Every passing day brings more bad news for the microfinance sector. Governments across India are tightening the regulatory screws on Microfinance Institutions (MFIs); banks are demanding their money back and loans have been reduced to a trickle. For example, as reported in Mint on Tuesday, SKS microfinance has disbursed only 29 loans in the past 10 weeks in Andhra Pradesh. Going by its run-rate for the year, it should have done 500,000. Every loan now requires government approval and that is a painfully slow process.
The story is not about microfinance but about the future of inclusion in India. That is in peril not only because the MFI model has been discredited but also because in 2010 the balance has been tipped decisively against inclusive growth in favour of an impatient rush towards redistribution.
First, it is important to define inclusive growth. Recently Reserve Bank of India (RBI) deputy governor K. C. Chakrabarty listed five parameters to that end. Apart from provision of basic amenities such as healthcare, education, skill formation, institutional finance and entitlement to food and nutrition, he laid emphasis on asset creation to generate steady sources of income for the poor. That is the weak link in all efforts at inclusion, at the moment, in India.
This is an abiding and unfortunate feature of India’s political economy. All governments, be they those led by the Congress or the Bharatiya Janata Party and certainly the Left parties, favour redistribution as that is a much better advertisement for electoral battles as compared to the silent and more revolutionary task of enabling India’s poor to stand on their feet. For, once the poor have their own steady stream of income, there would be little ground left for political parties to seek their votes. It is hardly surprising that redistribution finds ample voice while sustainable inclusive growth finds no takers.
The travails of MFIs should be seen in this light. Light-touch regulation coupled with informal warnings to the black sheep would have gone some way in setting matters right. But we’re past that stage now.
The question for the coming year is this: Is there any hope for a tilt in the redistribution vs growth axis towards ensuring that poor Indians can participate in growth instead of just getting a few crumbs? The outlook is pessimistic. India spends little on education and healthcare, the two ingredients required to make the poor stand on their feet. One can only hope that the government does something about this sad state of affairs.
Can India’s poor ever participate in economic growth? Tell us at firstname.lastname@example.org