Appearing on the same programme, economist Venkatraman Anantha Nageswaran reminded viewers that the relief should extend to micro, small, and medium farmers and agri-businesses.
By Makarand R Paranjape
Are we actually witnessing history not in the making, but the remaking? And, on a much bigger, grander scale? At least when it comes to one key driver of prime minister Narendra Modi’s extraordinary “vocal about the local” push: MSMEs. Micro, Small, and Medium Enterprises or MSMEs have received a huge fillip in the recently announced relief in Modi’s Rs 20 lakh crore, 2020 Atmanirbhar Bharat Abhiyan package. On May 13, finance minister Nirmala Sitharaman promised credit guarantees and sans collateral loans amounting to Rs 3 lakh crore. This bold step, expected to benefit some 45 lakh MSMEs, is aimed at spurring local productivity and employment.
But, for a moment, leaving aside the knotty question of whether the MSME bailout will succeed, let us pause to ask where Modi’s MSME idea comes from. My view is that its source lies in his experiences and experiments as the chief minister of Gujarat. Modi became Gujarat CM in a rather unexpected manner in 2001. Then CM Keshubhai Patel was in poor health. The Bhuj earthquake that the PM mentioned in his talk on May 12 had devastated parts of North Gujarat. Patel’s mishandling of the crisis had been widely criticised. Modi, asked to firefight, declined the deputy CM’s post. Sworn in on October 7, 2001, he won the Rajkot by-election the following year by a narrow margin of 14,728 votes, defeating his Congress rival, Ashwin Mehta.
When I visited Rajkot in March 2003, I was totally taken aback by its transformation. I’d been visiting this sleepy hub of Saurashtra since the late 1970s. It used to be broken down, dirty, and overcrowded, with bad infrastructure and facilities. Apart from the old palace and few traces of grandeur from its princely past, the whole town was a mess. Modi had remade it totally, as he had much of Gujarat. Not only was Kutch rebuilt, but there were impressive plans to bring the Narmada waters right down to the dusty plains of Saurashtra.
As I travelled in the state, I noticed that the highways were vastly improved. Rural life had improved. Nearly everyone had a car or two-wheeler, economic activity was ubiquitous. On the roadside I saw all kinds of products for sale at unbelievably low prices, from ceramic sinks and toilets, white goods of all kinds, cricket bats, even knocked down desktop computer kits. No bills, no taxes; only cash and carry. There was considerable trust between buyer and seller, so defective products could actually be returned.
Who was making all this stuff, I asked my hosts? “Small and medium enterprises”, was the instant answer. In those days, practically anyone could make anything and sell it at any price they thought feasible or profitable. Modi’s long innings as Gujarat CM ended only in 2014 when he moved to Delhi as India’s prime minister. During this period, the state progressed economically as never before. Perhaps, Modi’s Rs 20 lakh crore package announced at 20:20 hours in 2020 will do for India what he did for Gujarat in his earlier avatar. At least, that is our hope.
As if on cue, appearing on CNBC, minister of roadways, Nitin Gadkari explained on May 14 that MSMEs could be the engine to make India globally competitive, reducing our imports and kickstarting the economy in a post-Covid-19 world. He stressed that providing employment was the primary challenge in a shrinking economy. How to offset massive job losses and deprivation suffered by the poor? Through MSMEs. He gave the example of how before the Covid-19 crisis, India made hardly any personal protective equipment (PPE), but now, in just two months, our MSME manufacturers had risen to the challenge. In Nagpur itself, which is his constituency, Gadkari said entrepreneurs were producing world-quality PPE priced at extremely competitive prices, below Rs 600.
Appearing on the same programme, economist Venkatraman Anantha Nageswaran reminded viewers that the relief should extend to micro, small, and medium farmers and agri-businesses. A grape grower, say, in Nasik should be able to sell his produce where he wants to and at whatever price he may ask for.
All this sounds really good, but there is one big catch that several experts have spoken of. How to weed out the deserving and viable from the unworthy and crooked? It is all very well to throw money at a non-functioning system, but there is no assurance that money alone will do the trick. Assisting those businesses who ought better to die a natural death is akin to flogging the proverbial dead horse. The money will be lost, and the horse will not be revived either.
By assuring lenders that government will repay the loan if the MSME falters, are we not opening up a pandora’s box? Unscrupulous borrowers, in collusion with corrupt lenders, will cost the exchequer losses amounting to lakhs of crores. The package, in other words, can only work if conscientious and responsible lenders do their due diligence before lending out our money. As always, in India, we never talk of quality, whether it is people or businesses. Without quality control, indiscriminate relief measures may be as bad as no relief at all.
The Atmanirbhar Bharat Abhiyan package is a great idea. But, if we fail or falter in its execution, it could turn into a big disaster.
The author is Director, IIAS, Shimla. Views are personal