The self-employment conundrum -Arindam Gupta
Funding small entrepreneurs will require more bank loans, preferably collateral-free, which will generate more NPAs
The government has been compelling banks to adopt a softer lending policy to promote self-employment. The Pradhan Mantri Mudra Yojana, launched in 2015, provides collateral-free loans to small entrepreneurs outside the farming sector in three categories: Rs 50,000 loan in the ‘Shishu’, Rs 5,00,000 in the ‘Kishore’ and Rs 10,00,000 in the ‘Tarun’ segments respectively. Most individual entrepreneurs in the non-corporate small business sector do not maintain proper books of accounts and, as a result, suffer from a dearth of capital. Before the PMMY, non-farm, collateral-free loans were not common. The scheme has been widely publicized given the upcoming general elections. In fact, the performance of the PMMY has been impressive: in 2017-18, Rs 2.46 trillion was lent, 40 per cent of which was obtained by women entrepreneurs and 33 per cent by ‘social categories’.
There is reason to be worried though. The Reserve Bank of India recently flagged Rs 110 billion worth of non-performing assets under the scheme. But since the PMMY proposes to resolve unemployment among the youth, it could escape public criticism. Moreover, NPAs are not a new issue for Indian banks. Presently, any payment towards a bank loan outstanding beyond 90 days creates an NPA of the same sum. As per the stringent new insolvency and bankruptcy code banks now have 180 days to sort out a non-payment against bank loan and regularize payment without initiating proceedings against defaulters. After that, proceedings have to be started within 15 days. The strict norms do not provide breathing space to new businesses supported mostly by bank loans.
A number of schemes have been launched to prove the intention of fulfilling the promise to create over 10 million new jobs every year. Make in India, Pradhan Mantri Kaushal Vikas Yojana, Prime Minister Employment Generation Programme and so on have been announced one after another. The policies to generate employment are focused exclusively on self-employment, skill development and incentivizing employers to facilitate employment generation. In February, the prime minister claimed that 12 million jobs were created each year in the formal sector alone in the past four years. But a January 2019 report by the Centre for Monitoring Indian Economy revealed that as many as 11 million people have lost their jobs just in 2018 and that the unemployment rate shot up to 7.4 per cent in December 2018, the highest in 15 months.
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The Telegraph, 8 April, 2019, https://www.telegraphindia.com/opinion/the-self-employment-conundrum/cid/1688354?ref=comment_home-template