"Just as courage imperils life, fear protects it."
—Leonardo da Vinci (Italian, 1452-1519)
Word
for the day
Smattering (n)
A slight, superficial, or introductory knowledge of something.
Smattering (adj)
Slight or superficial.
Malice
towards none
Besides being an
efficient administrator, PM Modi is inarguably the biggest showman in Indian
politics, after Mahatma Gandhi.
First random
thought this morning
The way start ups and ecommerce service providers are
burning money, globally, it appears that this business model is the replacement
of traditional Communist State.
These enterprises are collecting money (capital) from the
rich and indulgent across the globe and spending it on providing decent jobs to
thousands of people from lower middle class; paying taxes to the governments;
subsidizing goods and services for millions of consumers (mostly middle and
lower middle class); besides sustaining many small businesses whose produce
they sell or consume.
Unfortunately, just like the communist state, this
business model may also not survive for more than few decades.
First piece in place
Financial inclusion unarguably has been the
single largest reform focus in India, in past 5 decades.
Beginning with nationalization of banks in 1969, the government
policy has always been biased towards providing credit to poor. Setting
priority sector (farm, MSME and BPL) lending targets for banks and creating
specialized institutions such as cooperative banks and regional rural banks
(RRBs) were two primary medium used to achieve the success.
These efforts did not yield much success, till a few years ago, as
the policy focus excluded the other aspects like building a deposit base, promoting
savings culture, or extending the payment network.
In past one decade a paradigm shift has taken place in India's
financial inclusion agenda. The concerns over structural macroeconomic lacunae
and governance shortcomings, e.g., massive leakage in delivery of public
services and subsidies; consistently falling household savings rates; rise in
physical savings, especially in gold etc., have forced the measures like direct
cash transfer of subsidies (DBT), push to digital payments, expansion of banking
network, through new banks, small banks, payment banks, and banking
correspondents, expansion of well regulated MFI institutions, etc.
The banking outlets in villages grew 9 fold in six years from
a total of 67,694 in March 2010 to 5,86,307 by March 2016.
Hitherto financially excluded household and MSME were forced
to deal in cash, and therefore had limited options for building assets of
saving for future financial security. This also made them susceptible to
exploitation by moneylenders, scrupulous operators of sham schemes and touts.
In past three years, in particular, this drive has gained
tremendous momentum, the effect of which can be seen with naked eyes.
Humongous drive to open bank accounts (Jan Dhan); promotion of NPS by removing
anomalies; launch of crop insurance and personal insurance; bringing more and
more subsidies under DBT scheme; giving UIDAI a statutory status and making it
an effective KYC document has certainly helped. The move to replace 86% of
currency in circulation and thereby forcibly inculcating the habits of digital
and banking transactions amongst masses has provided tremendous push to the
financial inclusion efforts.
In my view, this piece of the faster growth is now at the right
place. In next decade or so we may see material improvement in the household
debt to GDP (presently ~9% compared to Thailand 83% and China 37%) ratio. We
shall also see significant rise in savings of household, which have been
declining since past couple of decades.
To put things in perspective, the household savings have declined
from a high of 33% in 1990s to below 20% in 2016. The share of net financial
savings in this is around 7.5%, whereas the rest is physical saving.
The deployment of financial savings in corporate shares and
debentures was less than 1% in March 2016, against a peak of over 10% in mid
1990s.
I am therefore quite optimistic from the side of supply of growth
capital, regardless of the trends in global flows.
Read with the following
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