Sustained push to reforms will help post-Covid economic revival
The decision to issue an ordinance to bring 1,482 urban cooperative banks and 58 multi-state cooperative banks under the direct and exclusive supervision of the Reserve Bank of India was a long-awaited measure besides the setting up of a Rs 15,000-crore Animal Husbandry Infrastructure Development FundUpdated: Jun 30, 2020 19:20 IST
The concerted efforts of the Narendra Modi 2.0 government to pedal-push multi-sectoral reforms amid the Covid-19 crisis are a strategic move in the direction of the much-needed economic revival. The recent announcements indicate that the government is in a mission mode to unleash reforms across sectors. This is the right approach for fighting the pandemic and the effects of the prolonged lockdown on the economy.
Much, however, will eventually depend on the implementation of the policies and decisions unveiled over the past few weeks, including the latest two landmark reforms – one for the financial sector and the other related to setting up of a Rs 15,000-crore Animal Husbandry Infrastructure Development Fund (AHIDF).
RESTORING FAITH IN COOPERATIVE BANKING
The financial sector reform is designed to restore the confidence of small investors and depositors in the cooperative banking system, and will go a long way in bringing transparency and accountability. The decision to issue an ordinance to bring 1,482 urban cooperative banks and 58 multi-state cooperative banks under the direct and exclusive supervision of the Reserve Bank of India was a long-awaited measure that had become imperative in view of the recent string of irregularities in the cooperative banking segment.
Most cooperative banks were, till now, not managed by professional bankers. Regrettably, they were also outside the ambit of the RBI regulation and guidelines, which explains their poor supervision and opaque functioning. This had virtually led to the collapse of the cooperative banking system, with the innocent small depositors being the biggest victims.
While the cooperative banks cater to an under-banked rural India, and hence need more leeway and flexibility, it was, of late, being seen that the microfinance, non-banking and fintech companies had also been able to make significant inroads into the hinterland with their well-diversified financial service offerings for rural and marginal customers. In this emerging new India, the cooperative banks had become almost obscure monolithic structures, serving the interests of a few, with many of them also found to be defrauding the small gullible depositors.
With RBI’s oversight, things are now bound to change for the better, with the ordinance bringing more transparency, accountability and professionalism to the cooperative banks. The move will make these banks more competitive, while giving to depositors and customers a sense of confidence and the assurance of protection for their savings.
STRENGTHENING ANIMAL HUSBANDRY INFRASTRUCTURE
The decision to set up the Animal Husbandry Infrastructure Development Fund was the second positive announcement of the government, which assumes significance in the backdrop of the absence of a robust institutional and infrastructural mechanism despite India being among the topmost producers for milk, meat and marine staples in the world.
The lack of proper infrastructure was responsible for high wastages, low levels of processing and stagnation in the income of farmers. The key to the realisation of the government’s mission to double farmers’ income by 2022 lies in strengthening the infrastructure in agri-allied activities, which of course covers the entire ambit of animal husbandry.
This can be achieved by engaging, involving and incentivising MSMEs and the private sector. Clearly, AHIDF will prove to be beneficial for this sector as it will spur investment in infrastructure for dairy and meat processing, as well as value addition infrastructure, while encouraging the involvement of entrepreneurs in feed manufacturing.
With industry, including farmer producer organisations (FPOs), MSMEs and entrepreneurs, required to bring in only 10% margin money, with the balance 90% being the loan component to be made available by scheduled banks, this particular reform would not only encourage industry to come forward but will also motivate the rural folk, farmers, youth and self help groups to move towards entrepreneurship. This is expected to help in direct and indirect livelihood creation for more than 35 lakh people, which is still a conservative estimate.
The provision for 3% interest subvention for private investors, with two years moratorium period on principal amount and six years repayment period, will ensure availability of capital to meet upfront the investment required for these projects and also help in easy payback for investors. Such investments in processing and value-addition infrastructure by eligible beneficiaries would also promote export of these processed and value-added commodities – a vital component of economic revival.
The provision to set up a credit guarantee fund of Rs 750 crore, managed by NABARD, would encourage the MSMEs and rural entrepreneurs to invest on an even bigger scale in making this sector more competitive in the global arena.
These two reforms of the government underscore its overarching goal of enabling economic revival through reforms and underline the visibility and achievability of its intent to make Bharat Atmanirbhar.
The writer is chairman of Confederation of Indian Industry, northern region. Views expressed are personal