The new banking time in India

The Indian banking is undergoing through some unusual structural changes and naturally the news has been making round about one of those, which is ‘differentiated banks’. As widely reported and circulated, the RBI Governor Raghuram Rajan is a firm believer in the ideas behind it, and thus the central bank’s guidelines come so hands-on this, it leaves no chance unturned to make the keen watcher believe, these new institutions will end all ill in existing system at place.

In principle, the payments banks and small banks are ‘niche’ or ‘differentiated’ banks – with the common objective of furthering financial inclusion. The Small Banks will provide all the basic banking products but will have a limited area of operation – and the Payments Banks will provide a limited range of products, such as, acceptance of demand deposits and remittances of funds, but will have a widespread network of access points particularly to remote areas.

The role of technology and Business Correspondents (BCs) would be crucial for these new banks, like all other existing banks working in rural and semi-urban areas. So, what is new in that? Nothing much. The concept of local area banks came long back in India – and in fact, the Regional Rural Banks (RRBs) took that concept of local banks much ahead than anticipated earlier.

Today, total 57 RRBs have more than 16, 664 branches – remarkably, these banks are still operative at low cost than PSBs and Private Sector Banks in rural terrains – and most of them are in profit. Surprisingly, the RBI has no plan to make these banks more aggressive – and making addition of the Post Offices, as next banking institutions.

The NABARD has for long ceased to offer any noble solutions for rural banking in India, so even in close bearings with the Chicago School of Economic Thought – Rajan should scrimp little bit time and vision to put forth a workable model rather loosing time with too romantic ideas of ‘differentiated banks’ – that appears in its idealistic fold, beating the blue eyed professionals’ flop venture in India, MFIs.

In retrospection, we would get some insights on failures from the distant land of west that has been charming Indian policy makers in recent few years like never before. The ‘hole and corner’ life philosophy of Wall Street bankers and their understanding about the game of banking could be summed-up in few clumsy but truthful words: ‘for them – money is fact, rest all is fiction’.

Time and again, these words came into fruition and brought to the world, such ‘catastrophe’ – not normally to be hatched by someone having capacity lesser than of a double-dealer.

This clears the fog to know that the winds from west seldom come with underlying merits to be known ‘progressive’. This reckoning was although at place in late 1960’s when Indira Gandhi redrawn the character of Indian banking in a single stroke of pen by nationalising fourteen major commercial banks of that time. The inherent aim was much broader and that for creating the culture of profitable Public Sector banking in India – with focus on strengthening the core economy of the country, through readily available banking services hitherto denied.

These banks played their role to an extent and indeed ensured banking among the masses – that exercise could be seen as the biggest financial inclusion drive in India. This was much effective than the Swabhimaan or Jan Dhan Yojna, whose accomplishments would not travel (based on their theoretical positioning) beyond the bank account opening in crores.

Coming to the solution side, the policy debates on banking have to take a cue from erroneously rumoring, the existing banking players in India are wimps – they are not actually. So, selling the already used applications of mobile, low cost innovations would not help now – the real course of correction would be through differentiating between the performer and pretender.

For making financial inclusion effective and rural banking spectrum, free from the unrealistic notions – first and foremost, the RBI should trust more on the RRBs, besides making PSBs and Private Banks less pampered, so they can work and don’t show excuse that the ‘baking is expensive for poor’. They should make profit by banking with the poor, but must stop making BCs, not only poor – but pauper, by offering less than 1/3rd of minimum wage made mandatory by the Constitutional provisions.

The Post Offices have already a huge network at place that covers the nook and corner of the entire country. If the Finance Ministry and the RBI is really serious for going ahead with actual financial inclusion drive – the next banking license should be given to the Post Offices. As not all existing things could be called bad – the time is ripe now to make the plethora of ‘innovations’, truly grounded and coming into terms with the realities of India.

Also an understanding should be at place, the Indian banking is not in nascent phase – and it certainly has some strong economic fundamentals, which giving enough reasons for the banks to get serious about their business prospects. Even those have not returned recently after attending a short-term crash course on ‘emerging economies’ in any Ivy-League Institution (including this writer), can have a logical edge in saying Indian villages have enough too offer for the bank, who will follow the basics of banking there. Not that any show of dramatics would return back well.

The game plan should be to make better course and stay on that. A differently famous, Gordon Gekko from Wall Street (1987), delivered these words very aptly, ‘don’t run when you lose – don't whine when it hurts’.The banking in new time in India has to go that way, it could be said by this moderate polemist!
-Atul K Thakur
Email: summertickets@gmail.com
(Published in INCLUSION)

India’s tryst with democracy

Book Review: Non-fiction/Battles Half Won: India’s Improbable Democracy by Ashutosh Varshney, Penguin, 415 pp; Rs599 (Hardback)

Ashutosh Varshney has long been considered a formidable scholar of South Asian politics and his latest book is a significant addition to his repertoire, particularly at a point in time when Indian politics is undergoing transformations of an unprecedented nature. Battles Half Won: India’s Improbable

Democracy is a compilation of several pieces that seek to trace India’s political trajectory, from the time of its birth to the modern day. What is at the heart of the book is the idea that India is struggling to establish a deeper, more definitive democracy. Varshney has well-captured the centrist tendency in Indian politics, particularly at the national level.

In the states, he says, identities of various sorts still rule the course of political action and outcome. Great use is made of facts and figures to prop up his ideas, testifying to the author’s skill as a truly effective political scientist.
India is presently at a stage wherein the expectations of the electorate are quite diverse, apropos of how the system and its representatives respond to them.

But still we see a Narendra Modi seeking to make his party, his government in Gujarat, and in imagination, the country, an overt extension of his personality. It was the same mistake, in fact, that Indira Gandhi had committed almost four decades ago, making the Congress party her territory.

For a party that had been shaped by a standard democrat like Nehru post-independence, and still carrying some notional attributes of the anti-colonial movement, this had proved a major setback. Varshney emphasises that without the freedom movement, India’s nationhood would have been inconceivable, which means democracy
too would’ve been inconceivable.

He focuses especially on the consolidation of national democracy after 1947, calling it the next remarkable event after India’s independence—where the decisive leadership of Nehru played a major role. It is appreciable that while doling out these analyses, the author is able to keep his personal biases on hold, one of the many strengths of his writing.

The book touches upon, at one point, Mahatma Gandhi’s Hind Swaraj, a radical piece of work. While stressing on Gandhi’s political preferences, Varshney adds, “It is noteworthy that Gandhi himself was not very fond of representative government, his ideal polity was one that had local village republics, more in line with direct, non-representative democracy.” Does this mean then that the Aam Aadmi Party of today is following Gandhian principle?

I suppose that is unlikely, as the AAP, in core, doesn’t oppose representative politics, nor is it its express objective to make representatives accountable. Rather, what the AAP is pursuing is the ‘trivialisation of representation’, visible in the way it has vested the Mohalla Sabha (meetings among residents of a ‘mohalla’, a smaller partition of a ward) with such supreme power.

Given its heavy-handed political maneuverings so far, the party’s plan to contest the general elections in a big way will be much messier, of course. But its strong emergence in the scene has certainly brought democracy under close scrutiny. Varshney offers substantial space in his book for present-day politics, new bases of coalitions, governance and economic reforms—all elaborated upon in his signature style, now become quite popular through the means of his widely read column in the Indian Express.

Like he tends to do in many his opinionated writings in newspapers and academic journals, his book too draws out the differences between the “quality of democracy and existence of democracy.” He envisions India as a mature democracy that has a deeply unstable core, thanks to the socio-economic inequalities and challenges it has encountered with regards to its territorial integrity, making the battle for “deeper democracy” the need of the hour. And the AAP, for Varshney, is an example of the forces within this battle.

For the most part, Battles Half Won analyses the factors behind the deepening of Indian democracy since 1947 and the challenges these have created. The book broadly traces the forging and consolidation of India s “improbable democracy”. The essays delve into themes ranging from caste politics and ethnic conflict, and Hindu nationalism to the north-south economic divide and the politics of economic reform since 1991—issues that have consistently tested the calibre of Indian democracy.

The book also highlights the adverseness of not relying on “intelligent economics”; AAP ideologue Yogendra Yadav, for instance, has made his party’s intentions clear on that by shifting the political and economic agenda away from the “shackle of isms”.

Of course, this is merely in principle so far, and it remains to be seen what the execution will actually be like. But the potential impact of new politics, championed by the AAP—the way it has encroached on the traditional turf of left or right-leaning forces, by injecting flexibility into economic policies and matters of governance—is something that greatly interests our author.

Given the Anna Hazare campaign, which proved so popular a while back, and now with AAP’s swift rise in the power circle, Varshney feels that the bulk of citizens in India are now eager to participate in the overall political process.

While examining all these changes, the book also indicates the next course of development as far as democracy in India is concerned. In Varshney’s view, Indian democracy is the sort that becomes more progressive the more unsettling changes it comes across. After all, time and again, all kinds of political hiccups in India have been solemnised—although with varying degrees of success.

Then again, the stakes are much higher at the moment, and forward-looking Indians can no longer trust a government that offers less than a two-percent job growth rate, for example. Now is the time for political parties to be as prompt in terms of their actions as their electorates are with their expectations. Overlooking that would be detrimental for success in the political fray as other countries in South Asia have evidenced.

Articulate and authoritative, Varshney’s book offers fresh insights into several crucial areas, elements that have shaped India into what it is today, whether that be the complex set of relations under the country’s federal system, the challenges of territorial/cultural diversities, and the contradictory outcomes of economic reforms, among others. Battles Half Won looks back very diligently on successes and failures of India’s tryst with democracy—which despite having many flaws, is charting its course with no full stop.
-Atul K Thakur
Email: summertickets2gmail.com
(Published in The Kathmandu Post on February22,2014)