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A crutch for urban poor

Finance minister Pranab Mukherjee may announce a financial inclusion blueprint in the budget for 2011-12, specifically aimed at the large number of poor people in towns and cities who survive in a throbbing informal economy but remain outside any formal banking network. Mahua Venkatesh reports.

business Updated: Jan 21, 2011 03:18 IST
Mahua Venkatesh

Finance minister Pranab Mukherjee may announce a financial inclusion blueprint in the budget for 2011-12, specifically aimed at the large number of poor people in towns and cities who survive in a throbbing informal economy but remain outside any formal banking network.

The plan, still being discussed by policy-makers, could include a job guarantee scheme framed along the lines of the national rural employment guarantee scheme (NREGS).

The plan could also include setting up a dedicated corpus that would lend micro loans to small entrepreneurs that may be called National Fund for Unorganised Sector (NAFUS).

This fund, with an initial paid capital of R500 crore, may be set up as a dedicated developmental financial institution for the unorganised sector. This will serve as a refinance agency for banks, who will lend specifically to urban poor.

“The objective of NAFUS would be to increase the share of the unorganised sector in total credit from 2% to 5 % in the case of enterprises with investment below R5 lakh,” said an official, who did not wish to be identified.

The government is examining the concept of introducing a job guarantee scheme that would provide employment of about three months to the unskilled urban poor. This scheme, the official said, could be executed through the annual budgetary exercise and would serve as an ideal instrumentality for construction of publicly funded low income housing targetted the slum dwellers.

The proposal had been recommended at 43rd Session of Indian Labour Conference held recently. Of a total workforce of 457 million in 2004-05, 92% or 420 million worked in the informal economy.

These workers in the informal sector including those ranging from street vendors to those who operate micro enterprises with less than ten workers, casual workers and those regular workers in the formal sector who are without any employment or social security.