Faced with a crisis of jobs, Prime Minister Narendra Modi and his government continue to talk up Mudra loans and claim that it has created crores of jobs. At various times, Modi has said the Mudra scheme has had a multiplier effect on job creation, or has rhetorically asked, “doesn’t each loan help create at least one job”. By that measure, the 15.56 crore loans that the government has given in four years should have created at least 15.5 crore new jobs. Unfortunately, everybody can see that that’s not true. Yet, Finance Minister Piyush Goyal boasted on Budget day that “Job seekers had become job creators” with Mudra loans.
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Like every other scheme launched since 2014, Mudra was launched in April 2015 with great fanfare. Like most Modi schemes, it was no more than rebranding of an existing activity. Mudra merely reclassified loans based on the ticket size — calling them Shishu (upto Rs 50,000), Kishore (Rs 50,000 to Rs 5 lakh) and Tarun (Rs 5-10 lakh). The government has given out Rs 7.23 lakh crore in Mudra loans between 2015-16 and now, or a massive 8.5% of all the expenditure of the Government of India in these four years. What has it got to show for it? Data shows that the average size of over 90% of Mudra loans is about Rs 23,000. Does it take a loan of just Rs 23,000 to create a new and sustainable job? If that were so, wouldn’t it be easy to wipe out all unemployment? About 7% of the loans are of average ticket size of Rs 2 lakh; only 3% of Mudra loans are of Rs 5-10 lakh, with average ticket size of Rs 7.67 lakh. These last could potentially have helped create jobs. Except, the government does not seem to know whether these loans were taken for business or for personal purposes. RBI data on sectoral deployment of credit shows that in 2017-18, for instance, 96% of all new non-food bank loans were personal loans; credit to non-farm, non-corporate micro, small and medium enterprises (MSME) – the target of Mudra loans – barely grew. Yet, claims of crores of new jobs don’t cease.
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What’s the economic effect of the Mudra scheme? Former RBI governor Raghuram Rajan had last year flagged Mudra loans as the next potential non-performing assets (NPA). The RBI in January said Mudra loan NPAs had touched Rs 11,000 crore. Mudra loans are unsecured loans. They are prone to turn into NPA. In effect, then, Modi might have handed ‘gifts’ that need not be returned or repaid. Worse, by setting targets for Mudra loans, banks, already reeling under corporate NPAs amounting to over Rs 10 lakh crore, were forced to give out these ‘gifts’, too. Who pays for them?
