Prime Minister Narendra Modi on Saturday placed the focus firmly on small entrepreneurs and farmers as India’s new growth drivers as he hinted towards an overhaul of the agriculture ministry’s functioning and the launch of a potential new signature programme “Start Up India and Stand Up India'.
“We are looking at systems for enabling start-ups. We must be Number 1 in start-ups. 'Start-up India' and 'Stand up India',” Modi said in his Independence Day speech.
Critics have often described the government, which rode to a landslide poll victory last year promising to usher in `Acche Din’, as `pro-corporate’ and ‘pro-big business’ at the cost of ignoring the farmers.
On Saturday, Modi attempted to make a subtle change in the government’s development policy, seeking to shift the focus to the farm economy and creating a conducive ecosystem for smaller firms to prosper.
The government, which wants to raise the share of the manufacturing to 25% of GDP by 2025, is looking at startups to create jobs for the 15 million people who are joining the workforce every year.
In his first budget in July 2014, finance minister Arun Jaitley had announced a Rs 10,000 crore-fund to “act as a catalyst to attract private capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies”. Expect more action on this fund in the coming weeks and months.
India’s small enterprises -- the domestic industry’ lifeblood -- is in desperate need of government handholding through tax breaks, easier loans, financing support and simpler labour laws.
There are about 30 million small, micro and medium enterprises in India. Put together, these factories contribute to half of India’s factory output, 45% of exports and employ more than 60 million people (India’s organised service sector employs about 33 million).
About 8% of India’s GDP is accounted for by small enterprises, and about 45% of India’s total manufacturing output comes from these companies.
But, from energy shortages and land problems to ambiguous tax laws and byzantine labour rules, a barrage of hurdles often come in the way of businesses in a country that should otherwise count as a large and attractive market for new firms to sprout.
Last year, Modi’s speech -- his first from the ramparts of the Red Fort -- was noted for grand announcements: Make in India to turn the country into a manufacturing powerhouse; replace the now-defunct Planning Commission with a new body (Niti Aayog), Digital India for access to telecom and internet services, Swacchh Bharat for a cleaner India and the Jan Dhan scheme for financial inclusion.
This year Modi used the occasion to do a stock-taking exercise of some of these schemes, with the Jan Dhan scheme singled out for special mention.
“All our programmes and institutions should be helpful to the poor; have to empower them through financial inclusion,” he said urging banks to lend to the society’s marginalised sections such as the Dalits and the tribals. “Rs 20,000 crore were deposited in 17 crore Jan Dhan bank accounts,” he said.
The Jan Dhan scheme, billed as the world’s largest financial inclusion scheme ever to be undertaken, was launched last year to give access to formal banking services to a vast majority of India’s poor, often coerced into borrowing at exorbitant rates from private money lenders.
So far about 175 million new accounts have been opened under the scheme.
Financial inclusion has a direct correlation with overall economic growth -— a useful guide in times of slowdown. For instance, as banks were forced to open up branches in remote areas, after their nationalisation in 1969, India’s savings and investment rate rose steeply from 13% in the early 1970s to about 25% of the GDP in about 15 years.
Higher investment feeds into growth, and by the early 1980s India was able to put the embarrassing 'Hindu’ rate of growth of 3-3.5% well and truly behind. Pressing the accelerator on financial inclusion can possibly yield similar results now, especially when India is set to regain its lost status as an engine of global growth outpacing neighbouring titan China in rapidity of economic expansion.
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