Under the Millennium Development Goals (MDGs), India along with other developing countries, has committed to eradicate extreme poverty. The deadline to achieve the goal is 31st December 2015. However, according to a recent United Nations report, nearly 300 million people still live in extreme poverty in India and face deprivation in terms of access to basic services, including education, health, water and sanitation.

In the recent years there have been a lot of debates over the definition of poverty line and thus the number of poor. The Planning Commission in a report released in 2013, put the number of people below poverty line at 22 per cent of the total population—25.7 per cent in rural areas and 13.7 per cent in urban areas. However, as per the definition given in Rangarajan Committee report released in 2014, 29.5 percent of India’s population is below poverty line.

There might be disputes over the numbers and criteria for identification of poor, but the ground reality is that poverty remains one of the most pressing challenges facing the country. Even 68 years after the Independence, people are still dying of hunger and don’t have access to basic amenities like education, health and sanitation. In early 1970s the federal government gave a slogan “Garibi Hatao” (remove poverty). A number of schemes were introduced in 1970s and the successive governments kept adding schemes and programmes, reiterating their pledge to eradicate poverty. Despite billions spent on such programmes each year, almost one-third of the total population still remains in a state of abject poverty.

Until now the basic approach has been subsidies and other government doles. It can provide only temporary relief. Doles cannot break the vicious circle of poverty. This circle can be broken only if the people are empowered through jobs and provided good education and health facilities.

Union Minister for Minority Affairs Najma Heptulla, who is active in politics for almost four decades, agrees that the government initiatives have not delivered the desired results. “Since early days we have been talking about poverty alleviation… a number of schemes have been introduced aimed at removing poverty. I am not saying that nothing has happened. But surely the pace has not been good,” she says.

Why has the pace been not good? Why despite billions spent, the vicious circle of poverty continues? Most of the people whose father and forefather were poor continue to remain poor. It’s not that they have not got any government support. But the approach has been faulty. Until now the basic approach has been subsidies and other government doles. It can provide only temporary relief. Doles cannot break the vicious circle of poverty. This circle can be broken only if people are empowered through jobs and provided good education and health facilities. The money should be used in creating sustainable assets.

Heptulla says subsidies must be directed at finding permanent solution. “Every penny spent should bring some result. It should be productive. It should have some permanent solution,” she says.

But, where the jobs will come from? Is the government in a position to provide the jobs? India is adding over 12 million people to the workforce every year and millions are perennially unemployed. Poor are mostly unemployed or underemployed.

Union Minister for Women & Child Development Maneka Gandhi says the government cannot create the kind and number of jobs required.

“I must admit that the government jobs are not there. At least ₹1 crore is being spent on creation of one job. There are very few government jobs left,” she says.

She says the most effective way of eliminating poverty and empowerment of people would be providing jobs through promotion of self-employment and entrepreneurship. Jobs are particularly important in case of women as they are subject to domestic violence and exploitation due to their dependence on male members.

The challenge is not just how to bring the poor out of the vicious circle, but also the identification of the genuine beneficiaries. Different committees have suggested different benchmarks for the so-called poverty line. While Rangarajan Committee termed people spending below ₹32 in rural areas or ₹47 in urban areas as poor, Tendulkar panel put these figures at ₹27 and ₹33 for rural and urban areas, respectively.

Sustainable Development

The Millennium Development Goals, set in 2000 on the initiative of the United Nations, will expire in December this year. Now the plan is to start Sustainable Development Goals (SDGs). While under the MDGs there are eight goals and 18 quantified and time-bound targets, SDGs mull 17 goals and 169 targets. The United Nations has already released an initial draft for SDGs, which has broader agenda than MDGs. The United Nations General Assembly is likely to prepare and adopt the new goals under SDGs in its September 2015 meeting.

Eight goals under MDGs are:

1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria and other diseases
7. Ensure environmental sustainability
8. Develop a Global Partnership for Development

The problem with India is not just slow progress on MDGs but also the uneven progress. While some states, notably the southern states like Tamil Nadu, Kerala and Karnataka have performed well and surpassed the targets, northern and eastern states like Bihar, Uttar Pradesh, Odisha and West Bengal remain laggard. Therefore, the bigger challenge for India is to ensure sustainable and balanced development. Unless the states like Uttar Pradesh and Bihar are taken on board, India cannot achieve development targets.

Microfinance is an important tool to empower the poor. It can not only bring the poor out of the clutch of rapacious moneylenders but also promote self-employment and entrepreneurship.

JAM Trinity

One of the main reasons for several of India’s social welfare programmes not achieving desired results is widespread leakages in the system. It has been a perennial problem. The combination of Jan Dhan, Aadhaar and Mobile, which the government in the recent budget termed as “JAM Trinity” would be a game-changer in plugging leakages and ensuring that the benefits reach the targeted people.

JAM stands for Jan Dhan, Aadhaar and Mobile. The government announced in the Union Budget for 2015-16 that these three would be used in transfer of subsidies and benefits of other social welfare schemes.

JAM is likely to transform the way social security programmes function. Bank accounts opened under the Prime Minister Jan Dhan Yojana (PMJDY), Aadhaar and mobiles would together help eliminate duplications and make the process faster and more reliable.

The positive impact is already visible. Neeraj Mittal, Joint Secretary (Marketing), Ministry of Petroleum and Natural Gas, says because of Aadhaar the government has identified over 10 million bogus LPG connections in the last one year. Just the LPG-Aadhaar linkage (DBTL) has resulted in savings of thousands of crores of rupees, which could be utilised for poverty alleviation programmes and social sector schemes.

“A lot of people were having gas connections in fake name. Some were having multiple connections. In the past one year we have identified and blocked over 1 crore such connections,” Mittal said, adding these became possible only because of Aadhaar.

Principal Secretary-Cooperatives in the Government of Madhya Pradesh Ajit Kesari says the JAM would help plug leakages and ensure that benefits reach the genuine targeted people.

The government claims that over 125 million bank accounts have been opened under the Jan Dhan scheme, which was launched in August 2014. While bank accounts enable transfer of money directly to the beneficiary, Aadhaar helps in identification of the real beneficiary.

According to Rajesh Aggarwal, Joint Secretary, Department of Financial Services in the Ministry of Finance, the plan is to further widen the use and scope of Aadhaar. Under the proposed e-sign scheme, Aadhaar fingerprint can be used as digital signature. So, Aadhaar users would be able to self-certify electronic documents without having physical digital signature dongle.

The DigiLocker facility would allow users to keep all their certificates and official documents in a digital form online and access them using Aadhaar numbers.

Referring to the recent Supreme Court order that Aadhaar cannot be made mandatory for social welfare schemes, Founder and Chairman of Suvidhaa Infoserve Paresh Rajde said the government must take steps to fend off legal confrontation and remove uncertainty over the scheme touted as the world’s largest biometric identity exercise.

The combination of Jan Dhan, Aadhaar and Mobile, which the government in the recent budget termed as “JAM Trinity” would be a game-changer in plugging leakages and ensuring that the benefits reach the targeted people.

Microfinance

Microfinance is an important tool to empower the poor. It can not only bring the poor out of the clutch of rapacious moneylenders but also promote self-employment and entrepreneurship. Explaining the importance of microfinance in fighting poverty, Reserve Bank of India (RBI) Deputy Governor S S Mundra says, “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.”

Millions of poor still don’t have access to basic savings and credit services. Jan Dhan scheme has succeeded in opening bank accounts. If we go by the government data, almost all the households in the country now have a bank account. Now, the challenge is to ensure that these accounts are actually used for the normal banking purposes. The plan is to extend a microcredit of `5,000 on satisfactory operation of the account. Even this small credit would play a significant role in lifting the people out of poverty, provided an enabling environment is created.

SHGs

Some 50 women of a tribal-dominated Mohgaon village in Mandla district of Madhya Pradesh have taken 72 acres of land on lease to do group farming. This land belongs to a person who does not live in the village and thus the land was not properly cultivated. These women together arranged ₹115,000 to pay as lease for the land. In one year, women have been able to save around ₹25,000 each after incurring all expenditure. The group farming has proved a win-win proposition for all—the women, the landlord as well as the economy as a whole. Women now have sufficient food, a small saving and a work to do in the field, the landlord is getting a reasonable lease rent and the economy is benefiting by higher food grain output, which is adding to the overall growth. 

All this became possible because of the Self Help Groups (SHGs). These tribal women belonging to different SHGs mobilised savings over the years and paid for the lease rent. Productivity went up substantially because they are working as a group.

Currently, around 7.4 million SHGs representing 97 million rural households are operating in India. Started on the initiative of NABARD in 1992, this is the worldís largest microfinance initiative today. Another good thing about the SHGs is that it is predominantly led by women, the most marginalised section of the society. Out of around 7.4 million SHGs, 84 per cent are women SHGs. They have ₹80 billion savings in bank as on 31^st March 2014, while the bank loan outstanding against women SHGs is over ₹360 billion.

Millions of poor still don’t have access to basic savings and credit services. Jan Dhan scheme has succeeded in opening bank accounts. If we go by the government data, almost all the households in the country now have a bank account. Now, the challenge is to ensure that these accounts are actually used for the normal banking purposes.

The SHGs outreach should be further expanded and proper banking facilities should be extended to them. SHGs are already playing an important role in promoting self-employment and entrepreneurship. The need of the hour is to broaden its base.

Differentiated Banking

The Reserve Bank of India has decided to issue licenses for a new category of banks or differentiated banks. It includes Payments Banks and Small Finance Banks.

According to the central bank, the primary objective of setting up of Payments Banks is to further financial inclusion by providing (i) small savings accounts; and, (ii) payments/ remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users, by enabling high volume-low value transactions in deposits and payments/remittance services in a secured technology-driven environment.

Theoretically it sounds good. A large proportion of the population is underserved or is out of the banking net. So the steps must be taken to widen the infrastructure. But, will it be able to provide the required infrastructure?

Differentiated banks are not new to India. We already have Regional Rural Banks (RRBs) and Local Area Banks (LABs). In fact, there are many layers in India’s banking structure. There are 157 commercial banks as on 31st March 2014. This includes 26 public sector banks, 20 private banks, 43 foreign banks, 64 RRBs and 4 Local Area Banks. Then we have cooperative banks, specialised lenders like EXIM Bank, SIDBI, NABARD, IIFCL, Non Banking Financial Companies (NBFCs) and microfinance institutions. Still majority of the population is either out of the banking net or is underserved. Just adding one more layer, say in the form of Payments Banks, is unlikely to make any significant impact on the financial inclusion drive. First of all, they won’t be providing credit facilities, also there is no clarity on how will they raise money to run and expand business.

India already has a wonderful infrastructure in the form of post offices. India’s banking network can more than double just by bringing postal network on board. The number of post offices in India is over 155,000 which is substantially higher than the total number of bank branches. As on 31st March 2014 the total number of bank branches in India stood at 1,15,082. Out of these 43,962 branches or 38.2 per cent of the total was in the rural areas. Compare it with the post offices. Out of 155,000, 1,39,144 or 89.76 per cent of the total post offices are in rural areas, as per 2011 census. Thus, India Post would not only bridge the infrastructure gap in banking sector, but also address the main challenge of ensuring the services in rural area, that remain largely unbanked and the commercial banks show little interest in reaching out to these areas.

Moreover, post offices are already providing basic banking services. These accept deposits, pay out cash and offer the services like e-payments, forex and remittance. Through various savings schemes, the Post Office system handles deposits to the tune of ₹6 trillion. The need of the hour is to arm it with modern technology and ensure proper regulation by providing licence either by RBI or empower it through an Act of Parliament.

MUDRA Bank will help small entrepreneurs like shopkeepers, vendors and SHGs to meet their funding requirements. The Bank will have a corpus of `200 billion and a credit guarantee corpus of ₹30 billion. It will refinance financial institutions like banks for lending to small businesses and entrepreneurs covering loans from ₹50,000 to ₹1 million.

MUDRA Bank

To address the issue of lack of access to funds by small entrepreneurs, the government has launched a scheme called Pradhan Mantri MUDRA Yojana. MUDRA stands for Micro Units Development and Refinance Agency. This will refinance financial institutions like banks for lending to small businesses and entrepreneurs covering loans from ₹50,000 to ₹1 million. It will help the small entrepreneurs like shopkeepers, vendors and SHGs to meet their funding requirements. The Bank will have a corpus of ₹200 billion and a credit guarantee corpus of ₹30 billion.

While launching the scheme on 9^th April 2015 in the national capital, Prime Minister Narendra Modi said MUDRA Bank would provide “funding to the unfunded.”

He pointed out that while there are a number of facilities provided for the large industries in India, there is a need to focus on 57.5 million self-employed people who use funds of ₹11 trillion, with an average per unit debt of merely ₹17,000 to employ 120 million Indians.

Small and medium enterprises play a critical role in the Indian economy. They can play a very significant role in poverty alleviation and empowerment of the marginalised. MSMEs are the second largest employer after agriculture. They contribute 45 per cent to the total industrial output, 40 per cent to exports and 8 per cent to the country’s GDP.