Business Today

Saving the micro buyer

The chairman of IFMR Trust says the private sector is best placed to serve the poor, but it can't expect govt help.

Nachiket Mor        Print Edition: Jan 9, 2011

Markets are said to go hand in hand with democracy. Just as people are allowed to choose their leaders in an unfettered manner, so, it is said, must happen with goods and services. And, just as democracy is messy and does not always produce the "right" answer, so are markets. Eventually, democratic systems self-correct, and so do markets. While we are deeply attached to democracy, many of our fellow citizens continue to pay a heavy price because democracy does not always throw up leaders who are worthy of a nation such as ours. We hope that, on balance, we have gained more than we have lost and that self-correction is at work.

However, we as a country have displayed much less equanimity about markets. Policy here has been characterised by a deep fear and mistrust of the private sector, leading to a series of backward and forward steps. As a result, even in mainstream markets, we have created a private sector that largely survives because of implicit government backing (e.g., petroleum refining and financial services), or because the state's failure has been so stark that even its most diehard supporters had to allow alternatives (e.g., airlines and telecom).

The waters get muddied when it comes to low-income households and to goods and services that are seen as "non-market". The implicit contract seems to be that it is all right to have the government provide deficient goods and services or not provide them at all, as long as the poor are protected from extreme shocks that market forces bring with them.

The darker side of this, however, is that the antipathy is only towards the formal private sector. So the Forwards Market Commission gets to regulate the electronic spot exchange, and the Reserve Bank of India the non-banking finance companies or NBFCs.

This considerably increases the playing field for the deeply exploitative but historically present informal private sector such as the commission agent and the village moneylender. A grim example is the current microfinance crisis in Andhra Pradesh, in which an entire industry of regulated NBFCs is being erased, leaving the field wide open for informal lenders.

  • Print

Page 1 of 2 Next >  >>
A    A   A