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The moneylending market in Kerala
was a natural economic bubble. The bubble grew because the factors favoured it.
Very few people can be blamed for it save the State for its inability to
predict the case. Why? Because it was empowered with a strong legislation
(Kerala Money Lender’s Act 1958) to prevent this growth and which seems was never used until now. There are several
questions then on the rising money lending market in Kerala and the actions
taken by the state government in the wake of a spate of suicides by borrowers.
The state action, to prosecute illegal moneylenders, was widely accepted by the
general public. Several people were arrested and prosecuted, and documents
including blank cheques and promissory notes worth millions were seized from
them. This article proposes to examine two questions in the context of the
issue of money lending in Kerala.
the current ‘Operation Kubera’ carried out by the state justified?
are the possible impacts of this state action? And what should be done?
History: The Market for Moneylending
Before we explore these questions
we need to understand the state of affairs in moneylending in Kerala. Moneylending
in Kerala as for any other region across India was a thriving business at the
time of the state formation. As for any other business this market too operated
on the basic principles of demand and supply. Money was demanded by a lot of people
who did not have it and it was supplied by people who had it in plenty. The
ethical question as to how some people had more while some had very little, and
the moral question of continuing exploitation led the State of Kerala to control
this market. At the time of state formation this ought also to have been a
popular policy too ensuring that dividends of universal adult franchise could
be tapped for political power. And so the market for moneylending came under
the control of the state. The earliest legislation for this control in Kerala
was the Kerala Money Lender’s Act 1958. The main form of state control was
introduced through a policy of licensing, which required that individual
business which wanted to do moneylending should be licensed by the state. The
Act also prescribed a series of measures including giving the state the right
to fix the level of interest charged by the lender, strict rules and legal
implications to prevent harassing of the borrowers, and fines, penalties and
imprisonment for violating the provisions of the Act. This Act was revoked time
and again, but this time on a grand scale to stop moneylending activities in
Kerala. It came with a new nomenclature-‘Operation Kubera’. Several people were
arrested and jailed but not until many others had lost their lives.
Is the Current Operation Justified?
The current occupation cannot be
justified mainly because it was nothing more than a delayed intervention from
the state of Kerala. The state allowed for the growth of this market over a
period of time until it ruptured. This was followed by a dramatic intervention to
wipe the debris from these fault-lines. It is also not justified because this
state action is only a gimmick and nothing more; and the market would still
thrive. I have some reasons for believing this. They are noted below:
1.Huge Profits: An individual could earn
double or four times the interest in the unregulated market if he lend his
money while in the regulated markets it was much lesser that this. This created
a situation where no one need to be a big capital holder. Even if you could
spare Rupees 100 as investment in the non-regulated money lending market, it
was guaranteed that on an hourly rate you could charge Rupees 10 as interest to
this amount. Thus the regulated market for money lending created a potential
moneylender in each person who had some token amount to spare. How will the
state reverse this trend until it has a well-developed plan other than the use
2.Economic Conditions and the Possibility of
Foreign Elements Controlling the Local Market: In a State where unemployment
levels are very high this was all the more a reason to try some luck in this
very old form of income generating activity. Given the potentially high
interest rates in these transactions it can be assumed that the demand for
money was very high and it would similarly have generated a shortage in money
supply. Into this space entered new agents with money from the neighbouring
states. Into this space might also have entered unaccounted money or more
probably fake currency. It could also be assumed that the demand for money
might have been filled through illegal activities indicated mostly by rising
incidence of crime across the state.Until
all this mayhem is cleared there will be questions on the current effort of the
3.Logistically Impossible to Control the
Unregulated Market: The inability to control the large possibilities under
which these transactions could persist, say between friend, among relatives and
family members, among businesses and so on made the states regulatory framework
in moneylending a meek affair. It is logistically impossible for the state to
restrict all these activities. So when logistically it is impossible the only
alternative with the state would be to check the growth of this market through occasional
‘grand interventions’ in the form of organized attacks against moneylenders and
seizing their property.
4.Heterogeneous Base of Borrowers and Lenders:
The borrowers were mainly from all
classes of the society: people wanting to do business, people in need for
immediate transactions, to purchase gold, to conduct weddings, to pay fees and
for that matter anything that money could be used for. The lenders were either
possessors of the capital or agents who functioned for people who possessed
capital. But as against the expectations none in these groups were homogenous
categories and especially in the current situation most of the people picked up
by the police include people from the middle or lower class of the society. So
it is not a homogenous target for the state to deal with but a scattered crowd
of people who entered the market for various reasons.
5.Alternatives: A more
important question concerns the freedom of individuals to adopt alternative and
fair lending and borrowing practices. The more the number of restrictions the
greater the trade-off between freedom and fairness. The more strangled you are,
the greater would be your attempt to free yourself at all cost. When your
freedom to access facilities including banking are restricted by a large number
of requirements, you think less about the fairness of accessing it through
alternative (legally forbidden) sources. So whom do we blame and put in jails,
the alternate sources who filled the requirements or the state itself which
were majorly responsible for restricting this freedom to borrow.
The Possible Impacts of Operation Kubera and Way Forward
Given the above conditions, the
possible impact of ‘Operation Kubera’ would not be much until the ground
realties are studied and the root cause explored and contained. The following
are the suggestions in the way forward.
1.Employment Opportunities: For one, the
demand for money in a civilized society is met through labour; people extend
their valuable labour time and skills and intellect in return to money. It is
not only required that people have a venue to find employment but it is also
required that these employment arise in return to the demand for it. So what is
required is to ensure that skill gaps are filled and sources for employment is
generated. A major requirement in this context would be to ease employment
restrictions, and generate conducive atmosphere for conducting business in the
state. This has been much debated, but at the forefront of such a measure lies
the inevitable need to break free from the ideological logjams in which we are
2.Addressing the Failure of Organized Banking
Activities Led by the State: While the skill gap is being evaluated and
addressed, the state can examine the points at which the major organized banking
activities failed. Money demand was not met in many of the cases; which
requires that stringent laws in extending money needs to be eased. This is
however easier said than done in the context of mounting bad loans in these
organizations. A more important reason is that the state action is likely to
create a zone where officials get a chance to be corrupt.
3.Encouraging Entrepreneurial Skills and Capacities:
It is impossible to generate growth in the economy without encouraging
serious entrepreneurial skill and capacities. People invest only when they feel
that their returns match or exceed these investments. The moneylending market
showed an easy way towards this.
Micro Level Organizations: A way to monitor and curb moneylending would be
to develop a mechanism of empowering micro level bodies like the residents
association. Let these associations’ monitor activities and pool resources to meet crises situations
of its members, and let them pool money to ensure the rise of small scale
businesses across the state. Rather than such initiatives, providing more
powers to the state would not help much. Any form of centralization could only
increase possibilities of a rupture with reality. We want a better deal.
Let’s get this notion out of our
minds that we have a free and fair state. Reportedly there were people with
political ties, policemen and several government officials who had direct
involvement in the business of money lending in Kerala. There is no answer to
how this status quo could be changed. The reason is because this system has
evolved and reached a stage where corrections would require changing the system
in the first place. But there still are possibilities. As a start what might be
required is a change in the attitude of those who occupy key positions in the
state. This can be ensured through legal means, easy and accessible and
understandable to the laymen. The story should begin at this point.
The Mature Market of Spiritualism and the Role of the State
This piece of writing does not
evaluate the merits of the ideology behind gurus and institutions run by them.
In fact, people are free to choose the best that suits them under the available
conditions. And the freedom of choice allows them to optimally allocate not
only there material lives but also their spiritual well-being. Hence critical
in this context is not the belief of people but what a matured system of such
beliefs could develop into. I wish only to objectively understand this state of
development (in the context of Kerala) in terms of employment and production. In
this context, I have two questions in mind and I am thinking aloud here:
most of the spiritual institutions create informal and formal employment; when
they provide houses, schools and hospitals; and crucially food; and when it
continues to do so; does it reduce the state’s role in all these fronts?
do we ensure that a free and competitive market survives under the mature
market for spiritualism?
In Kerala as elsewhere there is a
growing market for spiritualism. Atheists, agnostics, believers, the lefts,
liberals and all are turning to explore the avenues of spiritualism. Out of our
33 million people Kerala has close to four million unemployed; more women than
men falling into this category. The state has been witnessing growth at the
rate of approximately 8 per cent per annum in 2013-14. However, this growth
does not seem to have generated enough employment. In budget after budget the
state government announces multitude of schemes. None of these schemes have
blossomed into fruitful career options. In this context enter the Gurus and
naturally the materially deprived fall back to this option of spiritual
attainment. In fact it seems highly appreciable that the number of people who
find some employment, formal or informal, during each visit of these gurus to
their institutions is high. Some are gainfully employed throughout the year and
get to travel around the world to spread messages of their venerated masters.
The question is how much can the
economy afford to depend on such seasonal and informal employment generation?
What is the kind of revenue generated by these institutions and how sustainable
is this model. I call this a model as it sometimes is more competitive than the
state led employment generation programmes. For instance, given that MGNREGS
has been a pioneering initiative, it still lagged in creating a competitive job
market. People are given employment options for which they never had a choice.
On the other hand people who work for these respectable gurus compete in
efficiently performing their chores to be closer to their masters. The
difference thus is that while in the former it is more of a gamble to survive
the day, the latter is characterized by a system of hope that makes people look
forward to the next day. The quality of employment differs. The question then
is on the production part of it. To make such a system sustainable it is required
that some amount of production is accompanied by it. One of the major
productive initiatives that such institutions undertake is in fact the building
of institutions itself. So we have a large number of schools, colleges,
professional education centres, hospitals and so on which have sizable presence
sometimes even to crowd out the state sector. And contrast it with the state,
these institutions of spirituality run on charity and not tax. That’s one part
which blurs as we ponder deeper into it. For this charity to survive, there has
to be production elsewhere. Assuming that much of this charity comes directly
as contributions from the private sector, and very little from state
initiatives, we should believe that such a system encourages production
activities of private sector in the state. Now that is a positive but consider
that it might be the same people contributing these charities who are actively
against taxation by the state.
So we have a group of private
individuals ready to give charity and wholeheartedly support such institutions.
They offer because they are free to offer and not constrained to pay in a
particular month or particular time of the day when the Guru deems it right. I
am not against taxation but imagine people who voluntarily part with money
given the freedom to do so? Isn’t that a cue to be picked up by the state? They
don’t part with the same amount to the state because of mistrust, history of
fatalities in such transfers and assumption that the state is likely to
misdirect this money to some unintended pockets.
So if we suppose that allowing
such spiritual Gurus to continue their quest to improve their institutions would
also encourage private initiatives in unbridled expansions as well as in contributions,
is it necessarily the right path of development? But will the market be
competitive at least in many of these sectors? For instance, the ease of entry
of such giant institutions into otherwise difficult avenues like education and
healthcare makes me wonder how it was made possible. On the one hand private
individuals find it extremely difficult to knock and enter these avenues while
at the spiritual incarnations neutralize the thin line between the private and
the public. They are formless, omnipresent and translucent: even closed door
hold no barrier.
These activities of the spiritual
institutions are sometimes categorized under philanthropy and volunteerism.
Similar models are replicable but the question is who will take the lead. Many
exemptions seems to favour the Gurus but the market is often seen as difficult
to enter for the private individual. This creates suspicion of one of the major
challenges we face in modern India: the problem of cronyism in the spiritual market.
This also takes us to a crucial question. What do we want the state to be in
such a situation? What roles should it continue to assume say twenty-five years