Swarajya: One has seen the Modi government launch reforms on a continuous basis, probably the first time any Indian government is doing so without necessarily having a big crisis precipitating it…
Yes, as you say, there has been relentless reform. Some are very small, but critical to the system; some are very big and so obvious. The small corrections we have done are many. Look at the way we have understood the difficulties that non-bank financial companies (NBFCs) are going through. To give them an infusion of cash, since 2019 we have taken steps to redress their grievances. First, we addressed their immediate problems, as they were sitting with (a lot of) papers that were worthless. We also pushed joint lending with banks in the first credit outreach. In October 2019, we asked the banks to go to the districts. Of the 750 districts, nearly 680 were covered.
The banks didn’t go alone. In every district, every bank was expected to bring in some NBFCs from that area during the credit outreach. What did this mean? It meant banks were directly offering credit to some, and where they did not have direct access, but the NBFCs did, the money went through NBFCs. However stressed the NBFCs were, they were continuing to do business and keeping themselves afloat. That happened in 2019, and in 2020 it was about keeping them alive. This year, from October, we are going again for a credit outreach. Again, the NBFCs will work along with banks for it.
Last June, we added MFIs (microfinance institutions) who lend to the last customer, where the maximum amount may be upto Rs 1.5 lakh. So, with banks, NBFCs and MFIs, the congestion in the passage of money has reduced. The banking system as a whole has been lubricated.
Swarajya: There has also been a lot of lending of small loans through various schemes…
Yes. We had been to Thoothukudi (formerly Tuticorin) for the 100th anniversary of the Tamilnadu Mercantile Bank, a well-managed bank. At a different venue there were stalls put up by the customers of banks who were benefited by Mudra, Stand-Up India and SVANidhi loans. (Stand-up India is about each bank branch lending to SC/STs or women entrepreneurs, SVANidhi is about lending to street vendors and Mudra is expanded as Micro Units Development and Refinance Agency).
There were self-help groups (SHGs), FPOs (farmer producer organisations), and some beneficiaries of Nabard lending. One small group, which had only nine members, showed us what they produced and how they are marketing it. The groups we met were selling local organic food material, bamboo-based items, textiles, and items woven by local women. I asked them (the nine-member group) what they were earning, and they said Rs 20,000 per month (each).
Swarajya: These were beneficiaries of Mudra loans?
Not just Mudra, Stand-Up too. When Stand-Up was launched, it was meant for small places with one bank, women and SCs. Even though most Stand-Up loans are meant for people living in the far corners, it is also there in places with strong eco-systems like Gurgaon, Bengaluru, Hyderabad, and places like that.
There have been other small reforms (under the Modi government), like the use of drones to demarcate private land boundaries in rural areas and giving certificates saying you are the owner of this piece of land which is now marked and cannot be encroached. For the person who has owned this land from his grandfather’s time or even earlier, this piece of paper means he can go to a bank and get money based on his land value, which is already recorded.
Swarajya: Commercial banks are still hesitant in giving small loans of Rs 20,000 or Rs 50,000…
I don’t think that hesitation is there in bankers’ minds any more. In 2014, when Jan Dhan was started, every one said most accounts had zero balances. So, what is the use? In the first year we said we will service that account and you can’t charge them for services…But now there are more than Rs 1.45 lakh crore in Jan Dhan accounts. It’s zero-balance no longer. And several accounts, after being observed for five or six months, have been issued RuPay cards, and withdrawals and deposits are regularly happening.
So, the cash flows in these accounts are clearly established, even with small amounts of Rs 10 and Rs 20. These small contributions would not have come to bank accounts without the formalisation done through Jan Dhan. This, along with digitisation of transactions, allows farmers to sell and get money credited without coming to bazaars. They can accept QR code-based payments.
Swarajya: So, you are saying credit is flowing to many segments, including the MSME sector.
Niranjan Rajadhyaksha (an economist with IDFC Institute) wrote about the problems with developing countries. There is income disparity and there is the vicious cycle of poverty. I am poor, I need credit, but I don’t have any security to offer, and so I will remain poor. Being poor means continuing to remain poor. So how are you going to break that vicious cycle? That is what most developing economies have had to grapple with and many don’t succeed. Am I saying we have broken this cycle? No, but look at the way we are approaching the problem.
We, as a party, and the PM as PM and earlier as CM, never believed in entitlement logic. We don’t say, he is poor and he is entitled to this. He is poor, we agree, and entitlement may help, but if I empower him, will he not come out of poverty? Entitlement is a tempting route to help the poor. Empowerment is a more trying route, but a sure-shot one to help you come out of poverty.
Take the example of all the empowering measures taken by us, and which were ridiculed at first. Jan Dhan was one, after that RuPay, after that Mudra, and after that many other schemes like DBT (direct benefits transfer), Ayushman Bharat, Atal Pension Scheme, etc. The poor can help themselves by investing, sometimes as little as Re 1 a day.
Then there are many schemes to lend to FPOs. This scheme has been extended to help fishermen. We are gradually weaning them away from the feeling that I don’t have security, and so I can’t get credit. The opposition mocked us, saying you want everybody to start a pakora shop, but that’s not the point.
Everybody gets some liquidity help. In Thoothukudi, the palm trees were there, but there was no incentive to make sugar from them, since nobody was buying and nobody was lending them money. But this is changing. Local weavers are getting their own weaving material and people are willing to buy them. In Tripura, bamboo-based products (are getting a boost). The economy is now sizzling with small economic activity (in some places). That is what is going to give you a virtuous cycle of demand spurring itself and therefore (boost) manufacturing.
Swarajya: Thank you for giving us the time. Wish you good luck for the next budget.
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