The Merriam Webster Dictionary defines poverty as “the state of one who lacks a usual or socially acceptable amount of money or material possessions.” However, poverty is not simply characterised by a lack of adequate income. It has far reaching implications.
People who suffer from poverty experience a number of deprivations and restrictions. Its manifestations include hunger and malnutrition, limited access to education and other basic services, social discrimination and exclusion, as well as the lack of participation in decision-making and in civil, social and cultural life.
One important thing to note is that poverty cannot be defeated through charity. Empowering people with a means to sustaining themselves in the long-term is the solution that can defeat poverty.
Unemployment is at the centre of poverty. For the poor, labour is often the only asset that can be used to improve their well-being. It is crucial that we empower the poor who have the potential but often lack opportunities to shape their lives.
Poverty & Financial Exclusion
Poverty is generally associated with a low level of income. This income is primarily directed towards consumption thereby leaving very little for saving/investment. A low level of savings obviates the need for a banking account thereby creating financial exclusion and lack of investment opportunities. This creates a barrier for financial inclusion from the demand perspective. Conversely, financial exclusion can deprive people of the benefits and the incentives offered by the financial system. Poverty can, therefore, be self-fuelling from generations to generations.
Measurement of poverty has been a matter of debate for the last several years. However, I am not on, whether those spending below Rs 32 in rural areas or below Rs 47 in urban areas (as defined by the Rangarajan committee) or Rs 27 and Rs 33 respectively as fixed by Tendulkar Panel earlier, are to be considered poor. My point is whether such income levels across countries or states (even after adjusting for purchasing power parity) are comparable without taking into account the availability, quality and cost of such basic amenities as healthcare, education, transport, sanitation etc. Would not a composite index of these two elements be a truer indicator of real poverty level?
There could be two ways to address the challenge of defeating poverty:
i) State ensures availability of quality amenities I mentioned earlier to all needy citizens–question is, whether it is feasible?
ii) Empower and facilitate all citizens to earn such levels of income that they can buy these services from the open market. Issue to contemplate is whether this can be done in a short-term or even in the medium-term.
Then would it be fair to assume that a combination of above two would be a more realistic goal to pursue for quite some time to come considering the dimension of the work involved? Would it also be fair to assume that pursuing only one of the above or even both but with varying emphasis would not serve the purpose?
Priority Sector Lending
Efforts are underway to reorient the priority sector lending guidelines to serve today’s growth and inclusion agenda. An Internal Working Group at RBI has revisited the existing guidelines and suggested revisions for ensuring credit to segments that get crowded out in the absence of specific targets. These include small and marginal farmers, micro enterprises and the weaker sections while broadening the scope to include other underserved categories of national priority, such as agriculture infrastructure, social infrastructure, renewable energy, exports and medium sized enterprises.
RBI has been relentless in its pursuit of achieving universal financial inclusion by following a structured and planned approach. The focus is not only on ensuring access to financial services and products but also taking efforts to address issues emanating from the demand-side through financial literacy initiatives. Phase II of the Financial Inclusion Plan is currently under operation which seeks to connect all the 600,000 plus villages in the country to banks either through a brick and mortar branch or a BC agent by the end of the year.
One must admire the vision and intent behind the Prime Minister Jan Dhan Yojana (PMJDY). Lot of effort has gone into opening the bank accounts and most households have been connected to the formal financial system. The need of the hour now is to ensure that services are easily accessible to the account holders, are cost-effective and service efficient and most importantly the accounts remain active. For the account to remain active, the holders would need income and benefits to flow into them. Focus should also be placed on inculcating savings habit among the people. Once the saving habits take root, people would look for investments. Only then this massive exercise would be meaningful.
Entrepreneurship & Self-employment
Preparing the poor people for self-employment is perhaps the most lasting solution for poverty alleviation. The role of entrepreneurship as a key driver of economic growth and development and alleviating poverty and unemployment has been well researched and documented in both developed and developing countries. Entrepreneurship promotes innovation, creates competitive advantage and economic prosperity and helps create wealth and job opportunities thereby improving the standard of living of individuals, their families and communities.
Microfinance is an influential means of empowerment for the poor and vulnerable and helps in extricating them out of their poverty and misery. It basically works on the premise that it is better to teach someone to fish rather than simply giving them a fish. It gives the poor the necessary tools, skills and resources to help them engage in productive activities and grow their way out of poverty.
SHG-Bank Linkage Model
Self Help Group (SHG)-bank linkage programme piloted by NABARD in 1992 with 500 SHGs of rural poor has now transformed into the world’s largest microfinance initiative with over 7.4 million SHGs representing 97 million rural households becoming part of the movement. This has been the predominant form of lending to women as 84 per cent of SHGs are women SHGs as on 31st March 2014. The scale of the programme is huge given savings of women SHGs in banks stands at over Rs 80 billion as on 31st March 2014 and bank loan outstanding against women SHGs is over Rs 360 billion as on 31st March 2014. The emphasis of the SHG programme is now to shift towards livelihood opportunities to SHG members apart from the expanding outreach across the country.
MSMEs & Poverty Alleviation
Promoting growth of Micro, Small, and Medium Enterprises (MSMEs) is critical from the perspective of job creation, which is recognised as a prime mover of the development agenda in India. MSME sector contributes about 45 per cent of the total industrial output, 40 per cent of the export and 8 per cent in the GDP. Also, the sector employs largest amount of workforce after agriculture and promotes balanced regional development. In terms of the recommendations of the Prime Minister’s Task Force on MSMEs, banks are advised to achieve a 20 per cent year-on-year growth in credit to micro and small enterprises and a 10 per cent annual growth in the number of micro enterprise accounts. It is also mandated that 60 per cent of MSE advances should go to the micro enterprises keeping in view large-scale exclusion of micro enterprises from the formal banking system.
Dearth of formal vocational education, high school dropout rates, inadequate skill training capacity, negative perception towards skilling, lack of industry ready skills even in professional courses are some of the major causes of poor skill levels and lack of entrepreneurship in India’s workforce. There is a pressing need to scale up the skills of the unorganised workforce within the sector as well as those of the MSME employers through training inputs. Integrating the skill development initiatives with secondary and intermediate level education would address the challenge of low education levels and also provide school dropouts with employability skills. Government is committed to encourage entrepreneurship in the country through a revision of the national skill development policy of 2009 so that schemes of different ministries can be routed through the newly formed skills ministry. This would be vital considering the current Government’s thrust on “Make-in-India.”
Concerns and Way Forward
Here I would like to raise a few concerns, which can be detrimental to the consolidation and furtherance of the significant work done in the area of financial inclusion and poverty alleviation in the recent past.
1. Is too much demand being placed on the banking system resources? The banks are presently almost alone expected to identify & enrol new customers, educate them, conduct Aadhaar registration, carry out administration of linked life/non-insurance schemes & pension products and so on. The issue is whether it would encroach upon their other obligations of credit dispensation, maintaining asset quality, maintaining service standards etc.
2. Loan waiver schemes or employment not resulting into creation of social infrastructure/productive assets raise risk to broader work culture/credit culture in the country.
3. Non-adherence to basic economic discipline by the states, e.g., in fixing the Minimum Support Price (MSP) can be counterproductive in the long-run.
4. Weakened governance and multiplicity of regulations in the co-operative sector—are we doing enough to exploit potential of co-operative sector?
5. Need we draw lessons from the history of RRBs while pursuing BC model?
Then there are two larger issues—one each in respect of rural and urban poverty alleviation
ii. Migration from rural India and rapid urbanisation is a reality with social, infrastructural, employment and inclusion dimensions—are we adequately prepared to deal with them?
It must thus be appreciated that poverty alleviation is a long drawn process and needs support from all quarters—the Government, other policymakers, the media and the society at large. Each one needs to do his/her bit to ensure that the poverty is defeated so that prosperity thrives. An ecosystem is needed to be created which can fight poverty in all its manifestations.
Excerpts from his address during
39th SKOCH Summit
(The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of INCLUSION. Comments are welcome at email@example.com)
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