MUDRA BANK
JOBLESS CORPORATE
GROWTH!—CREATING JOBS-NO, SOPS-YES!
They have been the most
trusted and celebrated economic players in the last two decades. They got
foreign investments and local bank credits of over `50 lakh cr in 21
years since 1991 when the government red-carpet welcomed foreign capital and
multinational companies. But these celebrities, who absorbed capital that
equalled almost half the GDP, added only 2.8 million jobs in 21 years --just a
little over 2 lakh jobs a year!
And more. Citing the
global meltdown, they also got extra tax cuts of over `15 lakh crore from 2009
as stimulus for growth which, P Chidambaram now says, did the economy
down. Who are these economic players? All public and private sector companies,
including the listed and unlisted ones and multinational corporates, added
together. The corporates which led this sector -- known as the organised
sector in economic jargon-- came to be regarded as the growth icons after India
began liberalising and globalising its economy. Their promoters and executives
adorned the Prime Minister’s Economic Advisory Council. Celebrated by the
elite media and government circles, they dominated economic summits and their
concerns monopolise policy making. The powerful print and digital media turned
into their advocates.
Yet, the formal sector
generated 26.8 million jobs till 1991 and by 2012 it had improved the
number by just 2.8 million to 29.6 million.
[SO THE IMPORTANT TAKE AWAY IS THAT—ORGANIZED SECTOR CANNOT
EMPLOY INDIA!!]
THE ACTUAL EMPLOYER. NSSO ECONOMIC SURVEY DETAILS.
Small as Big Employer
Who else employs India? The answer to this contained in the data
provided by the surveys of the National Sample Survey Organisation
[NSSO]. The NSSO has been reporting in its Economic Census every 10 years that
it is the non-corporate sector-- derogatorily as informal sector by
economists-- which keeps India employed and sustaining its economic, even
public, order.
Its latest Economic Census [2014] says that some 57.8 million
small and micro [most of them unregistered and largely self-employment
concerns] provide 128 million jobs. This does not include the construction
sector or all limbs of the unorganised sector. The entire unorganised sector
put together provide over 460 million jobs.
FORMAL
V/S INFORMAL SECTOR.
Their asset base is
`11.4 lakh cr. But annual value addition is `6.28 lakh cr -- that is over 55
per cent. But the value addition by Indian corporate sector-- the crown jewel
of our economy--is about 34 per cent of their gross assets. While the
organised sector, that provides just a tenth of the non-farm jobs in the
country, has almost monopolised the organised capital supply, domestic and
foreign, the 57.8 million micro and small businesses that provide 128 million
jobs has got only 4 per cent of its capital needs from organised institutions![WHY
MAKE IN INDIA MUST CHANNELISE FINANCE AND INFRA TOWARDS INFORMAL SECTOR, ALSO
RAJAN’S CRITIQUE OF MAKE IN INDIA.] Who owns and operates the millions of micro
units? Almost two thirds of them belong to the Scheduled Castes, Scheduled
Tribes and Other Backward Castes. More than half of these units operate
from rural areas, where it is difficult to deliver economic growth. More than a
third of them are engaged in manufacturing. About a third of them in trade. The
rest in different services. Where do they get their finances which is the
life-line of businesses. It is from extortionate money lenders, who charge
usurious rates ranging from 36 per cent to 365 per cent depending on the type
of borrower. This has been the status of this Kamadhenu of employment creation
in India.
MODI’S PERSISTENCE TO
FUND THE MICRO- INFORMAL SECTOR
Birth of MUDRA
When Narendra Modi took over the nearly ruined economy from the
UPA, which had celebrated jobless growth, someone must have brought this
telling data of the highly funded corporates which have failed to deliver on
jobs and the unfunded non-corporates which have provided most of the jobs
in India. Modi must have immediately recognised the urgent and the unattended
financial needs of these unfunded millions of micro units. In the Budget the
new government presented in July last, the idea of creating a financial
architecture for funding these micro business units was seeded in para 102 of
the Budget speech and a Committee was constituted for the purpose. The Committee
submitted the report days before the 2015-16 Budget. But it rejected a
suggestion to create a separate development and regulatory bank like the
National Housing Bank to register and regulate and arrange wholesale finance to
provide retail finance for the unfunded micro businesses and also
appraise, register, regulate and refinance the existing small finance providers
after due appraisal and make them Last Mile Financiers. The Committee rejected
these suggestions saying that the Reserve Bank of India had opposed it as
theoretically a risk-prone idea. Normally this would be sufficient to close the
file.
But Narendra Modi would not close the file. Because he was perhaps
convinced that the existing financial institutions would not fund these
unfunded micro businesses which he must have understood as the backbone of job
creation in India. Modi shredded the Committee report and went ahead with what
he thought would work in and for India. The result is the birth of MUDRA
Bank idea in the Budget2015-16. Backgrounding the MUDRA bank, the Finance
Minsiter emphasised “inclusive growth” has to come from only the non-formal
sector, without saying the corporate sector cannot do it.
FUNDING THE UNFUNDED! AND INDIA’S BETTER
HALF.
Referring how the
unfunded non-formal sector, largely operated by the economically weaker
communities, provides the maximum employment and pointed out how they are
unfunded, he proposed the MUDRA Bank for funding the unfunded businesses. The
MUDRA Bank has theoretical depth and practical wisdom. In July 2013, a study
titled ‘India’s better half: the informal economy’ by the Credit Suisse Asia
Pacific Equity Division on the non-formal sector in India told the world that
nine out of 10 jobs in India and half of its GDP originated in the non-formal
sector including the 57.7 million micro businesses. The study reduced the
status of the corporates in the Indian economy as the “tail cannot wag the
dog”. The sheer size of the non-formal business in India obviously persuaded
even The Economist magazine to see the reality and to say that the best way to
organise the non-formal sector in India was to provide formal finance to
it.
FINANCING THE LAST MILE
FINANCIERS.
MUDRA Idea Potential Game Changer
The Press Brief of the Ministry of Finance Department of Financial
Services on MUDRA brings out how it is a Made in India idea for funding micro
businesses. As a bank to be established under a new law, MUDRA will register,
regulate and refinance all small business finance institutions.
It will partner state level and regional level coordinators to
enable them to provide refinance to Last Mile Financiers [LMFs] of micro
businesses. The inclusion of the local LMFs is a very innovative idea.
And a potential game changer. The MUDRA idea realises that only the LMFs
can have local knowledge and of the borrowers’ character and worth and seeks to
formalise their involvement in credit distribution to micro businesses. A real
innovation indeed. MUDRA will Register small financiers of micro businesses.
Regulate them. Accredit them. Rate them. Fix responsible financial
practices, client protection principles and methods of recovery.
Formulate and run credit guarantee schemes for credit
extended to micro businesses. Integrating the LMFS to deliver credit to micro
businesses is entirely an indigenous idea. An ingenious too. If LMFs are
evaluated, appraised, registered and given refinance at lower rates, the
ultimate interest rate for micro businesses would be far lower.
THE DEVIL ACTUALLY LIES IN ITS
EXECUTION!!
But this would call for
huge scaling up of execution and that is where governments normally fail.. But
Modi Government has shown remarkable capacity to scale up operations-- the Jan
Dhan Yojana where it hooked 12.5 million people to banks in less than six
months testifies to it. As compared to that scale, the integration of hundreds
of thousands of more informed existing and new LMFs into the regulatory and
refinance architecture of MUDRA bank does not seem to be a tall order at all.
MUDRA, which is a practical idea, is a potential game changer for the country.
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