For nearly a year and two, the Reserve Bank of India (RBI) has been groping in the dark. It has been frequently raising the repo and reverse repo rate to tighten money supply and giving a false impression to the nation as if it can rein in food inflation. The misguided experiment failed. As Ila Patnaik had suggested in one of her columns, RBI needs to conduct research to know whether its policy recommendations can make any impact on food inflation or not.
In its quarterly review of the economy report released last week, RBI recorded an 'almost 36 per cent dip' in inward FDI during the first half of the current fiscal (April-September 2010) and blamed in a way Environment Minister Jairam Ramesh's "environment sensitive policies" for the slowdown in FDI arrivals. This was rather an unfair statement and that too coming from RBI. I thought Jairam Ramesh was trying to see that the country's assets are not sold off-the-shelf (as is being done at present) and the RBI should have applauded it.
An RBI panel has now recommended that banks be allowed to relax loan repayment schedule to micro-finance institutions. This move will bring temporary respite to the MFIs struggling for dose of orygen supply to survive. As per newspaper reports, the panel suggests:
a) Loans to single single borrower to be capped at Rs 25,000 and minimum loan tenure of 1 to 2 yrs.
b) Interest rate to be capped at 10-12 per cent over cost, overall rate capped at 24 per cent.
c) Borrowers must be part of joint loan group.
d) Create separate category of MFI finance cos to be registered with RBI.
e) Recommendations should be implemented by Apr 1, '2011.
This again is unfair to the poor. I am aware that the RBI's primary job is to preserve the health of the banking structure, but this cannot be allowed over the hungry stomach. I would like to know when was it that Mr Y H Malegam, who chaired the RBI sub-committee that looked into the issues facing MFI sector, himself paid an interest of 24 per cent for the loans he ever took for himself or for members of his family? When did the RBI governor D Subbarao ever seek loan at 24 per cent (effectively turning out to be 36 per cent on weekly repayment schedule)? Being a bureaucrat, he in fact gets loans at a much lower rate of interest from the government for purchasing a car or for housing. Cheaper loans for himself, and demanding usurping interest rates for the poor. Double standards, isn't it?
It is therefore quite obvious that RBI has put blinkers over its eyes, and is making recommendations that acerbates rural distress and has led hundreds of poor borrowers to commit suicide. By bailing out MFIs who should have otherwise been hauled up for criminal lending procedures, RBI has shown that it too is part of the crime.
I would like to ask three simple questions:
1. As I wrote earlier, I fail to understand why can't the State governments, which have lowered cooperative interest rates to farmers for as low as 1 per cent interest (some have it for 3-4 per cent), provide micro-finance too at the same lending rates?
2. Why is that while the farmers get loans at 1 per cent (from the cooperative bank), his wife (who forms part of the village SHGs) gets loan at a killing rate of interest?
3. Why is that the RBI (and also the Finance Ministry) is keen to protect loan sharks? Why can't the nation stand up to a heinous crime being committed in the name of poverty eradication?
I am not expecting answers from the powers that be. But at least I expect more and more people who are sensitive to the ground realities to stand up and question. You just can't be reading and think you are doing away with. If you stand up and make yourself counted you will see the policy makers (and RBI) taking note and making the necessary changes. Otherwise you will go on hotly debating these issues over a cup of coffee and then come and sit in front of the TV to watch your daily soap.