Current public discourse is rife with discussions on India’s economic prowess prior to the British rule. Historians unequivocally agree today that between late 1st millennium BC and beginning of British rule, India was a global super-power, accounting for roughly 30% of the world GDP. Be it the Mauryas, Cholas, Pandyas or other dynasties, India’s riches, ways of life and trade were the envy of the rest of the world. One common link across all these dynasties were a highly revered population of artisans and craftsmen. A lot of India’s past glory was due to these fine workers. Even today, we take pride in historical relics, which were technological marvels of their times, executed by visionary Indian thinkers and highly skilled artisans. It was their work that drove India’s development and improved our quality of life, back in time.

Over time, especially after the first industrial revolution, as machines started to replace work by hand, the role of these craftsmen diminished and was replaced by assembly lines, churning mass produced goods. Newer generations considered hand work as backward and inferior in comparison to the finesse of machine production. Our artisans, who once shouldered India’s economic glory, got relegated to the fringes of the society

Amidst this, the Pradhan Mantri Vishwakarma Yojana (PMVY) is a well thought out and timely intervention, primarily aimed to restore the lost glory of our artisans and craftsmen. The plan aims to benefit 18 vital segments of artisans like carpenters, blacksmiths, goldsmiths, potters, cobblers, masons and tailors. PMVY intends to provide official recognition to this historically important profession, help them upgrade their skills, market their produce better and provide collateral free credit support.

In a capital-deficient country like India, where investors prefer the safety of AAA credit-rated borrowers, smaller institutions with lower or no credit ratings- are forced to raise funds at extremely high cost from institutional players and often from non-institutional players (under implacable conditions). In this situation, it is not hard to imagine the plight of these artisans who are largely small-scale rural operators!

PMVY, through its credit scheme aims to ease some of this pain, with its mandate to provide collateral free loans up to `3 lakh (over two performance linked tranches). The borrowing cost is fixed at 5%, with the government offering a rate subvention of up to 8%, making it highly relevant to today’s market conditions.

A large section of the 200 million artisans and craftsmen in India today are associated with micro, small and medium enterprises (MSMEs), located in semi-urban and rural India and are largely run by women. The plight of MSME credit is well known. As per the RBI, institutional credit accounts for mere 16% of the total MSME credit. The rest is sourced through informal agents, including local money lenders. Lack of credit and capital prevents these artisans from effectively marketing, diversifying supply chains and innovating within their areas of expertise, leading to the devasting result of shrinking demand and losing relevance of their skills.

Hence, access to credit is the foremost need that can restore the dignity of Indian artisans. While Indian banks will continue to work towards this mission, NBFCs can be a valuable partner in ensuring efficient last mile delivery of credit to such artisans.

NBFCs have been championing the cause for financial inclusion by operating in niche areas, often avoided by banks due to operational reasons, MSMEs being one of them. NBFCs have over time developed more efficient sourcing of customers, prompt provision of services, specialised sector expertise, technological innovations, and better underwriting, in these niche segments, than traditional banks. Market estimate suggests that MSME loans constitute almost 40% of the wholesale loan book of NBFCs, compared to 9% of commercial banks. NBFC credit to MSMEs grew more than 25% in FY23 (vs FY22), compared to 12% in case of commercial banks. These indicate the relevance of NBFCs in extending credit to MSMEs, including artisans and craftsmen covered under PMVY.

Despite this relevance of NBFCs as an alternative credit source, their ability to extend credit is dependent upon extent of bank lending. On an average, 55% of the liabilities of non-deposit taking NBFCs are linked to banks, exposing these institutions to banking cycles and thus leading to a circular problem, impacting credit flow. It is necessary to augment and diversify NBFCs’ access to capital. One of the globally followed source for capital raising is corporate debt market. Indian regulators and the government have been working towards developing this market; however, this is a time-sensitive issue. It is important to further diversify capital sources, and one such measure can be to allow upper-layered NBFCs (the largest and most regulated ones) to accept public deposits.

This will not only help these big NBFCs to decouple from banking cycles but also pass on the benefit of cheaper capital to the end users, in this case India’s artisans and craftsmen.

Ajay Piramal &Debopam Chaudhuri,respectively, chairman, and chief economist,Piramal Group. Views are personal.