Enterprise Promotion in Agriculture and Rural Value Chains: The Key to Poverty Reduction and Inclusive Growth in Agrarian Economies…

Ramesh S Arunachalam

Rural Finance Practitioner

We have had a lot of hype over the last few years with regard to tackling poverty, inclusive growth and the like. Miro-finance and financial inclusion are two such instruments that have been talked about widely across the globe as well as in India. Unfortunately, many efforts in these domains have missed two important aspects with regard to predominantly agrarian economies like India. First, they have tended to ignore agriculture (almost completely) and often made the argument that concerted efforts need to be made to enable low income people to leave agriculture and pursue other livelihoods. Second, where they have attempted to tackle issue of enterprise and/or livelihood promotion, they have done it in piece meal fashion. As a result, even in a fast growing economy like India, we continue to discuss - access to very basic services - basic issues that were debated as far back as in 1952, post independence…

Let me be more specific…

First, let us take micro-finance and financial inclusion – by and large, these have targeted consumption lending and/or provision of small production loans to a wide range of people apart from opening of no frills accounts, many of which lie dormant. Even when some of these efforts have targeted micro-enterprise or livelihood finance, the larger ecosystem, required for enterprises (and especially rural and agricultural enterprises) to succeed, has been inadequate. As a result, many of the people who have been included have tended to get excluded and thereby we see them flow through a cycle of inclusion[i] and exclusion as diagrammed in Figure 1, which is self explanatory. And often times, when these people get excluded, at best, they either go back to the informal money lender or at worst, they attempt drastic solutions including suicides as was seen in AP last year.

Second, is the MSME strand of work in India, which is implemented through various institutions including SIDBI, whose Rural Industries Program (RIP) is perhaps one of the best known Indian efforts at promoting enterprises. While this approach has done all that it can to facilitate enterprise promotion and help ground enterprises, the access to finance component, which was to come through commercial banks (via a linkage program) has been rather weak. Also, the focus of much of SIDBI’s work has been on the traditional manufacturing sector and there are two major issues with such programs: a) they have not targeted value added agriculture and/or rural enterprises in any significant measure; and b) while they have intended to create a larger ecosystem for success of enterprises, the actual realised strategies on the ground are very different and the required ecosystem, is more often than not, weak. As a result, as personally seen during my years of exposure to SIDBI’s RIP and thereafter, a large number of the enterprises have withered away and not survived

In summary, there are four major lessons from the above that deserve emphasis and these are described below

First, for poverty to be tackled in environments like India which are predominantly agrarian, economic growth must be inclusive not only in terms of including low income people who have been left out but also in respect of sectors like agriculture (which are home to a large number of such excluded people) which have not been cared for and integrated appropriately in the larger economy. And the best way to do this is to work in agriculture value chains with potential and develop them in a systematic and comprehensive manner.

Second, inclusion of the disadvantaged people and excluded sectors cannot be piecemeal. Most certainly, mere access to finance or other essential non-financial services alone (on an either or basis) will not help - as in reality, a larger enabling ecosystem comprising of access to a wide range of financial and non-financial services is simultaneously required. In other words, anything short of a comprehensive facilitating ecosystem will result in the excluded people being forced in and out of the larger system – and inclusive growth and poverty reduction will remain primarily as elusive dreams and intended strategies, that sound great on paper but with no serious impact on ground

Third, such an enabling ecosystem will be effective, if and only if, it lends strong support to:

• The creation of an enterprise culture (rooted in their survival skills) among the excluded and disadvantaged people. In addition, there is a need to provide them access to all necessary information/advocacy required to help them achieve their entrepreneurial visions;
• The process of business start-up and survival through simultaneous access to a range of appropriate financial and non-financial services including Infrastructure, Technology, Skills, Finance, General BDS, Product Quality and Certification, Markets for the various enterprises promoted by these excluded people;
• The process of growth and scaling up of enterprises through access to customized BDS and other services required for enabling them to tap a range of local, national, regional and international markets (including governmental procurement in these markets); and
• The creation of a strong but enabling regulatory environment with widespread stakeholder support.

 The various aspects are diagrammed in Figure 2 hereafter

The above are some lessons from experience for India for policy makers in India and other countries who seek to use micro-finance, financial inclusion and enterprise promotion as a means to promote inclusive economic growth and alleviate/reduce poverty. And I hope that the National Rural Livelihoods Mission (NRLM) and other efforts like DFID’s PSIG (Poorest States Inclusive Growth Program), take note of these and ensure that they address the relevant issues at hand in a comprehensive and holistic manner rather than piecemeal fashion. And make no mistake, unless that is done, neither can access to finance nor access to non-financial services, by themselves and individually, bring about the desired results – in terms of poverty alleviation and inclusive growth - in any significant measure….

Have A Nice Day!

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[i] In fact, as a Dear Colleague (Ajay Tankha) often remarks, as much as 55 million loans and 35 million people were supposedly included through IRDP and other programs during its near two decades of operation.