THE GIST of Editorial for UPSC Exams : 24 APRIL 2019 (Modi promises collateral-free loan, insurance, pension, credit card as he woos traders (Indian Express)

Modi promises collateral-free loan, insurance, pension, credit card as he woos traders (Indian Express)

Mains Paper 4: Economy
Prelims level: collateral-free loan
Mains level: Economic growth and development

Context

• In a traders’ convention held recently, Prime Minister Narendra Modi suggested bringing in a traders’ credit card scheme.
• The traders’ credit card scheme would be similar to the Kisan credit card scheme available to the famers.
• Under this, loans as much as Rs 50 lakh would be made available to traders without any collateral whatsoever.

What is the rationale?

• Many traders have faced a cash squeeze after the twin blows of demonetisation and the introduction of the GST.
• Resultantly, credit has become hard to come by.
• The scheme thus comes as an acknowledgement of this impact on small traders.
• It is thus necessary for the good of this particular sector as well the economy to ensure that credit flows more freely to the trading sector.

Is it a sustainable idea?

• India has gotten credit mostly wrong over the past decades.
• The past decades have shown that loan melas, whether for the rural sector or for infrastructure, rarely achieve their ends.
• Ultimately, directed lending, especially collateral-free one, ends up stressing those banks that have been forced into making these loans.
• E.g. nationalisation of banks was originally justified by the need to force credit into “priority” sectors of the planned economy.

Way forward

• However, experiences show that when nationalised banks turn into tools of government policy, they fall into crisis in the medium to long term.
• Moreover, the idea of a collateral free credit is not advisable at this moment of the Indian financial sector.
• It's because the banks are yet to properly emerge from the current bad loans crisis.
• Infrastructure, construction, power, and commodities lending continue to remain stressed.
• Alongside this, government has already added some committed credit responsibilities such as the MUDRA loans.
• Notably, MUDRA loans have seen a leap in misuse of funds over the past financial year.
• So in many ways, the new trade credit scheme would add yet another source of bad loans to the banks’ list of directives, causing further an economic slowdown.

Online Coaching for UPSC PRE Exam

General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) KAVACH is a
a) Laser wall to safeguard the 198 km India-Pakistan international border in Jammu and Kashmir.
b) RADAR technique used at IndoPakistan border.
c) Unbreakable shield to protect army tanks.
d) Bunkers developed at the border region in Jammu and Kashmir.

Answer: A

Mains Questions:
Q.1) Define the Trader's Credit Card Scheme. What is the rationale behind this?