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GST Is Hogging The Headlines, But PMMY And PMJDY Are As Essential To India's Reform Agenda

23/09/2016 12:01 PM IST | Updated 26/09/2016 2:33 PM IST
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The advent of the GST and consent for it in both Houses of Parliament has been a significant milestone. However, for all the media hype over the GST, its effectiveness and reform strength can only be gauged years down the line. In the interim, it is interesting to note some of the new innovative policies that the Modi government has attempted. Two of the key initiatives that have been pioneered by the government have been the Pradhan Mantri Mudra Loan Bank Yojana (PMMY) and the Pradhan Mantri Jan Dhan Yojana (PMJDY), both targeting greater financial inclusion among the citizens as a whole.

The first beneficiaries of greater integration between the PMJDY and PMMY would be entrepreneurs who never had access to capital earlier—primarily women in rural areas.

The PMMY is a scheme that is meant to assist small and medium businesses in gaining access to capital at very reasonable rates. Considering that the Indian economy is more than 70% informal and that 5.77 crore small businesses employ more than 12 crore people, policies need to focus on enhancing the informal sector. The intention of the PMMY seems to be precisely to expand and support this segment of people. One of the key outcomes of the PM Mudra Yojana exercise has been the significant increase in the number of woman-operated accounts that borrow money to run businesses. According to the PMMY 2015-16, there have been equal to 2.76 crore women's accounts created under PMMY. These accounts comprise about 79% of the total 3.48 crore accounts that have been created by the PMMY. A large part of these accounts are interestingly from rural areas. These numbers could be due to a variety of reasons, including men taking loans in the name of their wives even though they are the key decision makers in the concerned business. A further analysis of the data also leads one to believe that 36% of the women's accounts are coming from southern India (Andhra Pradesh, Tamil Nadu and Telangana) and 16% from eastern India (West Bengal, Odisha and Assam). Maharashtra, Gujarat and Madhya Pradesh accounted for another 17%. The question now is, how can the program achieve greater financial inclusion?

The key perhaps lies with the government itself and the PMJDY could be the catalyst. According to data, the number of accounts created under the PMJDY has surpassed all expectations.

The first beneficiaries of greater integration between the PMJDY and PMMY would be entrepreneurs who never had access to capital earlier—primarily women in rural areas. PMMY can be more targeted within certain communities to have greater reach. For example, in states where there is greater preference given by women to specific industries, loans catering to those industries could be provided to women entrepreneurs in that region.

The integration of PMMY and PMJDY could provide an entrepreneurial base for a more prosperous manufacturing-focused country with millions of entrepreneurs in rural India driving this growth.

The second big bonus out of this integration could be the geographical orientation of small businesses in India; capital transfer needs to be catered towards those needs. For example, according to data in some of the domestic banks, there has been greater traction in PMMY accounts in hilly areas like Uttarakhand, Jammu & Kashmir, Mizoram and Arunachal Pradesh. This traction in these states is much more than the national average and a large part of this is attributed to the construction and mining activities (geography-specific entrepreneurial activities) in those regions. The integration of PMJDY and PMMY could further tap into this strength of the Indian economy with such people getting greater access to capital now.

The third advantage of this integration could be the vast potential it can have on the 'Make in India' campaign. Thus far, Make in India has been looking at a top-down approach to its growth (via foreign direct investment) but the key could be a bottom-up approach for sustainable growth. The integration of PMMY and PMJDY could provide an entrepreneurial base for a more prosperous manufacturing-focused country with millions of entrepreneurs in rural India driving this growth. They could become suppliers, consumers or even manufacturing company owners if the appropriate ecosystem is facilitated by the Make in India campaign. In addition, the last mile delivery infrastructure would also have to be improved in order to provide the above mentioned services. Not only would this boost financial inclusion, it could also improve the supply side infrastructure that has been lacking for many years.

In conclusion, a plethora of opportunities will present themselves if the PMMY can be more targeted. The main issue for entrepreneurs has been the lack of access to capital, or continuous capital—the integration of PMJDY and PMMY could address this issue perfectly using a targeted process. While issues of scalability will still remain for large businesses, the upliftment of small businesses will have a significant impact on the broader growth framework in India. Beyond the headlines, the crucial improvements in development lie in these schemes and I hope that the integration of PMJDY and PMMY can make substantive progress.

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