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Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

The politics of Dalit venture funds

Structural reforms can be an efficient alternative to affirmative action

Last week, the Union social justice ministry launched a new venture capital fund for scheduled caste and schedule tribe communities, with an initial capital endowment of 200 crore. The fund is aimed to provide finance at concessional terms to business initiatives led by Dalits, and is hoped by many to help them overcome the trouble of collateral-based lending. The scheme is planned to be run under the National Scheduled Castes Finance and Development Corp. (NSFDC) which has the mandate to promote Dalit entrepreneurship.

Clearly, Dalit empowerment is one of the biggest issues to have dominated the history of the social justice movement in India. Since the primary focus of the movement was on achieving certain basic political rights for Dalits, the political tool of affirmative action was also used to address their poor economic status. This led to the enforcement of preferential treatment, mainly through educational and job reservations for Dalits in government institutions.

It boded well under the prevailing belief in the pre-reform era, when egalitarian policy options such as job reservations were seen as perhaps the only way to a better economic and social status. In the absence of economic freedom, affirmative action provided a possible (although imperfect) exit a repressive system. The onset of important structural economic reforms in 1991, however, fundamentally changed the dynamics of the caste system in India by providing wider economic opportunities.

The newfound magic of greater economic freedom helped bring about mobility not just in economic standards among backward communities but also in their social status. This was a much larger boon for Dalits who could break free from the clutches of the licence raj. Defying the Odds: The Rise of Dalit Entrepreneurs written by Chandra Bhan Prasad, Devesh Kapur and D. Shyam Babu is one of the few popular works that has documented the rise of Dalit entrepreneurs in the post-reform period.

An extensive survey of a thousand Dalit entrepreneurs conducted by the authors revealed, quite surprisingly, that their success had little to do with preferential funding received from the government. These Dalit entrepreneurs in fact rose to achieve a turnover worth nearly 10,000 crore despite high transaction costs that prevented borrowing from government lending bodies such as NSFDC. Further, all the Dalit businessmen surveyed were first-generation entrepreneurs, previously impeded by restrictions imposed by the state, who reaped the benefits of greater economic freedom after 1991.

On a side note, economic reform not only allowed Dalits to rise up the ranks as entrepreneurs. The competitive spirit of markets increased the cost of discrimination and also favoured Dalits in the general labour market. Consequently, this led to the betterment of their social status.

Ideally, the funds from the new venture capital fund would be used efficiently towards their stated goal of fostering entrepreneurial ventures through lending to deserving borrowers with great potential. However, it might as well be wasted by the kind of inefficiency and corruption for which government schemes are quite well known. The fact that the seeds to the current idea of a Dalit venture capital fund can be traced to attempts by the last government in office to woo voters before elections should tell us something.

For good reasons, the idea of a venture capital fund managed by government officials may even raise serious questions of a caste bias in the use of public money.

The clue to an efficient alternative course of action lies in the direction of what has already led many Dalits out of their economic backwardness.

This would involve enacting structural economic reforms that can enhance opportunities to backward communities particularly by attracting labour into growing sectors such as manufacturing. It would also be a solution that does not require the use of preferential state policy towards a particular caste group, even if justifiable, and one that will truly differentiate the current government from the previous one that was accused of entitlement-based governance.

Will Dalit entrepreneurs benefit from the government’s new venture capital fund? Tell us at views@livemint.com

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