People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 08

February 24, 2013



Rural Livelihoods and Corporate Capital in Twelfth Plan 


Archana Prasad


TWO decades of agrarian distress and the increased penetration of the corporate sector in the agrarian economy is increasing the vulnerability of the rural poor and threatening their survival itself. More than two and a half lakh farmers have already committed suicide; even “green revolution” states have been reporting suicides not only by landholding farmers but even agricultural labourers.




It is in this desperate situation that the central government has proposed a two-pronged strategy to deal with the problems of the rural economy in the twelfth plan whose main focus is to create wage employment and revive rural livelihoods.


The first strategy is centred round expansion of the Mahatma Gandhi National Rural Employment Guarantee Scheme) (MGNREGS) to include infrastructural work and addressing the drawbacks of the existing schemes. It also aims to redress the issues of payment delays and leakages through the strengthening of post offices and banks. It asserts that the banking business correspondent model is one of the ways by which direct wage payments can be made to beneficiaries, thereby linking them with the direct benefit transfer initiative. The second strategy is linked to the restructuring of rural poverty alleviation schemes. Such a restructuring was done in the mid-term review of the eleventh plan itself when the National Rural Livelihood Mission (NRLM) was started in its pilot phase in June 2011.


The twelfth plan has designated the NRLM as the “centrepiece of India’s battle against rural poverty which aims to overcome the problems of previous poverty alleviation programmes like SGSY and enhance “livelihood and human development.” The twin strategies identified by the mission document focus on the development of community based organisations to increase social capital and financial inclusion of the rural poor to help them in self-employment. Through this process the NRLM proposes to integrate the rural poor within the emerging labour markets as well as into a network of arrangements that are based on the public-private partnership model. However, the full understanding and implications of this project need to be understood because it continues to be located within the larger neo-liberal paradigm of the government.




One of the central themes in the NRLM is “building of the institutions of the poor” to realise mutual cooperation and demand driven livelihood collectives. The definition of rural poor, however, is neither occupation based nor income or class based. The term only refers to those who have BPL cards and aims to cover seven crore BPL households with special focus on the scheduled castes, tribes and minorities. As the mission document suggests, this universal social mobilisation is to be achieved by “ensuring that at least one person from every identified rural poor household, preferably a woman, is brought under the Self Help Group network, in a time bound manner.”  The main aim of this network is to create a web of SHG federations which will be the nodal point for the self-management and self-financing of rural livelihood enterprises. The NRLM will serve as an umbrella platform for mobilising technical and managerial support for scaling up and enhancing the value of these micro enterprises.


The scheme states that the choice of livelihood is to be demand driven, and the marketing of skills will be done through multi-faceted partnerships. Job creation is to be done through by enskilling the youth for placement related skills and also by linking self-employed producers to export and industrial markets through federation-industry partnerships. The mission seeks to bring about a vertical integration of the rural poor into the lower end of the value chains driven by corporate demand for both skills and products. The National Skill Development Corporation (NSDC), a public-private partnership, is the lead partner to link the rural youth with industry. By the time of the 2014 elections, the NRLM is projected to cover 210 million BPL households, provide six million people with self-employment and create four million skilled jobs for the rural youth.


However, given the track record of the National Skill Development Corporation and the schemes of other related ministries, this does not seem to be an achievable target. As the meeting of the skill development board in November 2012 noted, all organisations coordinated by the board were meant to create 85 lakh skilled jobs, but ended up creating only 14 lakh jobs in 2011-12. Hence the reliability of this PPP mode in creating livelihood opportunities for the rural poor is suspect.


Despite this experience, the NRLM proposes to cover 33 million households of the rural poor and create 264 million SHGs that will help to finance job creation in the rural areas by the end of the twelfth plan. It projects that 10 million youth will be enskilled and placed in jobs, whereas three million self-employed will be created. By 2022 the scheme is projected to cover 90 million rural households, enskill 25 million youths for jobs and create nine million self-employed people. Its major focus appears to be on training the youth for cheap labour and create support services for the corporate sector that is penetrating the rural India. The UPA-2 government is seemingly determined to adversely incorporate the SHGs for the use of local resources, sweat labour and hard earned savings of the rural poor in order to subsidise the corporate sector. This is evident from the financial structure of the scheme.




Another major aim of the NRLM is restructure the subsidy for rural livelihood following the review of the SGSY programme. The scheme proposes to achieve “universal financial inclusion beyond banking services to all poor households, SHGs and their federations” which are meant to register themselves as local area development societies. It hopes that by facilitating easy credit through the SHGs it would be able to restructure the back end subsidy in the government schemes. In the restructured scheme, the NRLM proposes to provide interest subsidy so that groups can avail of credit at seven per cent rate of interest. However, even this is only to be provided to the SHGs whose 70 per cent of membership is drawn from the BPL households. These SHGs must also have a history of “responsible borrowing and repayment.” In this sense the SHGs and their federations will be assessed for their credit worthiness before subsidy is provided to them.


Further, there is also a provision of providing seed money for a revolving fund and in some cases a moderate capital subsidy of not more than Rs 2.5 lakh to the SHGs of the schedule castes and tribes. The main aim of this rudimentary subsidy is to capitalise the SHG federations which are ultimately expected to provide a portfolio of financial and social welfare services for micro enterprises. Thus the NRLM seeks to build linkages between the SHG federations and a range of financial institutions like banks which are expected to operate mainly in remote areas through banking business correspondents (BC), and bank mitras (or community banking facilitators). In this sense the NRLM proposes a 'savings based' self-financing model of livelihood development where the government will itself have a very limited role to play.


This system being proposed by the NRLM has to be evaluated in the light of the larger experience about financial inclusion through the bank linkage programmes as well as the BC model. The statistics of the Reserve Bank of India show that the outreach of public sector commercial banks is limited. It was in order to increase this outreach that the BC model was proposed by the RBI in its guidelines of 2010. Apart from reputed individuals like retired college teachers and others, registered NGOs, including micro finance institutions (MFIs) which are were registered as societies, can be business correspondents for the scheduled commercial banks. They can take small deposits and disimburse small loans to borrowers within a radius of 15 km of their designated areas of operation. They can open “no frill accounts” for public sector banks and be the main link between the financially excluded people and the banks. For this purpose, a BC is meant to get a commission from the bank for enrolment of clients, transactions and deposits. However, initial studies show that this model is unviable on at least two fronts.




First, most of the no frills accounts opened by BCs take more than two or three months to operationalise and at least 25 per cent of them have become dormant. Further, the loans provided through the BCs have proved to be unreliable in terms of their repayments. Examples from Tamilnadu show that beneficiaries first take a loan of Rs 50,000 from the BCs and repay them fast so that they can take bigger loans that are four times that amount. But they seldom repay these loans, sometimes even migrating out of their areas. The bank is thus forced to write off these loans.


Another startling fact is that many of these loans are not being used for livelihoods but for running chit funds. This is in sharp contrast to the use and repayment rates. Where bank branches are directly linked up with the SHGs and in the older SGSY scheme, the rural poor have a good record of repayment. Clearly, many BCs appear to be misusing the credit provided by the banks.


Second, this model is not viable for any individual or community based BC; rather it has proved viable only for those organisations that have the capability to combine this operation with a portfolio of other services. Thus a large number of corporate funded NGOs have entered into the picture and are using the BC model to get a toehold in the rural areas. For example Drishtee, Basix and Janalakshmi Financial Services are all acting as BCs for major banks like the State Bank of India, Axis Bank and HDFC. It is therefore not surprising that micro finance institutions are not only encouraging the BC model but also pressing the RBI to allow them to act as BCs for major commercial banks. In this situation, it appears that the NRLM has the potential for becoming a gateway for the expansion of operations of non-banking financial companies (NBFCs) and MFIs in the garb of registered societies.


Thus it is possible to conclude that the NRLM is aimed at bringing about fundamental changes within the rural economy in order to serve the interests of industrial and finance capital. It may also serve as a mechanism for withdrawal of public funding from rural development as it expects the rural poor to finance themselves if they want a stable livelihood. Its rhetoric about mutual cooperation and livelihood security needs to be understood in this context. It is therefore necessary to fully understand implications of this umbrella scheme and propose alternatives that will help to build mutual cooperation and cooperatives amongst the labouring people to gain control over their own productive resources and combat corporate capital.