Date: 18/04/2023

Relevance: GS-2: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Relevance: GS-3: Inclusive growth and issues arising there from; Financial Inclusion and Microfinance.

Key Phrases: MUDRA Scheme, Equality, Inclusivity, Microfinance Loan, Financial Services, Non-Banking Financial Companies, Regulatory Framework, Financial Inclusion, entrepreneurs, Microfinance Institutions, Customer Protection.

Context:

• Recently, India’s Pradhan Mantri Mudra Yojana (PMMY) has successfully completed eight years of its launch.
  • The yojana happens to have contributed immensely to inclusion of several communities that have traditionally been underrepresented as entrepreneurs.

Key Highlights:

• The PMMY is one of the flagship schemes of the Union government to encourage self- employment.
• Equality of status and of opportunity is an essential feature of the Indian constitution and is mentioned explicitly in the preamble.
  • Ensuring equal opportunity is ethically and morally just for any society – but it also brings with it several economic benefits as it makes the work environment more empathetic, empowering and collaborative resulting in more productivity & innovation.
• Additionally, a more diversified set of entrepreneurs will result in breaking down any barriers or any form of discrimination on any dimension of candidates thereby leading to a healthier labor market.

Why was the MUDRA Scheme launched?

• The country’s formal or institutional architecture was unable to reach out to them and meet their financial requirements.
• The banking system in India is typically risk averse and often requires collateral requirements or other formal conditions such as physical assets or regular wage employment which have prevented many from the poor and marginalized communities to access formal sources of credit to improve their standards of living.
  • This system repressed innovation, creative destruction and also the risk-taking appetite of thousands of entrepreneurs.
• The essence of any business is the ability to find capital which can then be put to use for productive purposes by combining other factors of production.
  • Marginalized communities, especially those who are economically disadvantaged often find it difficult to meet unforeseen expenses or make discretionary purchases.
• The government recognized the underrepresentation of women, SC, ST and OBC communities among Indian entrepreneurs.
  • Their limited presence in entrepreneurship today could pose a challenge for the ability of their future generations to undertake such activities.
  • It was therefore important to encourage people from these communities to undertake entrepreneurship and simultaneously work towards ensuring access to equal opportunities.
• Additionally, lack of women entrepreneurs typically results in the workplace environment being governed by policies that may not be conducive enough for female participation in the workforce.
• With these issues kept in mind, the PMMY was floated with the objective to create an easily accessible bridge between a large unbanked sector and formal lenders.

What has the mudra yojana contributed?

• Social Justice through Inclusivity :
  • About 68% of Mudra accounts under the scheme belonged to women entrepreneurs.
  • SC/ST and OBC categories account for a total of 51 percent of all Mudra accounts.
  • The scheme has been able to cater to the requirements of minorities.
    • Loans to members of minority groups touched an all-time high in 2022, with their overall share at 10%.
  • Therefore, from a representation standpoint there was a specific focus of the program to encourage underrepresented communities to avail these collateral free loans in an effort of improving their economic prospects.
• Higher Disbursement :
  • Total disbursement under the scheme showed an average 33% growth in its first three years, indicating that its unique selling proposition was well received.
    • Data as on 24 March 2023 puts the scheme’s cumulative disburse amount at ₹22.65 trillion.
    • The share of Shishu loans is the highest, at 40%, suggesting that the PMMY has largely supported first-time entrepreneurs.
• Economic Impact :
  • As per survey results of the ministry of labor and employment, the scheme had helped in generating 11.2 million net additional jobs during the period 2015 to 2018.
• Geographical Coverage:
  • Since the PMMY is a national scheme, its spatial dispersion is an important consideration from the point of view of balanced economic growth.
    • One of the objectives of India’s growth policy has been to bridge the divide between the thriving western and lagging eastern parts of the country.
  • States such as Uttar Pradesh, Odisha and Bihar have recorded all-round gains from the PMMY.
    • West Bengal and Tripura have also seen a rise in their total share (and also in the Kishore and Tarun categories), indicating an eastward flow of beneficiaries.
  • Developed regions such as the national capital region, Maharashtra, Karnataka and Goa have seen their shares decline, even though they dominate the scheme in absolute terms.
• Overall, the PMMY has achieved its objectives of equitable and fair spatial distribution of benefits.

Way Forward:

• In the coming years, it is imperative that the PMMY reaps the benefits of 5G technology and e-commerce, even as Mudra cards are popularized further.
• Encouraging the registration and formalization of own-account enterprises could be another way of taking this scheme to new highs.
• Mudra addressed a key constraint for the Indian economy, particularly the MSMEs that often struggled to find structured finance to undertake businesses.
• In many ways, Mudra opened up the doors of Indian banks to the real India for the first time and with the government backing these loans it ensured that the scheme secured the unsecured thereby allowing banks to bank the unbanked.

Conclusion:

• The MUDRA scheme aims to be an engine of transformation, which makes the micro-enterprises of this nation a potent instrument of employment and GDP growth.

Source: The Hindu BL

Mains Question:

Q."The PM Mudra yojana has contributed immensely to the inclusion of several communities that have traditionally been underrepresented as entrepreneurs". Evaluate. (250 Words).