Is MUDRA Bank an end of Manmohanomics era?

S. Chandrashekhar, Member of Parliament  writes:

The is structured as a pyramid, with the rich and middle class as the top two layers of the pyramid and the bottom being the poor, which has been the political focus and the ‘intended’ recipient for several thousand crores of spending by successive governments. The spending on ‘programmes’ has continued with little or no change, despite evidence of rampant corruption, leakage and an increasing culture of entitlement rather than enterprise that has taken root in our country. It is this Budget that has started the process of restructuring and developing a more effective way of targeting these spends through its JAM (Jan Dhan-Aadhaar-Mobile) platform.

For all these years, a big part of this economic pyramid has been ignored by the spend-and-forget strategy. This slice of our country’s population, amounting to several hundred million jobs rooted in enterprise and hard work, is referred to as the non-corporate or informal sector. For the purposes of this article, I will refer to it as the informal sector.

….Bringing in the informal sector into the formal has many advantages for both business and economy. It is precisely to address this large population of Indians that have been kept out of the economic radar for the last six decades that the Budget has proposed the Micro Units Development Refinance Agency (MUDRA) Bank, which will be set up with a corpus of Rs 20,000 crore and a credit guarantee corpus of Rs 3,000 crore to help microfinance firms to lend more.

The will boost loans and cut borrowing costs for the cash-starved domestic small businesses. It will create a framework that regulates and provides refinancing capital flows to micro-finance institutions that are in turn in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities. This will create and expand the financial ecosystem that is a source of capital and finance to the unbanked and also reduce the cost of capital from the last-mile financers to the micro/small enterprises, most of which are in the informal sector.

The ‘change’ to our economic architecture could be deep and transformational. It involves funding the unfunded, and unlocking the potential of a new pool of entrepreneurs and future taxpayers in this country. It is encouraging for entrepreneurship across the economic strata. It is using micro finance, an economic development tool whose objective is to assist the lower income groups to develop and grow their small businesses, many of whose owners are traditionally excluded communities such as Scheduled Castes, or other Backward Classes, who own almost 60 per cent of all enterprises in this sector. It represents a real way to make the dreams of millions in the informal sector, long neglected and ignored, a reality. This formalisation of the informal sector would expand the tax-GDP ratio and expand the number of taxpayers and, in turn, government revenues.

This government is right to see the potential of this sector to drive up jobs and taxes. It has realised the force multiplier impact on the economy and tax revenues by a successful formalisation of the informal sector. It has realised the failure of both the Reserve Bank of India and the banking system in credit-supporting this sector. This also is core to this new economic philosophy of supporting enterprise wherever there is a desire for that in our economy, while continuing with better targeted and well-conceived social security framework for the poor and needy. This also marks an end to the Manmohanomics corporate sector-driven growth era and marks a beginning of a deeper and broader enterprise and entrepreneurship-driven economic model. This clearly fits the expectations of ‘change’ from this government.

Manmohanomics corporate sector-driven growth era? Are you sure?

Infact, for all we know this was exactly what people criticised Congress or so called Manmohan era. Whenever there was a problem, a new development financial institution/package was envisaged. All this talk of targeted schemes is backed by the very Aadhaar which today’s rulers opposed while sitting in opposition. We are made to feel as if so called JAM is being spread to the financial inclusion toast all by the current govt. It makes uop believe that Aadhaar was its own idea. They are ridiculed for NREGA but not praised for Aadhaar at the same time.

MUDRA Bank is nothing new actually. We have had quite a few refinance development finance institutions which have not really gone anywhere. Yes, there is no harm in trying another one but it is hardly a game changer.

It is amazing and shocking to see the kinds of pieces being written these days..

 

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