One of the biggest disappointments of the purportedly pro-business and private sector BJP which is set to complete its second term in office, is its failure to privatise India’s 28 public sector banks, foolishly nationalised by then prime minister Indira Gandhi in 1969. Since then over the past half century, nationalised banks managed by risk-averse business illiterate bureaucrats and over-promoted clerks have destroyed the country’s banking system developed over centuries by globally powerful Jagat Seths, who inter alia, funded the East India Company. After nationalisation, lending to private business and industry was driven more by control-and-command orders from the neta-babu brotherhood in Delhi, than on balance sheets and business potential of desperate borrowers.

As a result, with a disproportionately large share of bank credit hogged by failing PSEs (public sector enterprises) and large corporates with good political connections in Delhi, the credit needs of the vitally important MSME (micro small and medium enterprises) sector, which employ over 60 percent of workers in industry and accounts for 40 percent of the country’s annual industrial output, were almost totally neglected.

The extent to which MSMEs and the common man were denied credit by PSBs (public sector banks), which were nationalised in the first place to make credit available to them, was brilliantly exposed recently by veteran journalist T. K. Arun in the Times of India (November 16). According to Arun, the actual quantum of bank credit that risk-averse PSB managers dole out to India’s private sector aggregates 50 percent of GDP against the global average of 97 percent — and wait for it — 180 percent in the People’s Republic of China. In the circumstances, it’s no surprise that when as recently as 1978, the GDP of China and India were on a par, now their GDP is $19 trillion cf. India’s piffling $3.7 trillion. And as everyone knows — or should know — PRC’s spectacular growth has been driven by easy credit availability to its TVEs (town and village enterprises). Cry, beloved country!