The announcement is in line with the ruling BJP’s election manifesto, and underscores PM Modi’s resolve to make good on the party’s promise to aid entrepreneurship at all levels
The government’s plan to extend collateral-free loans of up to ₹50 lakh to entrepreneurs, as announced by President Ram Nath Kovind in his address to parliament on Thursday, comes at a time when the economy is in bad shape and jobs are scarce. The announcement is in line with the ruling Bharatiya Janata Party’s election manifesto, and underscores Prime Minister Narendra Modi’s resolve to make good on the party’s promise to aid entrepreneurship at all levels. Easy access to credit for small businesses has the potential to catalyze the economy at a time when highly-leveraged, large companies are unwilling to make fresh capital investments. The plan, whose details are still unknown, is especially welcome in the context of a credit crunch that a heap of bad loans has resulted in.
The government also aims to expand its MUDRA scheme, under which it offers unsecured loans up to ₹10 lakh to set up small businesses, from 190 million beneficiaries currently to 300 million. Loans amounting to ₹8.9 trillion have been disbursed since the 2015 launch of this scheme.
Yet, while any move to improve the lot of India’s teeming millions is laudable, the government must not lose sight of the giant problem of bad loans that haunts the economy. Indian banks and financial institutions are creaking under a mountain of more than ₹10 trillion of sour loans, retarding their ability to lend money for business purposes. Both MUDRA and the new ₹50 lakh credit scheme risk adding to the overall burden. Beyond a point of expansion, such disbursements would take up a significant chunk of the country’s lendable resources and have the effect of crowding out private players looking to invest in large projects. Perhaps the government could look at creating a mechanism that tracks the end-use of its collateral-free loans; else the schemes could compound the debt mess the country is in.
