Inclusive Growth and Economic Development in India

INTRODUCTION #

The agenda of inclusivity and sustainability has become the focus of policy framework both at national and international level. The approach of development through including the general mass is directed towards a broad based growth, shared growth, and pro-poor growth. This is the central idea of the inclusive growth i.e. sharing of fruits of socio-economic development with all sections of the society. Elimination of the extreme forms of poverty and participation of the people is encouraged through the idea of inclusive growth.

The concept and definition of the Inclusive Growth is not formally illustrated anywhere in the government. There have been some attempts to frame the subject matter related to Inclusive Growth.

In-fact, the terms like inclusive growth, sustaina- bility, good governance etc. are made popular by the international organizations. The parameters of Inclu- sive Growth are considered differently by different governments, organizations etc. UNDP’s definition of the Inclusive Growth underlines production and income as the components of Inclusive Growth:

“Inclusive Growth is the process and the out- come where all groups of people have participated in the organization of growth and have benefited equitably from it. Thus inclusive growth represents an equation – with organization on the left hand side and benefits on the right hand side.

World Bank defines the Inclusive Growth as follows:

Inclusive Growth refers both to the pace and pattern of growth, which are interlinked and must be addressed together.

Thus, in broad sense, Inclusive Growth means the inclusion of all sections of society in the process of economic development and sharing of its benefit. Therefore, Inclusive Growth is not only an outcome or end but a process or a mean in itself.

DIMENSIONS      OF       INCLUSIVE GROWTH #

These are the pillars of the building block of Inclusive Growth, or in simple terms, these are the ideals on which Inclusive Growth is based. Without these ideals, the Inclusive Growth remains superflu- ous in its merit.

Equality #

Equality of opportunity in terms of access to markets, resources, and unbiased regulatory environ- ment are the ends to mean of equality. Inequalities exist in various manners which are social inequali- ties, rural-urban divide, regional disparities, digital divide etc. To realize the Inclusive Growth in its ultimate form, equality is the most fundamental crite- ria. Inclusive Growth and equality impact each other.

Without equality, Inclusive Growth can’t be achieved and lack of Inclusive Growth may lead to in-equality in real or perceived forms. Thus, Inclu- sive Growth and equality are mutually reinforcing. In contemporary economic environment, gender equality has become a basic element of Inclusive

Growth. Gender inequality is a pervasive problem in Indian social set-up which has adverse effect on women. Although Indian economy has progressed, the equality has retrograded at all levels whether social or economic. An OECD report has identified that inequality in India has been continuously rising which has posed policy challenges in promotion of inclusiveness.

Good Governance #

In simple words, governance means the regula- tory, monitoring or controlling process that facili- tates the delivery of the government services. Good governance results in effectiveness and efficiency, it upholds justice in the rule of law,and accountability and it encourages popular participation, consensus, and equality. Plan document defines governance in following way

“Governance relates to the management of all such processes that, in any society, define the environment which permits and enables individ- uals to raise their capability levels, on one hand, and provide opportunities to realize their poten- tial and enlarge the set of available choices, on the other”.

Good governance is an integrated effort of state, civil society and citizens. Governance here means not only state intervention; it is the responsibility of general mass and civil service organizations (CSOs). Good governance is the core of essential public ser- vices. It is the mechanism for integrating Inclusive Growth, public administration and accountability towards envisaged outcome. For example, problems in poor health infrastructure may be an impediment to Inclusive Growth and can often be traced back to poor governance of the Ministry of Health and Family Welfare. So, good governance provides a common platform for all actors and adapts to sustain the socio- economic transformation which is a pre-requisite of Inclusive Growth. As stated, governance is not only the forte of state; private governance has also a remarkable role to play in taking the Inclusive Growth ahead. The term, private governance here means the role of non-state actors in maintaining supply and demand equilibrium in market. Private governance also highlights the role of private sector in meeting the demand of capital, resource and skills required for Inclusive Growth.

Decentralization #

Empowering local self governing institutions is one of the delivery mechanisms of the Inclusive Growth. 73rd and 74th amendments of the consti- tution are innovation in the field of Indian Polity.

Centre and state governments have to empower the PRIs (Panchayati Raj Institutions) to make them enabler of Inclusive Growth. Without decentraliza- tion, it is a daunting task to implement the Inclusive Growth based policies. Therefore, government has to devolve, delegate and decentralize the adminis- tration. Decentralization is a bottom-up approach. Decentralization of rural governance is critical for achieving Inclusive Growth.

The present level of decentralization, insti- tutional structure is inadequate. Inadequacy of decentralization can be reduced by democratizing the institutions of local self-government, adopting measures of fiscal decentralization i.e. by providing sufficient financial resources.

Apart from that, the following are the deficien- cies in decentralization that can limit the potential of Inclusive Growth.

• Lack of finance, proper institutions and dele- gation of roles and responsibilities.
• Divergence in central and state approaches in programs and welfare schemes.
• Incoherence in organization at national and state level.
• Poor accountability, transparency and moni- toring mechanism.

Accountability and Transparency #

Accountability is answerability towards perfor- mance of service delivery. It sets in the responsi- bility towards the assigned tasks in terms of results and outcome. Accountability is specified both in vertically and horizontally.

The former refers to the departmental hierarchy in a government institution and the latter refers to the autonomous agencies for checks and balances on government activities e.g. CAG, PMO etc. Transparency is necessary for efficient delivery of essential public services; it acts as an enabler for citizens in accessing information on demand which

helps them in reinstating their claims on government endowments and entitlements meant for them.

Lack of accountability and transparency has earmarked the governance in India with red-tapism, bureaucracy and corruption. Government has put efforts in multifarious manners to curb the menace. Citizen Charter, Right To Information, Central Vig- ilance Commission etc. are revolutionary efforts, in as much the poor monitoring of their implementation has put a constraint of the efficacy of such ideas.

Sustainability #

In long term, it has been identified that, there has been a gross mismatch between the outcomes of the Indian Economic Planning for Inclusive Growth with respect to environment. Although, Indian econ- omy has witnessed a rapid growth, there has been a decline in the environment and standard of living of the poor.

In the issues related to Inclusive Growth as discussed ahead, it has been elaborated that Lib- eralization, Privatization and Globalization (LPG) has put a sheer pressure on the environment and created a rural-urban divide. Sustainability and Inclusive Growth can’t be achieved in isolation and they supplement each other. Without adopting a sustainable practice in Inclusive Growth the imple- mentation of Inclusive Growth policies is bound to falter. Sustainability is required at the following levels when charting out the policy framework for Inclusive Growth:

Financial Sustainability: The Inclusive Growth programs and projects of the government should be financially viable. It may be noticed that excess of subsidy and lack of outcome orientation is causing a problem of increasing fiscal deficit.

Social Sustainability: Social sustainability means the need to maintain and sustain specific structure and culture. This type of problem is typi- cally prevalent in tribal areas where the development programs for economic growth come in conflict with the cultural sentiments of the tribal population.

Environment Sustainability: In long-term, the environment standards must not be jeopardized while in pursuit of Inclusive Growth. Excess use of fertilizer is a die-hard need of the moment; at

the same time it has lead to the unique problem of depletion of soil productivity and technology fatigue.

MODELS OF INCLUSIVE GROWTH #

Inclusive Growth is not the sole responsibility of the state. The goals of Inclusive Growth can be realized if state and non-state actors work in tandem. There are some of the models of Inclusive Growth which are currently adopted by the government, private agencies and non-government organizations. Some of the models are discussed below:

Financial Inclusion #

Department of Financial Services, Ministry of Finance has taken an initiative to extend financial services to the large hitherto un-served population of the country to unlock its growth potential. Financial inclusion means to include the un-banked populace into formal banking system by providing financial services at very low cost. Rangarajan committee has defined the financial inclusion in following manner:

“The process of ensuring access to financial services and timely and adequate credit to where needed by vulnerable groups such as weaker sec- tions and low income groups at an affordable cost.”

The ministry therefore strives towards a more inclusive growth by making credit/capital available to the poor and disadvantaged section. Expansion of banking infrastructure, opening new branches, zero-frills bank accounts, banking correspondents (BCs) (use of services of intermediaries in providing financial and banking services through the use of Business Facilitators (BFs) and Business Corre- spondents (BCs), setting up of ultra small branches etc. are a few of the modalities under financial inclusion strategies of the government.

Issues in Financial inclusion #

Some issues with financial inclusion as high- lighted by the Deepak Mohanty committee:

Last mile service delivery: A low-cost solution should be developed by utilisation of the mobile banking facility for maximum possible G2P pay- ments.

Stability of the credit system: Fall out of FI initiatives is a stress on health of financial system. A unique biometric identifier such as Aadhaar

should be linked to each individual credit account and the information shared with credit information companies.

Gender Inequality: Banks have to make special efforts to set up an account opening mechanism for females.

Introduction of a system of unique identification for all MSME borrowers and sharing of such infor- mation with credit bureaus.

It recommended a graded system of certification of business correspondents (BCs), from basic to advanced training. BCs with a good track record and advanced training can be trusted with more complex financial tasks such as credit products that go beyond deposit and remittance.

The committee has recommended the use of application-based mobile phones as points of sale for creating necessary infrastructure to support the large number of new accounts and cards issued under the Jan Dhan Yojana.

In order to increase formal credit supply to all agrarian segments, digitisation of land records backed by Aadhar-linked mechanism is the way forward.

Model land act will be helpful for increasing access to tenant farmers.

Encourage multiple guarantee agencies to pro- vide credit guarantees in niche areas for micro and small enterprises (MSEs), and explore possibilities for counter guarantee and re-insurance.

Steps taken by the Government and RBI #

In past couple of years, RBI has fastened the pace of licensing process to promote financial inclusion.

23 entities have been granted banking licenses under different segments – universal banks, payment banks and small finance banks.

Benefits of the Policy #

Expedite the setting up of new banks as it will allow continued licensing rather than stop & go approach followed before.

Standing External Advisory Committee will be formed to vet the application after initial screening by RBI.

This will allow RBI to have a holistic exami- nation of wide variety of institutions applying for banking licenses.

Create a transparent process of banking license in India.

Issues with the Policy #

Time frame for granting of license has not been fixed. Last time the process of granting license was quite long (roughly 5 years).

Priority Sector Lending (PSL) #

Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation.

Challenges with Priority Sector Lending #

Currently many banks find it difficult to meet their PSL requirement as they may not find it viable to lend to the rural or MSME sector.

Despite agriculture being a prime focus, no substantial gain in capital investment has happened in agriculture because banks tend to lend for short term just to fulfil RBI norms.

More than half of the PSBs (16 of 26) didn’t achieve the 18 per cent agriculture target in 2014, while 13 of the 20 private sector banks failed to achieve sub-targets for agriculture.

So RBI issued a notification on 7 April 2016 permitting the issue and trading in Priority Sector Lending Certificates (PSLCs) as recommended by Raghuram Rajan Committee, 2008, whereby banks can buy and sell such credits to manage their priority sector lending requirements.

What is Priority Sector Lending Certificates (PSLCs?) #

PSLCs are tradable certificates issued against priority sector loans of banks so as to enable banks to achieve their specified target and sub-targets for priority sector lending through purchase of these instruments in the event of a shortfall. At the same time incentivizing the surplus banks to lend more to these sectors.

PSLCs are to allow market mechanism to drive priority sector lending by leveraging the comparative strength of different banks.

All Scheduled Commercial Banks (including Regional Rural Banks), Urban Co-operative Banks, Small Finance Banks (when they become operational) and Local Area Banks are eligible for PSLCs trading.

There will be no transfer of credit risk on the underlying as there is no transfer of tangible assets or cash flow. The settlement of funds will be done through the e-Kuber portal.

Types of PSLCs #

There would be four kinds of PSLCs:

• PSLC Agriculture
• PSLC SF/MF (Small and Marginal Farmer)
• PSLC Micro Enterprises
• PSLC General

Benefits #

Essentially the PSLC is a market-driven interest subsidy to those who provide priority sector loans.

Banks which are unable to meet their priority sector lending targets now have a more viable and easier way to make good their shortfall.

It offers banks a seamless platform to buy and sell their priority lending targets.

A bank that is focused on priority sector lending say, agriculture, now has the flexibility to issue and sell certificates with ease in the secondary market.

Issue of banks scrambling towards the year-end to meet their targets will also be resolved.

It allows the Banks to focus on their strengths and purchase credits from banks with expertise in making such loans (to Priority sector).

Concerns #

Lending banks may roll out more than required loans to make profit by selling extra PSL certificates.

Banks can involve too much in chasing fees through excess PSL trading.

Secondary trading of such certificates should also be checked.

RBI’s move on PSL certificates is an extremely innovative initiative. It has the potential to usher large efficiencies in Indian banking, without sacrific- ing on any of the larger inclusion and equity goals.

Unified Payments Interface (UPI) #

It was launched by National Payments Cor- poration of India (NPCI) to revolutionize mobile payment system in the country.

What is UPI? #

It is a common platform through which a person can transfer money from his bank account to any other bank account in the country instantly using nothing but his/her UPI ID. The interface will be based on the Immediate Payment Service (IMPS) platform.

How will it work? #

Easy: A customer can transfer money to another person through a unique virtual address, or mobile number, or Aadhaar number.

Simpler: Therefore, customers do not need to know the payee’s IFSC code, bank account details, etc. and this will make the process simpler.

Confidence: A customer can have multiple virtual addresses for multiple accounts in various banks. There is no account number mapper anywhere other than the customer’s own bank. It allows the customer to freely share the financial address with others.

How is it better than existing payment methods? #

Apart from doing away with the need for account details, one can also raise payment requests and ask for money. Therefore, it is being expected that apart from consumers, even merchants and companies will widely use this platform.

Significance #

India is still a cash intensive economy with cash to GDP ratio of over 12 per cent. As per estimates 95 % of consumer transactions (volumes) and 65

% (value) in India are carried out in cash. This compares with 40-50 % (volumes) and 10-20 % (value) for advanced economies. UPI is expected to change this.

The estimated annual cost of currency opera- tions in India is Rs 21,000 crore. By moving to a less cash economy, this cost can be significantly brought down.

More interoperability: Although a large number of banks are offering mobile banking services, these are not completely inter-operable, especially for merchant transactions. Full operationalisation of UPI will facilitate inter-operability in P2B payments.

Panel to promote card payments #

The government has set up an eleven member panel headed by former finance secretary Ratan P Watal to suggest ways to promote electronic transactions through incentives such as tax rebates, cash back, lottery and changes in existing regulatory mechanism.

The panel will recommend steps for leveraging unique identification number or other ID proofs for authenticating card and digital transactions and study global best practices in payments.

It will examine setting up of a Centralised Know Your Customer (KYC) registry and study the feasibility of creating a payments history of all card/digital payments to ensure “instant, low cost micro-credit” through digital means.

The committee will study introduction of single window system of payment gateway to accept all types of cards/digital payments of govt. receipts, settling them through NPCL and look into the scope of integration of all government systems like Public Finance Management System, PayGov, Bharatkosh and eKuber.

Inclusive Marketing #

Market act an instrument in creating means and ends for inclusive growth. Proper marketing of various schemes for Inclusive Growth can be vital in challenging the issues associated with it. Inclusive marketing is required at all levels i.e. G2G, G2C, G2B, B2B or B2C etc. IEC (Information, education and communication) can be adopt by the government for inclusive marketing.

While corporate social responsibility i.e. CSR can be one of the methods adopted by the private and public sector corporate e.g. ITC’s e-choupal wherein ITC (a private sector company) has taken an initiative for farmers through technological and financial assistance. If Inclusive Growth is not seen as an end of inclusive marketing but as a mean, then it becomes apparent that inclusive marketing

is dedicated to add values to the livelihood of the poor and not merely treating them as a consumer of product and services. The disadvantaged sections of the society face the challenge of making both ends meet. Difficulty in accessing the markets, welfare schemes make them more vulnerable. Therefore, Inclusive marketing is a mode of integrating the have-nots to the mainframe of development process.

Corporate Social Responsibility (CSR) #

CSR has a prominent role in complementing the quest for Inclusive Growth. The private sector has been playing a vital role in promoting Inclusive Growth and contributing in various initiatives. CSR has now become a part of the corporate policy of the Indian industries. This may be because govern- ment has provided the financial incentives to the industries which are contributing at least 2% of their profit towards CSR.

CSR: An Assessment #

It’s now been over couple of years since Section 135 of the Companies Act 2013 came into effect and it has sought to alter the way corporate social responsibility (CSR) is approached in India.

Provisions of CSR in India #

• Under the Companies Act, 2013 certain com- panies have to spend at least 2% of last 3 years average net profits on CSR activities.
• The Act also urges companies to leverage their business acumen and core competencies to address social issues in the same manner as they would carry out other business opera- tions.
• The Companies Act 2013 allows for collab- oration between two or more companies by using a separate legal entity.

Salient Points #

• CSR budgets have grown exponentially.
• Promoting education and eradicating poverty received the maximum funds last year through CSR funding.
• Consumer goods companies were the only companies that exceeded the mandatory spending limit of 2% of annual profits.

• Most companies that have implemented social engagement strategies have not looked at their CSR strategies through the same lens as their core business functions.

Challenges faced by companies #

• Lack of clarity about regulations with respect to what is allowed under the law.
• Lack of knowledge about sector and industry best practices.
• Few implementation partners have the capac- ity to work with companies.
• A clear challenge in the first year of the new CSR rules implementation is impact assess- ment.

The six areas have failed to attract significant interest #

• Slum development.
• Technology incubators at academic institu- tions.
• Promotion of rural as well as Paralympics and Olympic sports.
• The Prime Minister’s Relief Fund.
• Preservation of national heritage, art and culture.
• Welfare of armed forces veterans and war widows.

Way Forward #

The government should leverage the CSR law to meaningfully engage companies in the development sector.

Create frameworks that facilitate public-private partnerships for the implementation of long-term and impactful programmes.

Impact Assessment should be encouraged to understand the success of programmes and initiatives.

FCRA (Foreign Contribution & Regulation Act) amended to Boost CSR Spending:

• The amendment effectively redefines Indian subsidiary of foreign companies as Indian companies, (retrospectively until 2010) which was till now considered as “foreign source”

under FCRA (Foreign contribution and Reg- ulation Act).

• This will increase the quantum of CSR spend- ing.
• It will benefit the smaller NGOs who can’t undergo the difficult process of registration with FCRA to receive funds.

STRATEGIES  FOR   IMPLEMENTA- TION #

There are lots of strategies for the implementa- tion of inclusive growth. In most cases, developing a strategy is not a problem, but implementation and monitoring. Below mentioned are some flagship approaches towards implanting Inclusive Growth policies:

Resource Allocation #

Without proper resource utilization, the issues of poverty, equity and development cannot be addressed. Equitable sharing of the resources serves as one of the most important tool to implement the inclusive growth based policy framework. The allocation of resources should be made in a way to benefit the general mass in short and long term. This may be through proper availability of consumer goods, facilitating access of people, opening avenues of employment and enhancing standards of livelihood.

Public Distribution System (PDS) is a classic example of reinforcing Inclusive Growth through proper resource allocation. PDS should be re-struc- tured. It is important for food security. Government is re- working on the food security bill. Poverty line is one of the criteria of resource allocation.

Employment Generation #

Employment is the most vital of all strategies of inclusive growth. At the same time, employment generation is a real challenge to the government. This is because India is witnessing a demographic transition and burden of demographic dividend. Albeit, the latest consensus has showed that the population of India is decreasing but the population of young people entering the labour force is contin- uously increasing.

A research study carried under the aegis of the  erstwhile  Planning  Commission  shows  that

employment in total in general and in non-agri- cultural sectors in particular has not been growing. Unemployment growth in recent years has been accompanied by growth in casualization and infor- malization. National Commission on Enterprises for the Unorganized Sector headed by Arjun Sengupta recommended several measures to resolve this prob- lem of informalization in the employment.

Major Sectors	Total Employment	Un-organized Employment	Organized
Agriculture	244.85(100%)	242.11(99%)	2.74(1%)
Manufacturing	50.74(100%)	34.71(69%)	16.03(31%)
Non-Manufac- turing	48.28(100%)	30.38(63%)	17.90(37%)
Services	116.34(100%)	80.17(69%)	36.17(31%)
Total	450.22(100%)	387.38(84%)	72.84(16%)

A transition of increasing employment from unorganized to organized sector is an indication of socio-economic development. However the condition of employment is contrary to this transition. Indian economy is marked by the disguised employment as a large chunk of the man force is employed in agriculture sector where there is very low marginal productivity. The table above shows the similar trend. Employment in manufacturing, non manufac- turing and services is roughly one-third and large share of unorganized employment in the agricultural sector. For a sustaining inclusive growth, govern- ment is required to develop policy framework for employment generation as a top priority.

MGNREGS is a successful attempt in this regard. Poverty alleviation schemes through resource distribution may be panacea for short term but in long term, employment generation is the only way out. This is because resource distribution through subsidization enlarges fiscal deficit and burden on exchequer while employment is productive in its tendency.

Employment Present Status #

The rapid decline in poverty in India between 2005 and 2012 was driven mainly by higher labor earnings. Over this period, wages for unskilled workers increased sharply. There was also a marked shift towards non-farm jobs.

But the quantity and quality of jobs created between 2005 & 2017 has raised concerns about the

sustainability of poverty reduction, and the prospects for enlarging the middle class.

Majority of those who escaped poverty, moved slightly above the poverty line but did not gain entry into the middle class. They remain vulnerable to slipping back.

The deficit in the number of jobs created after 2005, as well as in their quality, explains this vul- nerability.

An overall deficit of jobs #

According to Labour Bureau Survey on Employ- ment 2015:

• Between 2005 and 2012, of the 13 million potential entrants into the workforce every year, only 3 million got a job.
• New jobs in eight labour-intensive industries fell to a six-year low in the first nine months of 2015 – with just 1.55 lakh new jobs being created.
• By contrast, 3.04 lakh new jobs were added in January-September 2014 and 3.36 lakh in the same period of 2013.
• Contractual jobs also declined by 21,000 in Jan –Sept 2015 against increase of 1.2 lakh in the corresponding period of 2014.

The survey found that:

• Gems & Jewellery sector saw 19,000 job losses during 2015.
• Handloom/Powerloom at 11,000.
• 8,000 jobs lost each in leather and automo- biles sectors and
• 4,000 jobs loss was recorded in transport sector

A deficit of good jobs #

In this period, there was considerable dynamism in the informal segments of the economy, especially in rural areas.

There was a substantial decline in employment in agriculture, with nearly 34 million farm jobs lost between 2005 and 2012.

There was a boom in construction jobs, which accounted for nearly half of the expansion in non-

farm employment. However, construction jobs tend to be casual.

These jobs helps people escape poverty but do not propel them into middle class. Transitions into the middle class are associated with regular, salaried jobs.

Regular jobs have to be created in small towns and large villages, where most of India’s poor live. Only this can build a sizeable middle class.

A deficit in suitable jobs for women #

Historically, India’s female labour force partici- pation rates in urban areas have been low – hovering around 20%.

After 2005, there has been large withdrawal of women from the rural labor force also.

Women are more likely to work when:

• Jobs are located close to their homes and allow multi-tasking, like farming.
• Or if they offer regular wages with social protection benefits, like manufacturing.

Skill Building and Capacity Development #

Skill deficit is a major impediment in Inclusive Growth. Government has created a framework for entrepreneurship development. Employment gener- ation may not fulfill the rising employment demand due to large share of the population lying in the informal sector. Skill and capacity development are therefore cornerstone. Indian government has set a target of providing skills to 500 million peo- ple by 2022. Key agencies involved are National Skill Development Council, National Council of Vocational Training and Directorate General of Employment and Training, other government and non-government agencies, business chambers etc.

Government Initiatives related to Skill Development #

Pradhan Mantri Kaushal Vikas Yojana #

The Union Cabinet approved the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) with an outlay of Rs 12000 crore to impart skill training to one crore people over the next four years (2016-2020).

What is it? #

Pradhan  Mantri  Kaushal  Vikas  Yojana

(PMKVY) is the flagship scheme of the Ministry of Skill Development & Entrepreneurship (MSDE).

The objective of this Skill Certification Scheme is to enable a large number of Indian youth to take up industry-relevant skill training that will help them in securing a better livelihood.

Individuals with prior learning experience or skills will also be assessed and certified under Rec- ognition of Prior Learning (RPL).

About Scheme #

Skill training would be done based on the National Skill Qualification Framework (NSQF) and industry led standards.

Under the scheme, a monetary reward is given to trainees on assessment and certification by third party assessment bodies.

The average monetary reward would be around Rs.8000 per trainee.

Eligible Beneficiaries #

In line with the scheme objectives, the scheme is applicable to any candidate of Indian nationality who:

• Undergoes a skill development training in an eligible sector by an eligible training provider.
• It is certified during the span of one year from the date of launch of the scheme by approved assessment agencies.
• It is availing of this monetary award for the first and only time during the operation of this Scheme.

Implementation #

The scheme would be implemented through NSDC training partners. Currently NSDC has 187 training partners that have over 2300 centres.

In addition, Central / State Government affiliated training providers would also be used for training under the scheme.

Focus under the PMKVY would be on improved curricula, better pedagogy and better trained instructors.

Training would include soft skills, personal grooming, behavioural change for cleanliness, good work ethics.

Skill Development Management System (SDMS) would be put in place to verify and record details of all training centres a certain quality of training locations and courses.

Biometric system and video recording of the training process would be put in place where feasible.

A robust grievance redressal system would be put in place to address grievances relating to imple- mentation of the scheme.

Mobilization would be done through skill Melas organized at the local level with participation of the state governments, municipal bodies, Pachayati Raj institutions and community based organizations.

Assessment #

Highlights of skill training would be done on the basis of demand assessed on the basis of recent skill gap studies conducted by the NSDC for the period 2013-17.

For assessment of demands of Central Minis- tries/Departments/State Governments, industry and business would be consulted.

A demand aggregator platform would be launched for the purpose very soon.

The target for skilling would be aligned to demand from other flagship programmes launched in recent times such as Make in India, Digital India, National Solar Mission and Swachh Bharat Abhiyan.

Skill training under the new scheme will primarily be focused on a first time entrants to the labour market and primarily target Class 10 and Class 12 drop outs.

Way Forward #

The success of the scheme will depend on the implementation at ground level. It needs cooperation and collaboration between different departments and ministries for creating impact at grass root level.

Getting certified is just the first step, the real solution lies in job creation and employability of the skilled citizenry, if this is not realised the demo- graphic dividend that we aspire to achieve will turn into demographic disaster.

Transnational Skill Standards’ In India #

Ministry of Skill Development And Entrepre- neurship, along with National Skill Development

Corporation (NSDC) and UK-India Education and Research Initiatives (UKIERI),announced the launch of “Transnational Skill Standards” in India.

Objectives #

• to support two major initiatives of the Gov- ernment i.e. “Make in India” and “Skill India”
• to align to skill standards which are recog- nized globally

These standards are benchmarked to United Kingdom across 82 identified job roles.

UK standards have been chosen to benchmark Indian Skills standards since all the Gulf Cooper- ation Council (GCC) countries recognize UK skill certification.

The Transnational Standards will highlight the gaps in Indian Standards against the UK standards. To cover the gaps, those intending to migrate, will undergo ‘bridge training’.

The Further Education Colleges (FE) of the United Kingdom will partner with Indian Training Providers to impart training on bridge courses. FE Colleges to set up Skill Academies of Excellences in the identified sectors in India.

Skill Banks to Train Workers for Global Markets #

In U.P and Bihar, the government is setting up 50 global skill banks (training centres) to train potential immigrant workers in 110 job roles as per international standards.

Objectives #

• These training centres will impart skills across sectors such as medicine and healthcare, hospitality, IT, construction, automobile and retail trade — where job opportunities exist or are likely to arise.
• Before they emigrate, youth trained in these skill banks would also be made familiar with the respective local culture, work ethic and language of the country they obtain a job in.
• To make India “the human resource capital” of the world.

Assessment #

Highlights of skill training would be done on

the basis of demand assessed on the basis of recent skill gap studies conducted by the NSDC for the period 2013-17.

For assessment of demand of Central Ministries/ Departments/State Governments, industry and busi- ness would be consulted.

A demand aggregator platform would be launched for the purpose very soon.

The target for skilling would be aligned to demand from other flagship programmes launched in recent times such as Make in India, Digital India, National Solar Mission and Swachh Bharat Abhiyan.

Skill training under PMKVY will primarily be focused on a first time entrants to the labour market and primarily target Class 10 and Class 12 drop outs.

For Skill banks:Uttar Pradesh and Bihar were selected first due to their high population and for having the record for the maximum migration for overseas employment.

The National Apprenticeship Promotion Scheme #

The cabinet has approved a National Appren- ticeship Promotion Scheme (NAPS). The Scheme has an outlay of Rs. 10,000 crore with a target of 50 lakh apprentices to be trained by 2019-20.

Significance #

India has less than 3 lakh apprentices. This is a small proportion of over a crore people annually joining labour-force of 48 crore workers.

Youth: It substantially improves their employ- ability and market value as well as their capability to become self-employed.

Industry: benefits from enhanced skills, higher productivity and better professionalism once appren- tices join the workforce.

Government: among a large number of skilling schemes, the efficacy of apprenticeship system is the highest.

Background #

The NAPS has been framed to meet objective of National Policy of Skill Development and Entre- preneurship, 2015, which focuses on apprenticeship as one of the key components.

NAPS is a part of Labour reforms: Govt. has already amended Factory act, Apprenticeship act and labour laws act in 2014.

Apprenticeship (Amendment) Act has disman- tled the outdated system of trade-wise and unit-wise regulation of apprentices under a prescriptive regime. Now the minimum target of apprentices is 2.5% and maximum is 10%. Also penalties such as imprison- ment and other liabilities have been removed

Apprenticeship portal was recently launched by the Prime Minister to work as a platform for companies, apprentices and government.

Curriculum of major apprenticeship courses accounting for 70% of the existing seats has been revised to make them more industry-relevant and competency-based.

Key Features of Scheme #

• Union Government will directly share, 25% of the total stipend payable and 50% of total expenditure for providing basic training-to an apprentice, with employers.
• It will be implemented by Director General of Training (DGT) under MSDE.
• For MSME sector: This scheme will encour- age third-party agencies to provide basic training when in-house training infrastructure is not available.

Agriculture #

Agriculture is the central pillar of inclusive growth. It provides employment to unskilled work- force and sustenance to the population. Average annual growth rate of agriculture and allied sector was 3.6% during XI Plan against 2.5% and 2.4% in IX and X plans respectively. The Economic Survey 2017 predicts an agricultural growth of 4.1% in the current year from 1.2% in 2015-16.

Although the rate has increased but at the same time rural distress, farmers’ suicides and debt have also increased. Inflation, vulnerability to world commodity prices, regional disparities have been newly emerging challenges. The policy framework of the government is in-adequate. There is a gross mis-match on both supply side and demand side.

Land issues, subsidies and lack of investments,

Land and Water management, Technology, Credit, Diversification and Marketing, Institutional set-up and prices are chronicle problem. Five factors which the government needs to work out and that may unblock the agriculture growth potential are: public investment, private investment, technology, diversification and fertilizer. Agriculture can serve as a mean to economic growth if the efforts are target oriented.

Agriculture growth rate above 4% and invest- ment in agriculture must be around 15%-20% of the GDP. Equitable sharing of the benefits of agriculture growth between various levels of the population pyramid is much needed. Environment friendly prac- tices can provide the sustainability. In addition to the targets, government must check excess of subsidies. Subsidies over a limit are burden on exchequer and it leads to the degradation of environment.

The choice of right technology is also a leading concern in Indian agriculture. Genetic Modified crops are widely debated and existing technology is showing a characteristic phenomenon called “technology fatigue” i.e. technology applied to the agriculture has failed to increase the agricultural productivity.

Diversification of the land between farmers and between different crops has limited the growth prospect of agriculture. Small farmers are not able to make the most of increasing agriculture productivity. Crops like wheat and rice are most grown due to less risk in these commodities. Crops diversification is not practiced in Indian agriculture at a broad level because of lack of proper infrastructure.

ISSUES RELATED TO INCLUSIVE GROWTH #

Various issues are involved when it comes to Inclusive Growth. Some issues are quite basic which ahs lack of clarity in vision; some are related to the lack of willingness while others may be due to the constraints which can be overcome in short term. Some key issues associated with Inclusive Growth are following:

Growth vs. Development #

Over a period since economic reforms, India’s economic growth has witnessed a mixed effect on

the has development. GDP is considered as the key parameter of economic growth. In reality, the increasing GDP growth rate has not trickled down to the bottom of pyramid. A research study carried by Indira Gandhi Institute of Development Research, an autonomous think-tank under Reserve Bank of India find out that economic growth has “trickled down” in both rural and urban areas; it has not been in favour of the poor. In urban areas, growth has been “anti- poor.”

BPL and poor of the poor still remain margin- alized. Such issues are quite fundamental in nature as they depict the lack of clarity in the vision and strategy of the policy. It is time, to put the Inclu- sive Growth as the central agenda of the economic growth.

Defining Poor #

Who are poor and who should be the benefi- ciaries of the welfare schemes? Without a proper criterion of poverty, proper policy framework for inclusive growth cannot be developed. Efforts have been put, taking calorie values, wages etc. as criteria of defining poverty line.

The lacuna of poverty definition also impacts the other associated areas such as employment schemes and subsidies for the poor. All this have repercus- sions on inclusive growth.

Oxfam Report on Inequality #

The anti-poverty charity ‘Oxfam International’ gave report titled “An Economy for the 1%”

Salient points in report #

• Since 2000 the poorest half of world popula- tion has received just 1% of the total increase in global wealth, while 50% increase has gone to top 1%.
• Total wealth of 62 individuals = wealth of

3.6 billion individuals.

• According to a World Bank forecast, if pro- poor growth moves are not visible soon, by 2030, almost half-a-billion people will still live in extreme poverty.
• Inequality poses a threat to economic expan- sion and social cohesion around the world.
• Suggestions in the report to reduce inequality

• Check the influence of the very rich and to empower people who are currently excluded from the power structure.
• For workers, they suggest increasing mini- mum wages towards living wages, promoting transparency on pay ratios and protecting workers’ rights to unionize and strike.
• End of tax havens, describing them as unjust and a legal means that allowed the rich to remain rich, estimating that tax havens help the rich hide $7.6 trillion.
• Governments should work towards creating a worldwide tax transparency system.

World   Bank   Report   ‘Ending   Extreme Poverty, Sharing Prosperity’ #

The World Bank revised the global poverty line, previously pegged at $1.25 a day to $1.90 a day in 2015 (approximately Rs. 130), on 2011 Purchasing Power Parity (PPP) data.

The number of people living on less than $1.90 a day had fallen by 100 million to 767 million between 2012 and 2013.

Poverty rates have fallen to 3.5% in East Asia and the Pacific – the region that includes China – and to 15% in South Asia, the region that includes India, but remain at 41% in sub-Saharan Africa.

Amid a growing backlash against globalisation driven by concerns that the rich have captured the gains of free trade, the Bank said global inequality had declined consistently since 1990.

The narrowing of the gap has relied on fast growth in the world’s biggest developing countries, particularly China and India.

To end poverty, we must make growth work for the poorest, and one of the surest ways to do that is to reduce high inequality, especially in those countries where many poor people live.

The Bank said a six-pronged approach was needed to tackle inequality: #

• early childhood action focused on better nutrition.
• universal health coverage.
• universal access to good schools.

• cash transfers to poor families.
• better roads and electrification.
• Progressive taxation to transfer resources from rich to poor.

Rangrajan committee report on poverty vis-à-vis WB estimation of poverty #

	Indian Estimation	WB report
Poverty Rate	It was pegged as 29.5% by Rangra- jan Committee, 21.9% Tendulkar Committee report.	The World Bank’s estimate is just 12.4%
Poverty Line	The poverty line (PL) used by the Rangarajan com- mittee for India was around $2.44 per capita per day, in terms of purchasing power parity	The World Bank has revised the global poverty line, pegged at $1.90 a day in terms of PPP
Met hodol ogy used	In India, there were two main ways of collecting data: Uniform Reference Period (URP) and Mixed Reference Period (MRP)	WB used MMRP method.   MMRP method believed to provide a more accurate reflection of   consumption expenditures
Depth of poverty	Depth of poverty in India is examined in a different way – by looking at the poverty ratios using different cut-offs of the PL.	WB report talks about the depth of poverty in terms of person-equivalent headcounts
Dimensions    of Poverty	We have legacy of uni dimensional approach on pov- erty estimations	WB report gave stress on importance of understanding the many dimensions of poverty that people experience.

What is MMRP?

• In this method, for some food items, instead of a 30-day recall, only a 7-day recall is collected.
• For some low-frequency items, instead of a 30-day recall, a 1-year recall is collected.
• The low-frequency items include expenditure on health, education, clothing, durables etc.

Way Forward #

The World Bank’s new poverty rate estimate of

12.4% does not mean that Indians have suddenly become richer. In fact, it is based on collection of data that determines the poverty rate.

The bunching of poverty around the poverty line in India renders the problem of reducing poverty more manageable.

The pace and pattern of growth have a signifi- cant impact on reducing poverty ratios but policy- makers must pursue a two-fold strategy of letting the economy grow fast and attacking poverty directly through poverty alleviation programmes.

The MMRP-based estimate (currently at 12.4% for India) is expected to set the baseline for India and global poverty estimates, going forward.

Measuring Poverty: Niti Aayog Task Force #

• Task force appointed by NITI Aayog under Arvind Pangariya has pitched for a low pov- erty line.
• He also proposed four options to arrive at a poverty line with due considerations from other stake holders. These four options are:
  • To continue with the Tendulkar poverty line.
  • Switch to the Rangarajan or other higher rural or urban poverty lines.
  • Track progress overtime of the bottom 30% of the population.
  • Track progress along specific components of poverty such as nutrition, housing, drinking water, sanitation, electricity and connectivity.
• To remove any criticism that many poor would be left behind if poverty line as per Tendulkar committee is adopted, NITI Aayog has underlined that it will only be used to track progress in combating poverty rather than identifying the poor for entitlements.
• SECC data as suggested by Saxena and Hashim committee will be used for entitle- ments.

Indian Perspective #

As per modified mixed reference period (MMRP), used by WB here, poverty in India in 2011-12 could be only 12.4%.

Main takeaway is the claim that India has been overestimating its poverty rate.

Though home to the largest number of poor in 2012, India’s poverty rate is one of the lowest among those countries with the largest number of poor.

According to govt. estimates (Rangarajan) India had 30 per cent of its population living below pov- erty line at 224 million.

In the case of India, with large numbers of people clustered close to the poverty line, poverty estimates are significantly different depending on the recall period in the survey.

ill-effects of LPG #

Liberalization, privatization and globalization of Indian economy has ushered the poor to vulnerabil- ity. Liberalization and privatization have particularly suited to the Indian private corporate, elites and rich. Globalization has created a question of existence in-front of small and medium enterprises (SMEs). Have a look at the plight of the women employed in the cotton fields of northern India.

Now, India’s share of textile industries in world trade is remarkably low. All this have limited the growth potential and created the problem of unem- ployment. The malfunctioning of LPG in Indian scenario has surmounted new issues viz. gender inequality and threat to women empowerment.

Infrastructure #

Infrastructure is fundamental to the economic and inclusive growth. In budgetary allocations, Infrastructure is assigned the highest expenditure. Major proportion of this allocation goes to large projects such as power generation, freight corri- dors, and airports etc, while rural infrastructure is immensely neglected. In many areas, the lack of proper infrastructure is acute.

Major thrust of the infrastructural development of the government has been from view of indus- trial development. Agriculture, for an instance, has always lacked the focus. Infrastructure to support and  facilitate  backward  linkages  in  agriculture.

e.g. cold storage houses, processing facilities, rural transport is need of the hour.

Apart from that, the rural-urban divide in infra- structure development has become prominent. For a case in point, it is an irony that the phenomenal growth in the telecom sector has also created a digital divide in terms of mobile and landline connections and Internet and broadband connections between urban and rural India.

Low Technology and Innovation #

Indian economy is suffering from a technol- ogy-lag vis-a-vis developed economies and other industrialized economies. Poor rate of technology and innovation creates a burden on capital and resource base. India’s agricultural productivity is far below to that of developed countries. Agriculture is mainstay of the economic growth and a source to unskilled work-force employment.

The rapid technological development in primary activities such as agriculture creates a question of ‘economic duality’ in front of the policymakers of the country. This means, if a high rate of technology is adopted in primary sector industry, then it may lead to high rate of unemployment, but at the same time, without technological progress, the produc- tivity would be less to sustain the pressure on the economy.

Considering this, there is an immediate require- ment of technologies such as green technology, environmentally friendly technologies and renewa- ble energy technology etc. so that the pressure on natural resources may be overcome. Policy makers have to address the economic duality judiciously. Apart from that, the innovation per se is required to be a harbinger of Inclusive Growth which in broad sense is termed as inclusive innovation.

‘Inclusive innovation’ means the creation and absorption of product and services relevant to the poor. In this case, SMEs, MSMEs and grass root innovation enabling agencies such as National Inno- vation Foundation can play a decisive role. Finance, competency and infrastructure are the foundation for inclusive innovation and enabler for Inclusive Growth.

Policy Approaches for Inclusive Growth #

As far as the policy framework is concerned, the government lacks a suitable policy vis-à-vis

Inclusive Growth. Nonetheless, the government has experimented with various models of Inclusive Growth. According to World Bank’s review of India’s Development Policy, Inclusive Growth pol- icy implementation is facing a dilemma of improving the delivery of core public services, and maintaining rapid growth while spreading the benefits of this growth more widely.

The strategy for the inclusive growth per se needs to be an integrating strategy comprising state, market, civil societies and common man. Since independence, the government has practiced various types of policy measures, few are discussed ahead:

Direct intervention #

The direct intervention is facilitating the Inclu- sive Growth through legislation, regulation, credit facilitation and providing livelihood security are the forms of direct intervention by the government. Now, the orientation of administrative machinery is transformed from regulator to facilitator. Gov- ernment’s direct intervention from the perspective of Inclusive Growth now is seen in making avail- able the requisite social investment, establishing independent regulatory institutional mechanism, drafting incentive based policy and encouraging entrepreneurial innovation.

Safety nets or anti-poverty measures are the some other ways of direct intervention of the gov- ernment towards Inclusive Growth.

Capacity Building #

Skill development is basically capacity develop- ment. However, capacity development is not only limited to skill building or entrepreneurial innova- tion. Capacity development through training of rural development functionaries is also a mean of capacity building.

Now, creating job and market demand is not the only criteria of capacity development. Increasing efficiency, effectiveness, accountability and trans- parency are also considered the areas under capacity building initiatives of the government.

For example, if the objective of Department of Rural Development is enhancing the liveli- hood security of households in rural areas though MNREGA then the capacity building for enhancing

effectiveness of Gram Sabha is one of the modalities to achieve the objective.

Welfare schemes #

Food subsidies, public distribution of essential commodities, nutrition programmes, financial sup- port through micro finance are examples of the ways in which welfare schemes are implemented. For different types of beneficiaries (women, children, BPL etc.) central and state government have come with the customized welfare schemes.

The approach in welfare schemes is to bene- fit the beneficiaries through optimal allocation of resources and access to essential services. Integrated Child Development Scheme is a type of welfare scheme with children and women as beneficiaries. It is India’s flagship scheme for the nutritional and developmental needs of children.

Public Participation #

Without public participation at different level of governance, Inclusive Growth remains a distant dream. Government is encouraging the public partic- ipation in multifarious ways towards which the com- mon man must show an affirmative and pro-active response. SHGs promotion is a typical example of public participation for Inclusive Growth. Govern- ment can provide the supporting platform for citizen centric services, the responsibility to deliver still is of the common man. SHGs support and promotion programs have yielded good results in South Indian states, Kerala and Andhra Pradesh particularly.

Kerala government supported Kudumbsree programme has been successful in women empow- erment and reducing poverty. Similar initiative of Andhra Pradesh namely ‘Indira Kranti Pathakam’ is showing a good progress in social mobilization, gender empowerment and rural poverty reduction.

Lastly, policy intervention takes place both at micro and macro level. Improving fiscal discipline, trade liberalization, promoting Foreign Direct Investment, privatization, deregulation, tax reforms, labour laws, social safety nets, public expenditure etc. are important for macro policy measures while at the micro level, reducing inequality in income, improving public/social infrastructure, healthcare, education, access to essential services, accountabil-

ity and transparency, women empowerment, role of civil society organizations, etc are the instruments of micro policy which needs to be re-worked.

Financial Inclusion – Recent Steps taken by the Government #

Financial inclusion is the delivery of financial services which include bank accounts for savings and transactional purposes, low cost credit for productive, personal and other purposes, financial advisory services, and insurance facilities etc. at affordable costs to vast sections of disadvantaged and low income groups.

Financial inclusion has broaden the resource base of the financial system by developing a culture of savings among large segment of rural population and plays its own role in the process of economic development. Further, by bringing low income groups within the perimeter of formal banking sector, financial inclusion protects their financial wealth and other resources in critical circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the money lenders by facilitating easy access to formal credit.

Why financial inclusion in India has not been successful till now? #

The first step towards financial inclusion started with the nationalization of 14 commercial banks in July 1969. Then a second round came in 1980, involving six more commercial banks. With a view to bring the rural areas in the economic mainstream, Indira Gandhi government established Regional Rural Banks (RRB) in 1975. But even after 42 years, all these attempts have had little success in expanding banking coverage to the desired extent and scale (only 7% of India’s villages have a branch of a rural or commercial bank). Only 50% of the population has access to the formal banking system.

The main reasons behind this failure are that the main focuses of commercial banks have never been the unbanked (financially excluded) people. The government and the RBI has now understood that banking inclusion cannot be just one among the many businesses of a bank: it has to be the core business. Otherwise big commercial banks will be opening accounts for the financially excluded population (under the guise of government pressure

through various schemes) but they will never be interested in making the rural and poor people as their target customers. The core competency of these banks lies in handling the urban customers and opening rural branches for poor people is not cost effective as per their existing business model.

Following are the newly launched Schemes for Financial Inclusion by Govt. and RBI:

Pradhan Mantri Jan Dhan Yojana (PMJDY): PMJDY was launched in August 2014 to eradicate the financial untouchability from the country. Through this scheme, financial inclusion of every individual who does not have a bank account is to be achieved. The scheme ensures financial access to everyone who is not able to get benefits of many other finance related government schemes.

These financial services include Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension which will be made available to all the citizens in easy and affordable mode. Till Sept. 2015 around 18 crore accounts were opened through PMJDY.

Impact and Benefits #

Indians spend around 2% of GDP in gold purchases. If every Indian household has a bank account then rather than saving in gold, they will start keeping money in bank accounts (opened under Jan Dhan Yojana). And if 50% of the gold spending (i.e. 1% of GDP) is converted into savings in bank accounts then ultimately this saving will turned into productive investments by bank lending to various projects. India’s Incremental Capital Output Ratio (ICOR) is around 4.5 for the last 15 years, so 1% investment will lead to 0.22% extra increase in GDP (ICOR = % Investment / % change in GDP).

Challenges #

There are two parts to financial inclusion. One part is getting the network of physical infrastruc- ture in place – Banks, BCs, ATMs, power, digital connectivity etc. while the second part is getting the unbanked to use the services confidently and frequently. So just putting in place the first part will not work. More than 15 crore accounts were opened under the previous mission, of which RBI recog- nizes half as dormant. While 24×7 power and digital

connectivity have to be reliable for ensuring trans- actions, agents and banks have to find the business viable to keep them going. People will be willing to open bank accounts and will be using them only when there is a regular source of income for them or government is transferring money to their accounts for various schemes like LPG, PDS, MGNREGA etc. through DBT (Direct Benefit Transfer). So getting account holders to use the banking services and ensuring the agents to stay in the system is the real challenge.

According to the Indian Bank’s Association, it costs around Rs. 140 to open each account, implying that PSU banks have spent around Rs. 2,500 crore to open the 18 crore bank accounts under the PMJDY. Right now, Central government alone spends around Rs. 3 lakh crore a year on various social security schemes. If the government can transfer the money allocated for these schemes through DBT, which it has started for many schemes, in the bank accounts of the people, then they will become viable imme- diately.

Payment Banks #

In August 2015, RBI granted license to 11 appli- cants for Payment Banks which includes telecom companies like Vodafone and airtel, NBFCs, and big corporate like Reliance and Aditya birla group etc. RBI has put a cap of Rs. 1 lakh on deposits that payment banks can receive from individual cus- tomers. Due to this restriction only those companies sought for payment bank licenses who were really interested in targeting the poor in the rural areas and have already a strong customer base. The main target for payment banks will be migrant labourers, self employed, low income households offering low cost savings accounts and remittance services so that those who now transact only in cash can take their first step into the formal banking system (payment banks will not be allowed to lend). The payment banks will be cashing in on mobile technology and applications (apps) to cater to the various services they will be offering and with the use of technology they can be cost efficient. Payment banks will be acting as add-on (complement) to the already estab- lished banks, rather than their competitors.

Till now in India, the telecom companies (tel- cos) were using mobile applications which were

dependent on tie-ups with banks to provide the var- ious banking facilities. Now, the grant of payment bank license to the telcos like Vodafone, Airtel, Idea and Reliance Jio will help them to provide banking facilities to their already existing customer using their operational flexibilities and in a cost effective way. If these telcos succeed in becoming the target market’s (rural/poor areas) chosen mode of financial transactions, then it will be a major step in achieving a truly cashless economy.

Small Finance Banks #

In Sept. 2015, RBI granted license to 10 appli- cants (which are mostly Micro Financial Institutions (MFIs)) for Small Finance Banks. This is a step in the right direction for furthering the financial inclusion as now, these MFIs will be able to accept the deposits also from the public and will have increased lending resources. The small finance banks shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganized sector entities.

The Small Finance Banks will be mandated to:

• Give 75% of their total credit to priority sectors (PSL) as against 40% mandatory requirement for other commercial banks, and
• Ensure that 50% of their loan portfolio con- stitutes advances/loans of just up to Rs. 25 lakhs.

Both these conditions will ensure that money will be going to the poor and rural sectors of the economy. There will not be any restriction in the area of operations of small finance banks. Both payment banks and small finance banks are niche or differentiated banks i.e. specialized in certain banking functions and not universal.

MUDRA Bank #

To solve the unemployment problem in India, the youth of the country needs to be turned from job seekers to job creators and for that we will have to encourage and nurture the spirit of entrepreneurship in India and support new startups. Corporate and business entities play a significant role in economic development but they need to be complemented by

informal sector enterprises which generate maximum employment. There are around 5.77 crore small business units, mostly individual proprietorship, which run small manufacturing, trading or service businesses. 62% of these are owned by SC/ST/OBC. This bottom-of-the-pyramid, hard-working entrepre- neurs find it difficult to access formal systems of credit for their enterprises. To meet the financing/ credit needs of these small enterprises, government has established Micro Units Development Refinance Agency (MUDRA) Bank.

MUDRA Bank will refinance Micro-Finance Institutions (MFIs) through a Pradhan Mantri Mudra Yojana (i.e. MUDRA Bank will give funds to MFIs and MFIs will use this fund to extend loan to indi- viduals). In lending, priority will be given to SC/ST enterprises. These measures will greatly increase the confidence of young, educated or skilled workers who would now be able to aspire to become first generation entrepreneurs. The existing small busi- nesses will also be able to expand their activities by accessing this formal credit system. MUDRA Bank would benefit small manufacturing units, shopkeep- ers, fruits and vegetable sellers, hair salons, beauty parlours, truck operators, hawkers, artisans in rural and urban areas with financing requirements of up to Rs 10 lakh.

MUDRA loans will be available in three categories. #

• For small business, loans upto 50,000/- is available under the ‘Shishu’ category;
• Beyond 50,000 and up to 5 lakh under the ‘Kishor’ category; and
• Between 5 lakhs to 10 lakhs under the ‘Tarun’ category.

These products have been designed to cater to the customers operating at the lower end of the enterprise spectrum.

“Just as PMJDY and Payment Banks are banking the un-banked, MUDRA Bank and Small Finance Banks are funding the un-funded.”

MUDRA Bank will also be responsible for reg- ulating and refinancing all MFIs which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services. Mudra bank would partner with the state level/

regional level coordinator to provide finance to Last Mile Financer of small/micro business enterprises. MUDRA Bank would not only help in increasing access of finance to the unbanked but will also brings down the cost of finance for micro and small enterprises.

Conclusion #

At this time the government and RBI are target- ing both the sides of financial inclusion by launching schemes like PMJDY and transferring the LPG and other subsidies directly to their bank accounts through DBT and simultaneously giving licenses to

payment banks, small finance banks and MUDRA Bank for financing the small entrepreneurs. The government is targeting in a holistic approach by launching the various social sector schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana and Atal pension Yojana and linking these schemes with the bank accounts opened under PMJDY. If the government is able to create enough jobs through its Make in India, Skill India and Digital India initiatives, which will give the poor a fixed source of income, then we can confidently say that this time the financial inclusion initiatives.