Misunderstanding Financial Inclusion

After sixty years of independence the Indian banking system has come to the slow recognition that financial inclusion is important as a social good. It has yet to understand that it is a vital first step for steady national economic growth. This misunderstanding has a hoary class heritage which places the centrality of economic welfare in the interests of the wealthy, whose actions in self interest would result in a trickle down effect to sustain the vast masses of the poor. The greater the support to the people at the top, through tax cuts, veiled subsidies, and special benefits, the greater the national growth, and the better the survivability of the masses. In this reading, the masses of the poor are seen like beggars, incapable of economic initiatives to help themselves, let alone the nation.

Recently, the government sent a strong signal that it is unwilling to be the sole cash provider for the public sector banks [PSBs], which have racked up huge non-performing assets with defaulting corporates, while being unable and unwilling to reach out to the poor because of high administrative costs. Dissolving government-held equity into private hands may improve financial efficiency of the PSBs, but this measure is quite unlikely to increase financial inclusion since private players would want to minimize risks even more. The RBI is planning to licence small banks as a way of increasing outreach lower down the class hierarchy and into rural areas, but as the chairperson of the SBI has warned these private units would find it hard to enlarge business, update technology usage, and also maintain a profit margin all at the same time.

Certainly these small private banks may offer competition to local moneylenders, and also mop up some deposits that might otherwise go into chit funds and similar instruments. Some will also act as banking correspondents of the big banks. But it is unlikely that financial inclusion will be achieved by them, if this is to mean reaching significant amounts of much needed credit on time into the hands of farmers and their associations, self-help groups, and petty businesses in the informal sector. Adventurism by micro-finance institutions led to disaster some years ago in Andhra Pradesh. Similar mishaps will occur if the RBI and its bodies are slack in regulating these new small banks. However, firm regulation on the other hand, plus the necessity to maintain workable profits, will result in these entities restricting credit supply to the needy, and increasing the interest burden on the poor. The poor after some experimentation may decide to continue business with known local moneylenders.

The best route for sizeable financial inclusion would be for the SBI and other national banks to own a controlling interest in new small banks created for the specific purpose of serving the poor, and cut administrative costs by staffing them with specially trained local village youth. Middleclass city-based managers would not know local realities, and ultimately limit ‘banking’ to ‘moneylending.’ Local village managers would know local realities, and work with the community to employ the money to the best advantage.

Such an approach to extend financial inclusion to poor communities can be safely monitored by empowered constitutional PRI bodies, which as of now exist only in name. Such demand-side management would blazon out a growth path for wealth to gush up to the top from economically creative communities at the grassroots. This idea is far from new, for it goes back almost 80 years.

Demand-side management of the economy has been thoughtlessly discredited by the  Chicago School eggheads, and Reaganomics, to which we owe much of the world’s ills. This happened despite the well-known work of the great British economist, John Maynard Keynes, and the successful practical application of his theories, first in the New Deal of the 1930s created by Franklin Delano Roosevelt to restart the American economy, and later in the Marshall Plan to revive the destroyed economies of war-torn Europe after World War II.

The elite ideology that continues to prop up state support for the wealthy all around the world, despite rapid and catastrophic boom and bust cycles is founded not only in class self interest, but also based in the real intellectual isolation of economic decision makers from the world inhabited by the masses. It is such intellectual isolation that resulted in the great revolutions, but the elites of the world nowadays control massive firepower, and disperse disaffected people with the help of charitable organizations, handouts, loan mafi, food coupons and gamesmanship. It is India’s tragedy that top economists from Montek Singh Ahluwalia to Raghuram Rajan continue to be mesmerized by the elitist notion that wealth trickles down from the top. This is no more than bad economics and selfish ruling-class ideology, thrust upon us by Americans as part of their hegemonic power-play.

The Strategic Role of Poverty

Wars have always had an economic base for conflict. Analysts postulate that even the long-forgotten Trojan War was about which power controlled the trade routes in the Aegean, and certainly not about a beautiful woman. The great victories of Genghis Khan brought untold wealth to the Mongol nomads and led to their suzerainty over China and most of the known world. The colonial wars of the British secured for them world supremacy in the 19^th century from the Treaty of Vienna to the Treaty of Versailles.

The American Civil War signalled a change in military fortunes. From then on, the stronger economy won wars, not brilliant strategists like Napoleon. In similar fashion, the break-up of the Soviet Union signaled another military change, though this has not been so clearly recognized. The Cold War was a silent economic war, and the Soviets who lost were ground under by their incapacity to match America in production, in living standards, and even more importantly in the arms race. From now on, all major wars will be similar silent wars fought out ruthlessly on the economic front.

The age of trans-border wars has definitely passed. Such major wars that occurred after the end of World War II have been defeats for the transgressor, namely the Vietnam and the Afghanistan wars, one of which wrecked the American economy, while the other brought an end to the Soviet empire. Even the Chinese offensive against Vietnam in its post-war period ended in a bloody Chinese nose. But the threat of intrusions remains potent, and is used cleverly by military players to weaken the economic contender. The purpose of such threats is to divert resources into building up unusable military inventories, while taking them away from civil usage, from increasing living standards, building up industries, or creating employment. The weaker economy will succumb to economic penetration, and leave it an ‘economic client.’

With the rise of economic warfare, the strategic importance of holding territory has also shrunk significantly. In fact, where there is a dissident population, the need to control territory becomes a destabilizing factor. Rapid decolonization after World War II was more a recognition of this strategic fact, than a gesture of democratic goodwill on the part of imperial powers. Mountbatten pushed through the processes of Partition of India at breakneck speed, and De Gaulle agreed to free Algeria to save their own weakened countries from more misfortune. Russian acquiescence to letting go of the territories of Tsarist expansion into Central Asia is a similar token of present-day strategic thinking. The Chinese offer of a cease-fire after their victory in the 1962 border war with India, and unexpected withdrawal from areas rich in oil can be counted as a significant and early recognition of this strategic reality.

In the 21^st century India remains critically weak in economic terms. The Arjun Sengupta committee proclaimed that 77% of Indians live on Rs. 20 a day. A UNDP Human Development Report placed 481 million Indians under multi-dimensional poverty, especially in the politically sensitive BIMARU states. The most recent Credit Suisse study of wealth inequalities shows that the gap between the very rich and most of India has been growing at an alarming rate during the last two decades. Half of India’s peoples own no more than 4.5% of to total wealth, while the top 10% corners 74%! The weakness created by inequality is dangerously masked by an overall growth rate in the tertiary sector, buoyed up by the IT consultancy bubble, which could be burst any day by a conservative America. The agriculture sector which provides a failing livelihood to the great majority of Indians is periodically devastated by floods and droughts, and incoherently neglected by governments which falsely imagine they can continue to reply on rural vote banks. Senior bureaucrat, PS Appu, former director of the National Academy of Administration in Mussoorie, had once ominously warned: ‘Writing about conditions in France on the eve of the Revolution, Hilaire Belloc famously observed: “Government is a thing that guides, and if need be, compels. Visible in France there is not such a thing.” Regrettably, India is heading towards that kind of situation.’ The new Modi government promises to compel, but that might not serve unless it also learns to guide.

Such a situation of national weakness will necessarily be exploited as the British exploited dissension among Indian rajahs in the 18^th and 19th centuries. At least in those days, Tipu Sultan saw clearly what danger British power posed to India, but unfortunately none today observe the strategic point d’appui on which a strong economic power will exert unbearable pressure. None of the old imperial powers can exert such economic pressure on India. Not even the United States, whose economic offensive lies in the areas of military supplies, high-end pharmaceuticals, and other expensive goods. Only China can exert sufficient pressure to break the back of the Indian economy and it has already started, with a wide range of manufactures selling in India at half the cost of local goods. Today, Chinese-made benarasi brocade sells at half the local price in Varanasi! Indian leaders would do well to remember the role of Manchester cloth in ruining the trade in Indian textiles, for millennia the backbone of Indian wealth and industry, and the shared employment source which kept amity between Hindus and Muslims. It would be improvident to imagine that Chinese economic incursion into India will table out as their own costs of production rise. Indians should remember how VO Chidambaram’s Swadeshi Steamship company was bankrupted by the British offering everyone free passage to Ceylon, and even free saris to women travellers.

To paraphrase Clausewitz, if economics is warfare through other means, Indian strategists must focus on new methods to combat such ‘intrusions’ in the 21^st century, and not plan according to 19^th century theories. The Chinese seem to have a clear roadmap for world supremacy. Their greatest contender is the present-day super-power, The United States of America, hamstrung by its own outdated perceptions of its vital interests. The needs of global policing drain the American economy of any hope of early recovery. The Chinese courageously buy vast amounts of dollars to keep American manufactures uncompetitive compared to the Chinese, and are launched on the road of investing in America and colonizing it. If the Roman Empire was unable to withstand the tide of Vandals it once employed, it seems unlikely America will withstand the pressure of a Chinese buyout.

This larger world drama leaves India alone on the margins. If we are to survive in the 21^st century, we must as soon as possible focus on our internal economy, institute strict normative rules of governance, and achieve manageable peace on all our borders. The Indian land armies are more than capable of preserving territorial integrity. A deadly nuclear arms race can bleed our economy to death. Such weapons can never be considered secure in the hands of the unreliable Pakistani military elite. This very real danger presents a potent threat, and will lead arms dealers and their governments to impose on India and Pakistan the need to maintain and improve on such weapons. Such pressure while fatal for a civilian government might be joyfully accepted by a ruling military elite. It is imperative that India should push for a nuclear-free South Asia through all possible diplomatic means. That several other powers are so armed, or are capable of being so armed, does not weigh in the strategic balance as much as India’s need to address maximum resources to its internal economic front. Without nuclear weapons, Pakistan offers no threat to India, except being a launching pad for low-intensity terrorist attacks, which will remain as an irritant till that country gains a fully responsible civilian government. This, despite the fact that the United States of America will continue to fund and arm the Pakistani military in its own national interest of securing an encircling ring around middle-eastern oil.

The main strategic question involves the long border India shares with China, and that country’s intention towards India. In the light of present-day realities, and China’s own power trajectory, it is unreasonable to expect a border war or even an incursion. What India can expect is the ever-present threat of such action from China so that India’s resources are tied-up in non-developmental expenditures and in military inventory build-ups. While the Chinese leadership is coldly calculating, it is also reasonable to expect that that collective is made up of hawks and doves with power tensions playing between them. India should play on such tensions by systematically defusing situations, and systematically offering confidence building measures. It is also important to recognize that however cerebral a leadership might be, it would be influenced by its history, by past fears, angers, and trauma. The terrible century the Chinese experienced from the time of the opium wars and the western ‘open door’ policy right up to the cruelties of the Japanese invasion and Kuomintang rule has seared their imagination. Chinese diplomatic policy towards Japan, for instance, is conditioned unreasonably and disfunctionally, by such memories. Indian engagement with the Tibetan question, partly informed by idealism, partly by CIA-directed real-politick and partly by bravado, has continued to colour Chinese perceptions towards Indian intentions. Indian leaders need to appreciate the real significance of such fears and take corrective measures. Irresponsible statements targeting China, as the one made by George Fernandez when he was Defence Minister, must be swiftly withdrawn and the erring politician disowned. Will all this produce a rapprochement between India and China? Unlikely, but Indian leaders must know what game the Chinese are playing, what the rules are of that game, and devise a home-grown strategy to produce at least a draw as they go down to the wire with real-politick manoeuvres.

Any algorithm that is written to lead to Indian national security must include the drastic reduction, if not the elimination, of present high levels of poverty. If a pathway is chosen to strengthen Indian-American relations as a step to check Chinese ambitions in South Asia, this cannot be put in place securely unless Indian purchasing power increases greatly to lock in with the American market. An increase in purchasing power is a resultant of diminishing poverty levels. If the aim is to secure a friendly government in Pakistan, rising incomes in India following the development of the secondary manufacturing sector and its agricultural base will irresistibly attract Pakistanis towards similar economic modernization and lead to an economic community in South Asia. It should be remembered that a similar process occurred in Europe to end the age-old enmity between France and Germany. The right way to end the Naxalite problem in Chattisgarh and other forested areas, as pointed out by Mr. Ajit Jogi, former Congress CM, is by providing schools, hospitals and amenities to tribals and not by way of the Green Hunt or other draconian measures. In other words, by removal of dire poverty among the tribal poor. Economic development also holds the key to the peaceful settlement of the Kashmir valley, whatever form the political solution might take. What is stated here is not a mere repetition of the guns or butter debate, but an  assertion that butter forms a better defensive shield than guns.

   

Ending the Cuban Crisis

Cast

US SENATOR:                                   Middle-Aged, Fat, Jovial, in tropical suit

CUBAN REPRESENTATIVE:          A Colonel in battle fatigues

Place

A Conference Room in Hyderabad

Time

The Present, daytime

AS LIGHTS COME ON:                    The US SENATOR and the CUBAN REPRESENTATIVE enter a rather plain conference room and sit across the table from each other.

US Senator:     I think I speak for both of us in expressing thanks to our friends in Hyderabad India for facilitating this confidential consultation. It’s the first of its kind between both our countries, and I sure am glad the Press is nowhere in sight.

Cuban Rep:     That’s the way you wanted it and we agreed.

US Senator:     Yeah, what a relief! Now, Colonel, we are met to take a first look at conditions you will have to meet if the Embargo on Cuba is to be lifted. I am not saying such a possibility exists now or ever, but before such an eventuality can even be contemplated, we in the United States would like to see some changes in your policies.

Cuban Rep:     Senator, the unjust and unilateral embargo imposed on Cuba for the last fifty years has strangled our economy but not our spirit! However, the Comandante and the President have entrusted me with the authority to negotiate with you for the lifting of the embargo. Anything within reason we are willing to accommodate.

US Senator:     Well, Colonel, that’s the most reasonable statement we have heard from your government since their unconstitutional takeover in 1959. What we need to see is palpable and visible reform. That comes before anything else can happen.

Cuban Rep:     What kinds of reform?

US Senator:     Encouragement of private enterprise.

Cuban Rep:     We have made a beginning.

US Senator:     Not enough. We want to see openness.

Cuban Rep:     We have opened up the beaches for tourism.

US Senator:     Yeah, but we want to see you guys move towards the way Havana was before 1959.

Cuban Rep:     That’s a tough call, Senator, so much has changed… but we have allowed some old practices to come back out of respect for the American way of life.

US Senator:     Such as?

Cuban Rep:     Don’t get me wrong, Senator, but Americans used to come to Havana in the old days for its hookers. Well, there are some around again.

US Senator:     Yeah, I noted that. Good. That gives us some comfort. But we want it better organized along with gambling for high stakes, you know, the way it used to be?

Cuban Rep:     I thought you believed in rugged individualism?

US Senator:     Oh, we do, we do, don’t get me wrong, but there’s got to be Big Business involved as well, right?  It doesn’t feel right if there is no Mafia!

Cuban Rep:     Senator, I assure you crime does exist in Cuba.

US Senator:     OK, but the way it is right now, it’s unacceptable. And what’s even more un-American is your Infant Mortality Rate, your Educational Statistics! Tell you what, Colonel,[leans forward whispering] it’s that close to being considered WMDs, only the President has stayed a full-scale attack on your island!

Cuban Rep:     My God! But, but, Senator, the WHO, UNESCO, have all lauded our performance…

US Senator:     That set of poofs! Look, Colonel, if you guys can produce a lower Infant Mortality Rate, poor as you are, than the good old United States of America, how do you think that makes us look? It’s a direct threat to our way of life, and we will do everything to preserve it, you can bet your bottom peso!

Cuban Rep:     What do you want us to do?

US Senator:     Look, we want to be friends, OK? The President wants to end this embargo. You’ve got to be in a position to receive US Aid! For Christ’s sake! We don’t want you to be sending doctors and medical relief all over Latin America! We want you to be more like Haiti!

Cuban Rep:     More like Haiti?

US Senator:     Yeah, out there with a begging bowl. We want to see beggars out there on the streets of Havana, hookers, drug pushers, to give us a sense of progress, of familiarity, savvy?

Cuban Rep:     Let alone the Comandante, Senator, even our women would go through the roof if I publicized the price you are asking!

US Senator:     Screw the women! I’m glad the Press aren’t around, we don’t want Hyderabad-gate, do we? Colonel, your Cuban women have got to conform with the rest. Why are they so educated? Why do they have so many top jobs? We want to see more illiterate women out on this island! Right now, the way they are is a direct military threat, and that’s a fact.

Cuban Rep:     It will take more than a generation to do that!

US Senator:     The question is, Are you serious about wanting the Embargo lifted or not?

                        It’s not all that difficult, Colonel, if there is political will. Get everyone to pay for medicines, for hospital care, for schooling. Don’t give away nothing for free, ever! Give jobs only to a few, around your Fidel Castro, we don’t care. That’s the wonderful thing about Capitalism! You don’t have to worry about how to do these things, it all happens automatically, the rich get richer, the poor we always have with us, you get US Aid to give them, we station our troops over here, you are happy, we are happy, see?

Cuban Rep:     I see what you mean, Senator, but it is wholly impossible to make literate people illiterate.

US Senator:     Nonsense! Look around here in lil’ ole’ Hyderabad. The Indians know how to do it. Everything here is run in English, the government, business, universities, everything! If Cuba went English tomorrow, I’ll bet my bottom dollar you will have a healthy record of illiteracy!

Cuban Rep:     [standing up] Thank you, Senator. I will report to my superiors about your terms.[hesitating] Actually, I was a little worried you might bring up the question of dissidents in jail.

US Senator:     [standing up, smiling] Nah, who cares! We have over three million guys locked up back home right now, it’s been good for privatizing the jail business. All our friendly countries have jails bursting with people, and that’s okay with us.

Cuban Rep:     Most of the men in Cuban jails were trained by the CIA, Senator.

US Senator:     That true? Tell you what. You work along the lines I have suggested, and we will take them all back and shove them into Guantanamo, you have my word for it! [They shake hands]

LIGHTS OUT

END OF PLAY

   

The Indian Banker

The Indian banker is a money-lender

A pawnshop owner, a greasy bugger

He cares two hoots for right or wrong

He licks the arses of the rich and strong

And kicks your teeth in

Thanks for depositing.

The Indian banker.

Incompetence written all over,

Steals from the poor to give to the rich.

The babu makes life one hell of a bitch.

The Indian banker -

God damn the blighter -

Fears the boot of the one upstairs

But fixes the customer in frightful snares.

The Indian banker, what can I say,

Will vanish in blood one fine day.