Mudra scheme: Prime Minister Narendra Modi needs to stop lying to the nation

On May 30, Prime Minister Narendra Modi once again tried to cover up the failure of his government in spurring growth by making false claims.

Modi told the nation that "loans worth Rs 6 lakh crore have been given to 12 million beneficiaries under the Mudra scheme" and accused the previous government of tokenism.

This is artful lying at its best — or worst. It is a huge fib. It reminds me of the Celtic tale "How the little Wren became the King of all Birds". It is about a clever wren, who inveigled an eagle into a contest that it won by bluffing the eagle. The wren engages the eagle into a contest of who can fly the highest and then rides on the eagle's back asking it to go higher and higher. When the eagle could go no higher, the wren jumps off its back and claims victory.

Our prime minister is like that wren. Very clever and very opportunistic, but not quite honest.

Modi blows his own trumpet over his achievements. Take for instance electrification the case of rural electrification. As per the 2001 Census, there are a total of 5,97,464 inhabited villages in India. Out of which, 5,71,168 villages were electrified as on April 30, 2014.

Villages in all Union Territories were 100 per cent electrified with the exception of Andaman and Nicobar Islands, which is only 77.8 per cent electrified. A few major states such as Andhra Pradesh, Gujarat, Haryana, Kerala, Punjab and Tamil Nadu had 100 per cent villages electrified. Only 10 states Arunachal Pradesh, Bihar, Jharkhand, Manipur, Meghalaya, Mizoram, Nagaland, Orissa, Rajasthan and Andaman and Nicobar Islands were below the national average of 95.6 per cent in April 2014.

When the remote village of Leishang village in Manipur was electrified, the last of the 18,458 villages without electricity was connected. This final 4.6 per cent what was achieved by the Modi regime. But Modi claimed that his government has achieved 100 per cent electrification. There was no mention that when India became independent only 1,500 villages had power connections. It was another case of the wren hopping off the eagles back and claiming it had flown higher when it was the eagle that flew the wren high.

While technically it was the Modi government that could claim credit for 100 per cent electrification, we do know who did all the ground work by building the great power generation capacity and building nationwide power grid. To keep repeating ad nauseam that nothing was done till he took over is just being too clever by half. But Modi is the master of the art of fib.

Even Modi's claim of 100 per cent electrification doesn't mean all households have electricity. As per the Union power ministry's definition, a village is deemed electrified if at least 10 per cent of the households in it have power connections and if electricity is provided in public places such as schools, panchayat offices, health centres and community centres.

This is why even though 100 per cent electrification of villages has been achieved, government data shows that approximately 31 million households continue to live without electricity. The houses without electricity by and large are homes of the officially poor like marginal farmers and rural workers. If they get a decent income, which means regular and meaningful livelihoods, they too will get electric connections. This is where job creation matters. A subject the prime minister would like to obfuscate, given his government's sad record.

Now let us get back to the Mudra finance scheme, which is nothing but all the old schemes operational under the banking system given a common name. It's not new wine in new bottles. It's not even new wine in old bottles. It just the same old wine in the same old bottles. Only now all the bottles have a new label — Mudra.

The Mudra website shows that Rs 5 trillion has been disbursed by banks, micro-finance companies and non-banking financial companies since the inception of the scheme. Indeed, it is easy to measure the success of the scheme through disbursals of loans but lenders have historically been giving out small loans anyway. Given that the business model of micro-lenders is to give such loans, the branding of Mudra as a special scheme is essentially dishonest.

The utility of the Mudra scheme can only be measured by the refinance support that the Mudra agency extends to such disbursals. The progress here is hardly impressive. The outstanding refinance provided by the government as of March 2017 was just Rs 6,114 crore or less than 2 per cent of the cumulative disbursals.

For 2018-19, refinance provided during the current year is just Rs 633 crore suggesting that the scheme has begun tapering off. That Mudra has created 30 or 50 or 70 million new jobs is a lie.

About 450 million people are employed in the informal sector in India. Close to 81 per cent of all employed persons in India make a living by working in the informal sector, with only 6.5 per cent in the formal sector and 0.8 per cent in the household sector. The low household employment itself suggests the Mudra loans have not had the desired penetration. Bangladesh by contrast has 13.5 per cent employment in the household sector.

To get a better idea about how credit to the poor is faring one has to just look at the numbers provided by the Reserve Bank of India. The credit/deposit ratio for the rural population increased from 41 per cent in 1999 to 66.9 per cent in 2016. It has stagnated since then. The share of small borrowers (borrowing less than Rs 2 lakh) has been falling under the Modi regime.

The share of small loan accounts has been dropping steadily for over a decade and there is no sign of it moving upwards. As of now, small loans account for just 0.4 per cent of the outstanding loans, and 0.8 per cent of the number of accounts. Since 2008, the credit/deposit ratio of rural India has been dropping, suggesting the flight of capital from Bharat to India continues unabated.

As a matter of fact, the credit/deposit ratio for metropolitan India has been increasing and is now up by 10 per cent since 2000 when it was 0.70. One consequence of this is that now two out of three poor take credit from informal sources. One clear policy suggestion from this is that farm loan waivers don't help poor farmers. It is mostly the politically active middle and large farmers who benefit from this, and they are less than 15 per cent of all farmers.

So Modiji, stop flying on the eagles back and learn to fly on your own. And stop fibbing. The truth has a way of catching up in the end.

Also read: A paisa's worth of cruel fuel: Jokes on BJP are spilling over from Congress times!