a severe growth struggle for local businesses and industries and stunted employment generation. The economy of these areas is mainly dependent on the agriculture and informal sector, which in turn are also affected because of frequent LW violence.

Financial Exclusion of LWE affected areas

LWE-affected areas lack adequate banking infrastructure due to frequent violence, limiting access to basic services like loans and insurance. Security risks and loot have further disadvantaged the local population, resulting in a lack of branches, ATMs, and BC agents. For instance, 13.5 lakhs were looted from Andhra Bank’s Pentlavelli branch in Madhubnagar district of Telangana in 2002, 5 Crore were looted from ICICI Bank’s cash delivery in Khunti district of Jharkhand in 2008, and SBI’s Kesiapota branch was looted by extremists in Mednipur district of West Bengal in 2021.

Naxal-affected areas are economically isolated from the state’s economic networks. Hence, their financial opportunities and integration into wider economic networks are limited to a more significant extent. The supply chains are disrupted by frequent violence, impacting local trade. The Naxals attacked many National, state and local road projects to create disruption in trade. 

Financial inclusion initiatives and development projects are often diverted due to insurgency, and government and NGOs’ aids fail to address root causes of financial exclusion. Conflict disrupts educational institutions, leading to lower literacy rates and poor financial literacy.

Role of Financial Inclusion in constructive development in the LWE affected areas

Access to credit facilities from banks and financial institutions supports agricultural activities, startups, and local businesses. Modern services like savings accounts and digital payments streamline transactions, reduce cash handling risks, and enhance trade productivity. Financial inclusion empowers people economically, reduces extremist activities, and fosters social cohesion. Digital financial inclusion ensures efficient distribution of government aid, reduces corruption, and allows for focused planning, development project targeting, and analysis of government interventions.

Financial inclusion can play a vital role in the economic upliftment of the excluded families, as they are more likely to invest in education for their children by availing the benefits of government schemes like Pradhan Mantri Scholarship Scheme (PMSS), National Means cum Merit Scholarship Scheme (NMMSS), Direct Benefit Transfer (DBT) for Scholarship, Post-Matric Scholarship Scheme, and Pragati Scholarship Scheme. Better healthcare facilities can be accessed if excluded families get financially included. They can access the facilities of Pradhan Mantri Jan Aarogya Yojana (PMJAY), Pradhan Mantri Matru Vandana Yojna (PMMVY), National Health Mission, and Direct Benefit Transfer (DBT) for Health Subsidies. 

Financial inclusion fosters stable economic environments in naxal-affected areas, attracting investors for domestic or international projects, and creating public-private partnership opportunities for local development.

Steps taken by the Government to bring financial inclusion in LWE-affected areas

Left Wing Extremism (LWE)-affected areas require additional support, including security measures, infrastructure development, and financial services. The Central government has adopted a multi-dimensional strategy, providing funds for modernization, intelligence networks, and fortified police stations, as well as developmental initiatives in affected areas. Under the Security Related Expenditure (SRE) Scheme funds are provided for ex-gratia to the family of the security personnel killed in LWE conflict, operations and training of the forces, rehabilitation of the surrendered Naxals, compensation for property damage by Maoists, and community policing. Under this scheme, Rs. 1648.23 crore have been released to the LWE-affected states since 2019. Under the Special Infrastructure Scheme (SIS) Rs. 969.80 Crore has been released to strengthen district police, special intelligence branches, and special forces.

The central government approved road connectivity projects for LWE areas. 17461 Km of roads have been sanctioned, of these 12100 Km have been sanctioned since May 2014, of these 13399 Km have already been constructed, and of which 10475 Km have been constructed since May 2014.

To develop telecom connectivity in LWE areas, the project has been divided into two phases. In the first phase 2343 mobile towers have been installed while for the second phase, a work order for the installation of 2542 mobile towers has been issued. 955 bank branches, 839 ATMs, and 30401 Banking correspondents have been opened since 2015 in the 30 most affected LWE districts. In 90 districts affected by LWE violence, more than 4900 new post offices have been started.

The government’s initiatives have resulted in a decline in violence in the LWE areas. Maoist attacks have decreased by 76% in 2022 as compared to 2010. The number of deaths of civilians and security personnel has also come down by 90% to 98 in 2022 from an all-time maximum of 1005 deaths in 2010. In 2010, 96 districts reported violence, while in 2022 only 45 districts reported the same. Recently, Hon. Home Minister Shri Amit shah mentioned that with the constant effort of the government, the fight against LWE is in its last phase and soon, the Naxal problem will be wiped out 

Recommendations

Government initiatives have improved local economic development, but more innovative solutions are needed to achieve a financially inclusive ecosystem. The following suggestions may be taken into consideration to enhance financial inclusion in LWE affected areas:

• Apart from increasing the public sector bank branches in these areas, the government may give infrastructural benefits to the private banks, small finance banks, and NBFCs opening branches in such areas.
• RBI, NABARD and SIDBI officers may be deputed in the branches set up in LWE areas as policy implementation officers.
• Banks may devise customized services conducive for the customers living in these areas with the help of NGOs and volunteers
• A proper funding mechanism for the training and capacity building of BC agents especially those trained to work in these areas.
• Agency systems may be institutionalized that can bring the bank service to doorsteps.
• There may be special discounted charges for banking services in LWE areas. For example, lower interest charges on loans and higher interest rates on savings accounts.
• More self-help groups may be created with adequate supervisory mechanisms in these areas and agencies like NABARD can act as a catalyst for promoting the SHG-Bank Linkage Programme. Group lending may create more consciousness than individual lending.
• A community resource person ‘Artha Mitra’ or ‘Artha Didi’ may be fielded to assist the locals in explaining the details of schemes, filling out loan application forms, following up on repayments, etc.
• A financial literacy campaign may be run in the LWE areas on a large scale by the joint effort of bank officials, security personnel, and local volunteers.
• All Regional Rural Banks (RRBs), Public Sector Banks (PSBs), and leading Private Sector Banks share data on the Bank linkage portal. Indicators such as the amount disbursed, overdue amount, exposure at default, and NPAs are recorded. These data for the branches operating in the LWE areas may be utilized in the formation of special banking and financial services policies for these areas.