Citizens' Issues
Modi’s Good Intentions Need to be Supported by Mindset Changes Down the line
The government is trying its best to fund the unfunded, but to implement it successfully, it must listen to those who are affected by its policies
If there is one thing that the Narendra Modi government seems earnest and active about, it is bringing the unbanked into the banking fold and providing funds to the unfunded. For the first group, the government launched the Pradhan Mantri Jan Dhan Yojana (PMJDY) one year ago, pushing banks to open no-frills accounts for the unbanked Indians with minimal know your customer (KYC) requirements and access to a debit card, insurance and overdraft facility of Rs5,000 for those who keep the accounts active. The scheme claims to have opened 174.5 million accounts which had deposits of over Rs20,000 crore at the beginning of August. 
Modi sarkar seems confident that funding the unfunded—the large swathe of small traders, vendors, hawkers, kirana store owners and self-employed—could bring about a significant change in the prospects for economic growth and employment. This has some basis. Prof R Vaidyanathan, in his book India Uninc., points out that unincorporated businesses contribute a massive 45% of national income. In contrast, ‘India Inc.’—comprising the large corporate groups that hog most of media space—contribute only 15% of national income, while the even more glamorous businesses, information technology (IT) and foreign investment, contribute a mere 5% and 8%, respectively, to national income, says Prof Vaidyanathan. 
So, “Start-up India, Stand Up India” was prime minister Modi’s slogan in his Independence Day speech, to implement which, a myriad different initiatives have been launched almost simultaneously to achieve the objective of creating new jobs through entrepreneurship. 
The Small Industries Development Bank of India (SIDBI) has launched two new programmes for start-ups among small and medium enterprises (SMEs) with an allocation of Rs12,000 crore: the India Aspiration Fund of Rs2,000 crore and the SIDBI Make in India Loan for Small Enterprises (SMILE) with a budget of Rs10,000 crore. Finance minister Arun Jaitley claimed that the two funds would catalyse “tens of thousands of crore of equity investment in start-ups and MSMEs, creating employment for lakhs of persons, mostly educated youth, over the next 4-5 years”.
Under The Pradhan Mantri Mudra Yojana (PMMY), banks will be pushed to disburse over Rs1.2 lakh crore to tiny businesses. Over Rs14,000 crore have already been disbursed to 20,000 people says a news agency report, quoting finance ministry officials. These loans range from Rs50,000 (to small vendors, electricians, plumbers, etc) to Rs10 lakh, most of it without collateral and an interest rate of 12%pa. Part of this lending will be through the Mudra card which will work like an overdraft that starts at Rs5,000 and allows vendors to meet their daily needs. Depending on their credit history, the borrowing can go up to Rs50,000 or more, say sources. 
• Under PMMY, the Micro Units Development and Refinance Agency (MUDRA) has earmarked Rs20,000 crore for developing start-ups with a credit guarantee corpus of Rs3,000 crore. The first loan of Rs35 crore to Satin Credit Care Network, for lending to retailers and vegetable vendors was granted on 
21st August. 
The banking licence to Bandhan Bank, one of India’s most successful micro-finance company, helps the strategy. Bandhan Bank, which launched with 501 branches, plans to focus on small entrepreneurs, hawkers and vendors. Speaking at the launch, finance minister Arun Jaitley talked about extending one trillion rupees worth of funds to SMEs across India, as it is they who will create jobs. 
Then, in July this year, the Union Cabinet approved the first integrated national policy for developing skills and promoting entrepreneurship 2015, which again has job creation, training, employability, incubation and mentorship for entrepreneurs as its core objective.
Add all this up and you will find that this is the first time since independence that we have such a sharp focus and multi-pronged approach to encouraging the growth of tiny, small and medium enterprises as well as the self-employed. Over 54% of India’s population is below 25 and the focus on job creation at the grassroots level is probably the fastest way to meet the aspirations and employment needs of young India. 
The question is: If these programmes have to work, is availability of funding enough? Is entrepreneurship and transformation only about access to loans? Will a top-down approach to policy-making work without taking into account other factors that affect small and tiny businesses at the local level? For instance, Prof Vaidyanathan, in India Uninc., points out that “85% of India is self-employed are subject to harassment and extortion by municipal, state and central government agencies and tax authorities.” How is any of this addressed in the many policies that have focused on skills or funding? Petty corruption and red tape have destroyed many a budding entrepreneur in India. Consider one example of how things can go terribly wrong, despite best intentions. 
Sometime in August this year, the Maharashtra government released a very comprehensive “Draft of Retail Trade Policy Maharashtra 2015”. To most people, the Draft Retail Trade Policy appeared to be a welcome effort to eliminate the hurdles for the retail trade. It talks about relaxation of shop timing under the Shops & Establishment Act, filing of consolidated returns under 13 different labour laws, inclusion of food and grocery in essential services, relaxation of stocking limit under Essential Commodities Act, relaxation of Development Control Regulations, exemption from APMC (Agricultural Produce Marketing Corporation Act), allowing retailers to buy directly from farmers, set up warehouses on agricultural land, operation guidance lines for Mathadi Act, etc.
However, some hundred thousand retail traders and shopkeepers erupted in anger accusing the government of ‘back-stabbing’ them. The Swadeshi Jagran Manch, which has been at the forefront of focusing the government’s attention on small businesses, said that “the policy will promote corporate retail at the cost of traditional retailers.” They allege that the draft retail policy is so focused on large retail that it failed to take into account the operating conditions and harassment faced by tiny retailers who were apparently cut out of many of the benefits and feared victimisation through ‘inspector raj with raids, seizures and penalties’. 
The truth would be somewhere in the middle; but retailers are right in being angry about not being consulted or represented when the policy was drafted, although 96% of retail is in the unorganised sector (small and medium-sized kirana stores). This underlines a current system, where large, organised businesses, with powerful lobbies, have the largest influence on policy-makers. It is also contrary to the government’s claimed focus on small businesses. 
This attitude, which will ultimately decide the success or failure of the government’s many plans and programmes is, by no means, limited to the retail trade. The concept of ‘funding the unfunded’ is laudable, but it is not clear how much of these will end up as a loan mela if the borrowers cannot repay. There is also no effort to educate borrowers about consequences of default in the formal system although they are being tracked by credit information companies. 
When it comes to financial inclusion, an area in which Moneylife works, we see the same reluctance to focus on real financial literacy or to address the important issue of credit histories. Lack of awareness about the consequences of such default has already blighted the future of many individuals and entrepreneurs, forcing even educated persons into the arms of informal lenders. But we see no signs of the finance ministry or the Reserve Bank of India wanting to understand or address the issue or even engage with ordinary consumers.
Ultimately, the best of good intentions will not translate into positive change, unless we see a change in mindset. A government that refuses to engage with those who are affected by its policies can only have limited success in its implementation. 



MG Warrier

10 months ago

Media reports (December 16, 2015)
say that 'Over 19 cr A/Cs Opened under Jan Dhan'(ET, December 16, 2015). The effort to increase the outreach of financial inclusion by packaging Direct Benefit Transfer (DBT), life insurance cover (though the cover is too low at rs30,000) and RuPay card is commendable and needs proactive cooperation from all financial institutions including banks in the cooperative and private sectors. Needless to mention that there would be several overlaps, double-counting and some ‘misuse’ of facilities, as the noble intention and the enthusiasm with which public sector banks have supported the efforts outweighs the negatives.
Centre should support PSBs to improve their manpower and skills for coping with the increasing burden arising from opening more than 19 crores of accounts on their books in a period just over one year. 19 crore accounts plus the incremental number of accounts @2 lakhs every day can end up in diverting manpower and resources from crucial areas like appraisal and follow up of credit, where PSBs are already lagging behind their private sector counterparts. Banking is a sector in which technology can speed up several operations, credit appraisal and follow up of disbursed credit for monitoring health of assets created and ensuring timely recovery machines or software can do precious little.

Anand Vaidya

1 year ago

I think PM Narendra Modi has opened up multiple channels to engage the citizens directly. Apart from Social Media access to/from PM, once can influence gov via portal, various local circles etc.

Probably this is the first time in Independent India that the gov is willing to listen....

But those babus will take time to re-adjust. I know several gov staff who can't handle a smartphone - they even have difficulty placing a call from an android phone!

How can they quickly adjust to the new environment? It is going to be a tough climb upwards...

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Top Tobacco Bond Banker Departs Barclays
Kym Arnone handled more than $40 billion in deals in which states and other governments borrowed against income from the landmark tobacco legal settlement of 1998
The go-to dealmaker in the market for tobacco bonds is gone from her post – a surprise departure that raises questions about the future direction of a once-burgeoning corner of Wall Street.
Kym S. Arnone, a senior banker who, by her own count, helped engineer more than $40 billion of tobacco bond deals, is no longer with Barclays Capital, a bank spokesman confirmed last week. 
The reasons for Arnone’s departure are unclear. Some clients contacted by Barclays said they had been told the separation was “mutually agreeable” but not whether Arnone was joining a competitor. Bankers at competing firms also told ProPublica they were not aware if she had been hired elsewhere. Arnone did not respond to calls and emails, and the Barclays spokesman would not provide details. 
Tobacco bonds had been a hot segment of the $3.6 trillion market for municipal government debt. A 1998 legal settlement with cigarette manufacturers created demand for bonds, which netted upfront cash for state and local governments that were promised billions of dollars in future payments to compensate them for health-related costs of smoking.
As ProPublica reported, tobacco bonds were a booming business from 2005 to 2008, when bankers like Arnone persuaded dozens of settlement recipients to borrow against their cut of the accord, sometimes for pennies on the dollar. These days, few new deals are coming to market. The most recent, a $750 million Louisiana transaction we wrote about in April, failed to get state legislators’ approval.
Instead, governments have been retooling past tobacco bond issues that are heading for default thanks to bankers’ use of a risky form of borrowing known as capital appreciation bonds, or CABs. These bonds typically carry higher interest rates and require big balloon payments, often decades in the future. 
Last year, Arnone engineered a bailout of two such bonds sold by New Jersey. As we reported, a hedge fund cleared a $100 million profit on its holdings of the rescued bonds, which were expected to default. 
New Jersey officials said the rescue was a good deal for taxpayers even though the state had to pledge about $400 million more of its future tobacco settlement money to prop up the bonds. They were part of a larger tobacco bond issue that Arnone handled for the state back in 2007. 
Since October 2014, Arnone has served as chair of the Municipal Securities Rulemaking Board, the industry’s self-regulator. A spokeswoman for the MSRB said Arnone would continue to serve out her term as chair of the MSRB’s board until her term expires on Sept. 30. As chair, Arnone is paid $80,000.
Courtesy: ProPublica


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