Making digital literacy a national movement; how MSMEs, NBFCs can lead to India’s economic growth

16 Nov 2020

There’s a zen story that came my way the other day. Two men visited a Zen master. The first man asked: “I’m thinking of moving to this town. What’s it like?” The Zen master, in turn, asked a question, “How was your old town?” The man answered, “It was terrible. Everyone was mean. I hated it.” The Zen master replied: “This town is much the same. Don’t move here.”

The second man too asked the Zen master the same question: “I’m thinking of moving to this town. How is it?” The Zen master asked the second man: “What was your old town like?” “It was wonderful”, the man replied, “everyone was friendly. I am just looking for a change.” The master replies: “This town is very much the same. I think you will like it here.”

Long story short – in the end, it is our beliefs that find us.

For me 2020 will be archived as the year of questioning. The pandemic has made us question beliefs that had begun to sound like a platitude. One such being equality – the foundational tenet of democratic India. Equality has many faces; I believe economic equality to be paramount because it sets the ground for empowerment. The pandemic and its consequences have made us question how strongly we have acted on our belief in equality.

Equality is not about everyone having the same house, it is about everyone having the same opportunity to build one. Two years short of our 75th Independence Day, we are still battling poverty. Its stubborn existence only proves that welfare and philanthropy will not solve the issue. We need to walk the talk and create an inclusive economic environment that gives everyone equitable access to finance, skills, technology, and resources so that they have a free hand to chart the economic activity of their choice.

I believe that three things can contribute to this environment.

The first is to play MSMEs as our trump card. This sector employs about 11 crore workers, both skilled and unskilled, contributes around 29% of India’s GDP, is responsible for almost 48% of India’s exports and has the potential to transform the rural economy. We should begin by responding differently to the prefixes micro, small and medium. Semantics don’t do justice to the potential of these enterprises to be a global force. As the West looks for alternatives to China, a globally competitive MSME sector can make India the next manufacturing hub for the world and address its livelihood and growth conundrum.

However, some definitive changes will have to be made. The government has already taken constructive steps in this direction; there is no longer any distinction between MSMEs in the manufacturing and services sector. Micro, Small and Medium businesses are now defined on the basis of investment as well as turnover criteria. These measures will encourage successful MSMEs to do well without the fear of losing benefits if they outgrow their size.

Disallowing outside bids for tenders up to Rs 200 crores is also a welcome move. This is a good push strategy; it will make MSMES a critical part of the India Inc.’s supply chain and key to their global competitiveness. Consequently, big players will see merit in building the capacity of MSMEs that form their ancillary ecosystem. An immediate step the Industry can take in this direction is to chart a sector-wise, MSME development strategy for the government’s consideration. This will lead to more informed policy measures and accelerate the development process.

We must also view MSMEs, especially micro enterprises, through the lens of rural development. Historically, our rural societies have been defined by potters, agriculturists, weavers, shopkeepers, craftsmen and other artisans and tradesmen. However, studies show that only a very small percentage of such entrepreneurs are job-creators. Their enterprises are usually a one-person show; sometimes family members pitch in with labour or skill. Such enterprises, along with new ones, should be infused with technology, innovation, financing mechanisms, skill up gradation and marketing support so that they can move out of self-sustenance mode. Technology can play a pivotal role in expanding the market beyond the immediate geography of the producer; we need to fan the vocal for local narrative to push up demand for local produce.

The second key to an inclusive economic environment is the ease of credit access for micro-entrepreneurs. The government’s Self Help Group (SHG) Bank Linkage Programme through the National Rural Livelihood Mission (NRLM) has helped rural micro-entrepreneurs. Recent figures show that one crore SHGs now have bank accounts.  More than 50 lakh groups have built up loan outstanding of over Rs 87,098 crore and 88% of the disbursement has been to the rural women groups.

While this is encouraging, it is clearly not enough. We need to bring more people into the net; professional Non-Banking Financial Company (NBFCs) can play a big role in this area. NBFCs have a good understanding of the micro-markets and can collaborate with different stakeholders to customize products for the lower end of the spectrum.  Since customer insight is key to creating innovative products, firms should look at recruiting employees who understand the cultural and economic nuances of their target communities and can help in the design of better products.

Finally, we need to increase financial and digital literacy in this country. The ability of people to recognize and capitalize on economic and financial opportunities is the key to a vibrant economic ecosystem. This requires financial canny; unfortunately, a large part of Indians do not have the ability to make smart choices about their wealth. It’s time we made financial literacy, a part of school and college curriculum. This will also fan the entrepreneurial spirit in the Indian youth.

Digital literacy must be elevated to the level of a national movement so that more and more people, especially from the informal sector, are able to leverage technology for better economic opportunities. Technology can be a game-changer, only if the population has the ability to absorb it. The sooner we bring everyone aboard digital India, the stronger will be our fintech industry. The world over, thanks to fintech, innovative tools and products are helping more people change their lives by accessing financial services and products at reasonable costs.

I would like to end this article with a quote attributed to the late Prime Minister Jawaharlal Nehru – Life is like a game of cards. The hand you are dealt is determinism; the way you play it is free will. Seven decades later, that belief is up for question.  Life is indeed a game of cards, but it is time to deal every Indian, a fair hand.

The article by Mr Sanjiv Bajaj, Vice President, CII, and MD & CEO, Bajaj Finserv, first published in the Financial Express on November 11, 2020.

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