Democracies around the world are experiencing a shift in the political narrative driven by discontent of people with globalisation and markets. Dr Rajiv Lall, the founder MD and CEO of the IDFC bank wove his discussion on the changing trends in financial inclusion with the students of Meghnad Desai Academy of Economics around aspects like markets, democracy, politics, policy and technology using the changing global geopolitical environment to provide a broader understanding of the issue. He began by talking about the major changes in western democracies; changes like Brexit, the Italian referendum, Donald Trump’s presidency and the elections in Austria and France. Dr Lall said that these events suggest the growing disaffection with globalisation and anger of the people who feel that they have been left behind and this is something that economists and policy makers around the world must think about. Dr Lall propounded that a major international rethink about the benefits and the efficiency of a market economy for democracies and democracy around the world is happening right now. Growing global inequality is a reality that can’t be denied he said, and that sixty individuals around the world account for substantial share of global wealth. He said that a market economy is not designed to deliver social justice and ends up causing social failure.
India, he said, is a unique case because it is the largest democracy in the world and has been experimenting with free market economics for a while. Dr Lall described India as a premature democracy because it got universal suffrage before it got development. At the time of independence, India’s per capita GDP was less than that of 18th century USA. This made it imperative for elected representatives at that time to make social justice and redistribution of wealth, the focal points of economic policy. But when redistribution becomes more important than efficiency, policies become suboptimal and create low growth.
He gave several examples of such failed policies from Mrs Indira Gandhi’s times. He talked about the policy of providing free electricity to all farmers, regardless of their income during the green revolution and its disastrous impact on electricity distribution companies. He spoke about the minimum support price provided to farmers and subsidised food grains for consumers and how these measures create unnecessary subsidy expenditure on both the ends. He also provided a critique on bank nationalisation during Mrs Gandhi’s rule and how measures like priority sector lending did not do much for the supposed beneficiaries as well as the banks. He said that all these policies were made with a good intent but ignored long term viability.
Dr Lall said that one important and valid criticism of such redistributive policies was that the policy makers back then, did not focus on building state capacity. A strong state capacity is very important for redistribution in a large democracy where exclusion errors are always a possibility during implementation of policies. He then began talking about recent changes that are improving state capacity and making financial inclusion more viable for the banks as well as the state.
The three important developments, according to him are the growing public and telecom infrastructure, the Aadhaar card revolution which is providing a unique identification number to every Indian citizen and the payments infrastructure development based on indigenous Aadhar based authentications developed by NCPI. He spoke about the BHIM app that allows seamless fund transfers and micro ATMs and POS terminals that only require the fingerprint of the account holder. These are reducing the requirement of bank branches and human contact, thereby, also reducing the cost of delivering services. He spoke about IDFC bank’s pioneering initiatives to expand cashless banking and to make it accessible for everyone.
All these developments are happening because of the improved state capacity delivered by the JAM (Jan Dhan, Aadhar and mobility) trinity. He said that Aadhar seeding is also making it easier for the government to reduce leakages by helping it to correctly identify the beneficiaries of a policy and by facilitating the direct transfer of subsidies to bank accounts also known as Direct Benefit Transfer (DBT). He quoted Nandan Nilekani and said that just like democracy, India will get data before it gets development. The data will be delivered by Aadhar and will improve state capacity. Dr Lall concluded by saying that technology based, data driven reforms that improve and strengthen state capacity will help in better redistribution and will make a politically robust case for free market economics.
Date(s) - 09/02/2017
4:00 pm - 6:30 pm