Opinion Small And Medium Perils

That cash rules the rural economy is well known. The bank branch and ATM network is skewed in favour of urban India, and they are more concentrated in the metros. Private and government banks have flooded metros with ATMs — one out of every four ATMs is located in a metro. Similarly, the spread of bank branches is lopsided. One rural and semi-urban branch serves 12,863 persons, more than double the number of persons served by an urban and metropolitan branch. These statistics speak volumes about successive governments’ efforts on financial inclusion. And access is just one aspect of inclusion. Usage matters more, and the large number of Jan Dhan accounts with zero and Re 1 balance suggest that the poor need time to move into the banking system.

All this is known to the Reserve Bank of India and the government. The demonetisation of Rs 500 and Rs 1,000 notes — which account for 86 per cent of the total value of currency in circulation — has adversely impacted economic activities in villages and rural districts. Existing notes have disappeared, new notes are slow in coming in, and there are not enough Rs 100 notes. Banks’ effort to ease the discomfort is also targeted more at metros and urban centres. It is shocking, then, that the RBI or the government did not direct banks to provide sufficient cash to urban cooperative banks (UCBs). These UCBs account for 4 per cent of the banking business and their 10,000 branches and 3,000 ATMs wear a deserted look since their requests for cash were spurned by scheduled private and government banks.

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The next blow to rural business activity came when the RBI barred district central cooperative banks (DCCBs) and primary agricultural credit societies (PACS) from exchanging old notes, and also accepting deposits of Rs 500 and Rs 1,000. DCCBs serve self-help groups and their lakhs of customers include micro-entrepreneurs such as auto-rickshaw drivers, vegetable and fruit vendors, paan shops and roadside kirana. If one looks at micro and small and medium enterprises (MSMEs) as a segment, even this is spread mostly in rural India. RBI estimates put the number of MSMEs at 4.8 crore, employing over 11 crore people, and contributing 45 per cent to the manufacturing sector and 40 per cent to exports. The government estimates their number at 383 lakh, half of which are rural units. Most often, SMEs, that too rural ones, are credit-starved. Many do not come to banks fearing harassment by tax officers and the petty bureaucracy. They have been the hardest hit. Cumulatively, the impact of such neglect has started resulting in potentially permanent destruction of business. It takes 50 days to kill a business, but much longer to revive it.