[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]P[/dropcap]ost-demonetization need of the hour is to sustain Economic growth with white money and maintain same growth rates. Elsewhere as early as 2010 we have indicated the role of black money in our economic growth.
Agriculture income – which constitute of nearly 18 to 20% of our GDP is not taxed and to that extent it is not black money.
So there is a need to provide for credit to the sectors which were financed by open market or black money. At this juncture it is important to note that all money not taxed is not black money.
Agriculture income – which constitute of nearly 18 to 20% of our GDP is not taxed and to that extent it is not black money. When the Mudra initiative was launched by the Prime Minister (PM) it was expected to be a trend setter to integrate the credit markets and provide credit at reasonable cost to the India Uninc. in trade/ hotels/ transport/ construction/other services like plumbers to priests.
But unfortunately the Reserve Bank of India (RBI) and a section of Finance ministry were against such an initiative and decided to implement using existing instruments and institutions. Somehow the PM was not also pushing for the same.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he US oriented economists and bureaucrats do not understand the structure of our economy and also have a healthy contempt for the last mile lender namely the much maligned money lender. Plus the usual unwillingness to give up the turf by the RBI was supported by the Ministry. It was resisted knowing fully that existing banking system is inadequate to finance the entire India Unincorporated businesses.
One can deride our dhoti clad pan chewing English challenged money lenders but cannot deny their role in our credit markets.
It was visualised more in the pattern of National Housing Bank (NHB) to provide refinance to all types of Non-Banking institutions like NBFCs/ Chits/ Kuris (chits in Kerala)/ Money lenders etc.
It was to be based on sound credit rating and classification of existing last mile lenders or money lenders. The need of the hour is integrating our credit markets.
And recognising that more than 40% of the aggregate credit needs are met by non-banking sources.
One can deride our dhoti clad pan chewing English challenged money lenders but cannot deny their role in our credit markets. The demonetisation has significantly impacted the credit markets for small businesses. the idea is not to bleed them but to heal them.
We have elaborated elsewhere on this Mudra initiative and the time has come to enact Mudra Act and create conducive institutions to facilitate credit and growth of the non-corporate sector since they are our engines of growth. We should not throw the baby with the balti in the name of fighting black money. We have taken an historic step in going ahead with demonetization and the next initiative is to sustain and develop an orderly credit market for the 50% of our economy namely India Unincorporated.
Additional References:
1. Integrating financial markets through MUDRA
2. Why MUDRA Bank is a major landmark in our growth process
Note:
1. Text in Blue points to additional data on the topic.
Cho S Ramaswamy Visiting Chair Professor of Public policy[CRVCPPP]
Sastra University
An expert in Finance and a two times Fulbright Scholar, Prof. R Vaidyanathan is a much sought after author, speaker and TV commentator on all items related to Money and Finance.
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Not a dream now – nightmare?
Dear Sir,
I had listened to one of your speeches in which for a question by an audience about Islamic Banking in India you had replied that it will remain only a dream and there is no chance of Islamic banking in India.
What would you now say after RBI’s proposal on introducing Islamic banking window in banks ?
Regards,
Venkat.