Franchising of Banking Services: Opportunities before Banks

                    The Indian Banker, Volume III No.10 October 2008

                                                             Dr.P.K.Khanna

Banks are so ubiquitous across our country that they have a better reach to the masses then any other institution. As financial institution, while providing banking services to individuals and organizations, they have immense potential to provide services which can help them add to their performance and profit, providing their customers an opportunity to do more then just money keeping with them. It is therefore necessary to explore the concept of providing franchise services by banks and identifying some areas where banks can be a franchisee and/or a franchiser. It is also necessary to bring out the difference between an agency, a franchise and outsourcing which at times are used interchangeably or any one of them is used to define or qualify the other.

Bank as agents and principal

According to sec. 182 of Contract Act an "agent" is a person employed to do any act for another or to represent another in dealings with third persons. Agency is a relationship between two people or entities where one is a principal and the other is an agent representing the principal in activities with other parties. Thus, an agency business has two aspects- either you are an agent or a principal. If you are an agent, you are representing and acting on behalf of some one i.e. on behalf of the principal and if you are a principal, some one is acting on your behalf. The Indian Contract Act deals with appointment of principal and agent.

Agency is an area of commercial law dealing with a contractual or quasi-contractual tripartite set of relationships between principal and agent which arises out of a contract either expressed or implied, written or oral, wherein the agent is employed by a person to do certain acts on behalf of the person in dealing with a third party. Under the agency arrangement, the agent does not purchase products.  He only sells or markets the products on behalf of the principal. He acts as an intermediary between the supplier and the ultimate customer.

Sec 6 of Banking Regulation Act, 1949 (BR Act) deals with the types of business a banking company can undertake in addition to what is contained in Sec.5 (b) of the BR Act. Accordingly, banks can act as “agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods………………..” It would be observed that section 6 (b) has given wider umbrella to banks for undertaking agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers. Sec 6 (n) of BR Act permits banks to do all such other things as are incidental or conducive to the promotion or advancement of the business.

What is Outsourcing

Outsourcing is a contract, which an organization enters into with another for providing services that might other wise be performed in house. It is a lucrative and legitimate business strategy and a modern day boon.

Organizations generally outsource non-core business thus enabling it to focus on core competency areas. The advantage of outsourcing is the cost effective factor. Organizations save money, as they do not have to provide benefits to their workers. Moreover business issues are taken care by professionals in that field having world-class capabilities.

Outsourcing is generally done of those services for which organization does not have core competency and that which require care by professionals having world-class capabilities in that area. The professionals have their own systems, procedures, methodology and independence in handling the job keeping the objectives of the organization that has outsourced the job. The main aim is to deliver excellent results to the satisfaction of their clients.

What is franchising?

There is no legal definition of franchising. Franchising is not a business. It is a strategy and an innovative marketing concept of doing business and creating an image in the minds of current and future customers about the products and services that satisfy their needs. It is a contractual relationship, a strategic business alliance where the owner of a product or service (the franchisor) grants certain license, rights and authorises another individual or institution (the franchisee) to conduct business by utilising the brand, trademark, trade name, logo, design, business strategy, marketing strategy, and operations strategy for selling the products and services in return for a fixed sum of money or for a fee or a percentage in the sales etc.

The International Franchise Association defines franchising as a “continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organising training, merchandising and management in return for a consideration from the franchisee”.

The franchisee has to make initial and continuing payments to the franchiser. It is a commercial wedding between a franchisor and the franchisee for getting quicker returns on investment. The franchiser exercises continuing control over the franchisee. The franchisee enjoys business rights during the currency of the contractual relationship. On expiry of the tenure of the agreement the right to use the business format ceases.

There is no difference between the franchisor's own sales outlets and the franchised one. The hallmark of the business is standardisation, consistency, uniformity of the shop premises, layout, decor, signage, uniforms of the staff, services etc. Everything is identical in all the franchisees.

Advantages of franchising

Franchising has advantages over agency and outsourcing. In agency, the agent is bound to conduct the business of his principal according to the directions given by the principal. He has no independence to act. He may have expressed or implied authority. He has to pay the amount received for sale of goods or services to the principal. He is entitled to receive payment for the performance either by way of commission or fee or remuneration.

In case of franchising, franchisee is his own boss. His area of operations is restricted to a specific area or territory. He gets the goodwill, brand name and a known and well-established business platform. Before commencing the business, the franchiser provides necessary technical support, training to the franchisee and to his staff, advices how to deal with customers, improve sales and to deal with staff problems. Franchiser also provides both technical and psychological help in case the franchisee encounters any issue. The franchisee is also kept updated with financial and personnel regulations. A franchisee can have a quick start as hardly any gestation period is involved in establishing the business. The risk of failure involved in starting a new business is reduced to a greater extent as he is benefited from the well-established processes and is able to promote business, manage sales, expenditure and revenue.

Franchising is a win-win relationship for both the franchisor and the franchisee. The franchisor is able to expand business rapidly, accelerate growth and profitability by penetrating new markets that too without pumping any additional capital. The franchisee gains access to the established business systems and gains commercial advantage. The business is run as per the rules framed by the franchisor so that there are similarities in all the franchisees. Franchising offers people a mix of management responsibility and business security.

Franchising in India

Llibralisation of the Indian economy has opened flood gates for franchising. A vast country like ours offers the most favorable environment for franchising. Corporates are adopting franchising route for faster growth of their businesses. Both national and international companies are eying on domestic market. There are more than 600 franchising systems operating in the country with a large number of foreign and particularly American brands that include McDonald’s, Pizza Hut, UPS, Medicine Shoppe, and Kentucky Fried Chicken(KFC). In addition, there are many homegrown companies going into franchising in a large number that include computer education, study centers, restaurants, healthcare, courier logistics, beauty parlors, cosmetics, jewellery, apparel, e-commerce ventures etc. Even Indian Railways has opted for franchising of rail tickets for the convenience of masses.

In a country like ours where unemployment is a problem amongst educated youths, franchising can provide a relatively safer route into self-employment. Franchising offers a successful business concept, proven marketing and operational methods, ongoing support and an established identity. The risk involved is minimal in comparison to that involved in starting a new business from scratch.

Various Statute affecting Franchising 

There are no specific laws governing franchising in India. As franchise agreement is a contract between the franchisor and the franchisee, the Indian Contract Act, 1872, governs it. In the event of breach of contract by a party to the franchise agreement actions for specific enforcement of covenants in a contract and remedies in the form of damages for breach of contract under Specific Relief Act, 1963 can be initiated by the other party. The Patents Act, 1970 as amended by The Patents (Amendment) Act, 1999 with effect from 1st January 1995 provides protection to many types of intellectual property frequently involved in franchising arrangements.

The Foreign Exchange Management Act, 1999 (FEMA) regulates the terms of payment under franchise agreements (such as franchise fees, management fees, development fees, administrative fees, royalty fees and technical fees) where one party is a non-Indian entity.

Franchising of Banking Services

Technology, globlaisation and liberalisation have revolutionised banking industry across the globe and India is not an exception. The Indian economy is marching towards a long-term growth. This has forced leading financial service providers including banks, insurance, stock broking, money transfer and money exchange entities and wealth management companies to find newer ways to woo customers through various distribution channels by offering promising franchise opportunities. The concept of franchising is gaining momentum in Indian banking industry. Things are changing for better. Those bankers who are full of innovative ideas and can deliver would lead the industry. Reserve Bank of India has permitted banks to enter into agency/franchising agreements for the purposes of carrying on restricted money changing business. The conversion of currency notes, coins or travellers' cheques designated in foreign currency into Indian rupees or vice-a versa is possible through banks (as authorised dealers-AD) as also through two other channels viz. full fledged money changers (FFMCs) and restricted money changers (RMCs). Both these entities require authorisation from the RBI to undertake the money changing business. As per RBI guidelines, a franchisee can be any entity who has a place of business and whose bonafides are acceptable to the AD/FFMC. The Franchiser i.e. an AD or an FFMC has to apply to the Reserve Bank and obtain permission to enter into franchising arrangement. RBI has issued detailed guidelines in this regard.

Business that a bank may franchise

 Banks can enter in to franchising business in three ways.
§         By financing franchise business.
§         By entering into arrangement with a franchisor for selling their financial products i.e. acting as a franchisee.
§         By becoming a franchisor i.e. by outsourcing ancillary and allied business to a franchisee

Banks can outsource some of its activities by adopting franchising route. This would enable banks to save expenses on the one hand can and on the other, add to its revenue. Franchising has two-way source of income.

 a) Locker facility

Banks do not encourage installation of locker cabinets as they find that this business is not viable from the cost benefit viewpoint. In the absence of banks expanding these facilities and in view of the large demand for lockers, in some cities private institutions have entered into this business. Hence, providing locker facilities is no more the exclusive business right of banks. Establishment of the business of locker depends on the reputation and standing of the private business entities providing these services in some cities.  

Banks can outsource their locker business by entering into franchise agreement either with some of the financial institutions, non banking financial companies (NBFC) or with other reputed organization that may be ready to enter this business. Banks can lease out their locker cabinets to these franchisees to earn lease rent, a share in the locker rent and also avail the benefit of depreciation on locker cabinets / lockers. Banks can save on the space for providing locker services, thus saving substantial outgo on rent. Even the services of staff members looking after locker business would be spared for some other core business activities. Franchising locker facility would also be convenient to customers too as the franchisee would be able to provide service in the extended hours or at select centres round the clock service can be extended.

However, utmost care will have to be taken in selecting the franchisees since bank’s whole reputation will be at stake on their dealings. Of course the bank would have to provide training to the franchisee, decide décor, lay out, safety norms, lay down operational procedures and have a tight supervisory control over the franchisee.

b) Remittance Business

Banks have entered into draft drawing arrangements with exchange houses in gulf countries and also with their correspondents. Banks can outsource its remittance business through franchise route. The Multi-city or payable at par cheque facility available in core banking solution (CBS) branches can be leveraged for franchising such draft drawing arrangements. The franchisee may open a current account with the bank and issue such payable at par cheque for remittance activities as demand drafts charging exchange for the same. These franchisees may also establish draft drawing business in unbanked areas to aid financial inclusion. Banks can share exchange income or may earn on floating funds in the current account besides income on service charges that would be collected from such franchisees. The customer gets benefit of purchasing the instruments at any time of the day.

Conclusion

Agency, Outsourcing and Franchising are three dimensions of doing business having   common goal i.e. growth and profits. Every system has both advantages and disadvantages and none can be said to be better than the other.

The Indian banking has to align with new trends in business. Fusion of technology with new business lines will be boon to the industry. Banks have to be in constant look out and evaluate the franchise opportunity for new business. There are many more business avenues in which banks can plunge through franchising route. Only imagination and innovation will help banks to explore this great emerging potential.

References

1. Banking Regulations Act, 1949
2. The Foreign Exchange Management Act, 1999
3. Indian Contract Act, 1872
4. The Patents (Amendment) Act, 1999
5. The Shops and Establishment Act, 1948
6. The Specific Relief Act, 1963
7. www.coventry.ac.uk
8. www.franchiseeek.com
9. www.franchisebusiness.in
10. www.franchisedirect.com
11. www.rbi.org.in

             

             Paper presented at Pacific Institute of Management 
                           and Technology Udaipur,
                           Pacific University Paher
                                      Udaipur
                         10th and 11th Feb.2012

Infrastructure Development and Rural Poverty

                                          Dr. P.K.Khanna

               Poverty is the parent of revolution and crime. {Aristotle }                             
                                (384 BC-322 BC) Greek philosopher.
              Poverty is the worst form of violence.” Mahatma Gandhi

             The surest way to remain poor is to be an honest man. Napoleon I
                          (1769-1821) Napoleon Bonaparte. French general.
    It would be nice if the poor were to get even half of the money that is spent in
          studying them. Bill Vaughan
‘‘[The] education and empowerment of women is the greatest weapon in the war
                 against poverty.'' Kofi Anna, U.N. Secretary General

Alleviation of poverty can not take place in India without the involvement of banks and infrastructure developments in rural India.

India is one of the most prominently developed countries of the world economy and has emerged as one of the fastest growing economies in the world. This is mainly due to the Infrastructure Developments that has taken place both in urban and rural areas of the country.

Nearly 75% of Indian population live in 6,38,588 villages. Despite “India Shining” roughly 400 million people out of 121 billion people, live below the poverty line i.e. around 32 percent. India has the distinction of having largest number of poor people. These people are mainly landless labourers, daily wagers, and self employed house holders. It is said that India is a rich country inhabited by poor. Since a majority of Indian population live in rural areas, it is essential to develop more rural infrastructure facilities in these areas.

Rural Infrastructure Development Fund:

Poverty alleviation in rural India has been one of the guiding principles of the planning process in India. Rural infrastructure has demonstrated a positive influence on the economic growth and has decreased the absolute poverty. Therefore, from the point of view of both poverty alleviation and economic development, there is the need to improve rural infrastructure. For developing rural economy banks have been asked to open more branches in rural areas.

As at 31^st March 2011 commercial banks had 21,705 branches in rural areas which work out to 29.28 percentages of total branches (74,130) of commercial banks. This is excluding the figure of branches of Regional Rural Banks, cooperative banks and Local Area Banks. The vast number of branches of banks indicates the importance of rural areas.

The Government of India had set up Rural Infrastructure Development Fund (RIDF) in 1995-96 for financing ongoing rural infrastructure projects. Banks have been asked to contribute to the fund, if they fail to meet priority sector lending guidelines.

As per the latest guidelines, domestic commercial banks are required to lend 40 per cent of the Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. Foreign banks are required to lend 32 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. Domestic commercial banks are also required to lend 18 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher towards agricultural advances.

Any shortfall in priority sector lending, commercial banks are required to contribute to the Rural Infrastructure Development Fund (RIDF) established with NABARD or Funds with other financial institutions, as specified by the Reserve Bank. In case of shortfall in priority sector lending target / sub targets, foreign banks are required to contribute to the funds set up with Small Industries Development Bank of India (SIDBI) or with other Financial Institutions, for such other purpose, for a period of three years or as decided by Reserve Bank from time to time.

Scope of the fund:

The main objective of the fund is to provide loans to State Governments and State-owned corporations to enable them to complete rural infrastructure projects. The scope of RIDF has been widened to include schemes such as rural drinking water, soil conservation, rural market yards, rural health centres, primary schools, shishu shiksha kendras, anganwadis, mini hydel plants, improvement in the power sector and projects undertaken by Panchayat Raj institutions. The activities financed under RIDF include minor/ micro irrigation projects, flood protection, watershed development, reclamation of waterlogged areas, drainage, development of forest, market yard, cold storage, godown, rural haats, other marketing infrastructure, seed/agriculture/horticulture farms, plantation, horticulture, grading and certifying mechanisms such as testing and certifying laboratories, community irrigation wells for irrigation purposes, harbour/jetties, fisheries, animal husbandry and modern abattoir.

The total corpus covering RIDF I (1995-96) to XVI (2010-11) was 1,16,000 crore for State Governments and .18500 crore for National Rural Roads Development Agency (NRRDA). Sanctions under all tranches of RIDF as on 31 March 2011 were .140,388.40 crore against which the disbursements as at the end of September 2011 were 1,02,844 crore to 28 States and Union Territory of Pondicherry. Presently the loan to the State Governments is given at 6.5% interest p.a. In the Union Budget for 2011-12 an allocation of 18,000 crore, has been made, of which 2,000 crore has been exclusively earmarked for creation of warehousing facilities in different states.¹

Rural Infrastructure:

a) Sanitation Facilities:

Around 55% of Indians do not have access to any kind of toilet. 74% of the rural population still defecates in the open. The idea of building a facility for defecation in or near the house is not considered natural in rural areas. The sanitation landscape in India is still littered with 13 million unsanitary bucket latrines, which require scavengers to conduct house-to-house excreta collection. Over 700,000 Indians still make their living this way.²

b) Supply of Drinking Water:

Article 47 of The Constitution of India states that it is the primary duty of the State to “raise the level of nutrition and the standard of living of its people and to improve public health...”  It is therefore the primary duty of the state to providing clean drinking water. About 10 per cent of the rural and urban population does not have access to regular safe drinking water and depend on unsafe water sources to meet their daily needs. There is hardly any city which receives a 24-hour supply of drinking water.

It is estimated that around 37.7 million Indians are affected by waterborne diseases annually, 1.5 million children are estimated to die of diarrhoea alone and 73 million working days are lost due to waterborne disease each year.

The usage of increased fertiliser and pesticide in agriculture has polluted and degraded both ground and surface water and poses a major environmental health hazard. The problem of chemical contamination is also prevalent in India. Around 1,95,813 habitations in the country are affected by poor water quality. The World Bank has estimated that the total cost of environmental, damage in India amounts to US$9.7 billion annually, or 4.5 per cent of the gross domestic product. Of this, 59 per cent results from the health impacts of water pollution.³

c) Roads:

Roads are the basic infrastructure requirement in rural India which plays a vital role in socio-economic upliftment.  Roads are the important condition for livelihood for people living in rural areas. Roads increase mobility of men, materials and facilitate economic growth which ultimately helps in reducing poverty through productivity growth. Roads provide access to the services like health, education, opportunities for non-agricultural employment, administration, access of goods and services located in nearby villages or major town /market centres etc. Families residing alongside roads benefit from better health and greater educational opportunities compared to the families living in remote villages. Based on current plans, all villages with more than 500 inhabitants would be connected by all-weather roads within the next decade. Villages having more than 1000 population would be connected with Intra-village/habitation roads in the 11th Five Year Plan.

The poor and very poor are primarily benefited through the indirect impact of road improvements, better access to state services, improved provision of services to the villages, and opportunities in alternative livelihood income stream.⁴

To give a boost to rural connectivity the Government of India (GOI) launched a nationwide program, the Pradhan Mantri Gram Sadak Yojna, (PMGSY- the Prime Minister’s Rural Roads Program) under the Ministry of Rural Development (MoRD) in the year 2000. The World Bank, a partner with the Government of India to build rural infrastructure, alleviate poverty and improve rural livelihood, is supporting the PMGSY program. The program envisages providing new connectivity to about 180,000 habitations through the construction of about 372,000 kms of roads, and upgrading about 370,000 kms of the existing core rural network to provide full farm-to market connectivity. ⁵

Road Development in 11^th Five year plan ⁶

Period	No. of Habitations to be covered	Length for new connectivity	Length for up gradation	Length (km) for renewal (to be borne by the State Governments
Overall for the 11th F Y Plan	78,304	1,65,244 km	1, 92,464 km (1,15,478 km funded under PMGSY	76,986 km

d) Rural Electrification:

Electricity is the basic human need and an essential requirement for all facets of our life. It is the key to accelerating economic growth, generation of employment, elimination of poverty and human development specially in rural areas. Rural electrification is the process of bringing electrical power to rural and remote areas. It is a vital programme for socio- economic development that has triggered economic development and has generated employment opportunities. Electricity helps in improving the quality of life of rural people by lighting of homes, shops, community centers’ and public places. Electricity is used for agriculture purposes, mechanization of farming such as threshing, milking, cold storage and for rural industries.

In rural areas the popular fossil fuel is Kerosene which is used for both cooking as well as for lighting purposes. In times of scarcity of Kerosene supply, even bio-mass is used for cooking, heating and lighting.

56 percent of rural households do not have access to electricity, and even when they have the option, many do not opt because of poor reliability and inadequate power supply. On an average, a rural household receives power supply only for a few hours per day during the off-peak period (usually afternoon and night). It is estimated that a typical rural household uses at least one kerosene lamp as a backup for at least four to five hours during peak hours of the evening. Though rural electrification has been a high priority from the beginning of planned economic development, there has hardly been any improvement. It is not that the rural areas suffer from blackouts; even many semi urban areas also face this problem.

For the first time Electricity Act, 2003 mentions rural electrification in a law. Section 6 of the act mandates the Joint responsibility of State Government and Central Government in rural electrification. They would “jointly endeavour to provide access to electricity to all areas including villages and hamlets through rural electricity infrastructure and electrification of households”. As per the Electricity Act, 2003 an “electrified household” is defined as “any household which has an electric wire going in from the main electricity line is deemed as electrified” not withstanding whether there is actual supply of electricity through that wire or not.

According to the Union Government Electrified Village is “A village will be deemed to be electrified if electricity is used in the inhabited locality within the revenue boundary of the village for any purpose whatsoever”.

e) Irrigation:

Agriculture accounts for 89 per cent of the total water consumption in India. Low agricultural productivity is keeping some 60 percent of India’s population behind. The demand of water for irrigation is very large. Storage and transfer of water restrict the potential for irrigation. Due to over-exploitation groundwater table is declining. “Tremendous wastage occurs as a result of evaporation, distribution losses, seepage through unlined channels and excess application.”⁷ This has resulted into increasing financial burden on farmers who have to deepen their wells and replace their pump sets. Even there is burden on the supply of electricity.

There are 119 million farmers in India, out of which 97.7 million (82.1 %) are small and marginal farmers. India’s agriculture sector has an impressive record of meeting serious food shortages despite rapid growth of population. The gross irrigated area does not seem to be rising in a manner that it should have been. Food production needs to be increased to 400 million tones per annum using technological inputs under the reduced availability of land from 170 million hectares to 100 million hectares. “In India, 69% of people in non-irrigated areas are poor; in irrigated areas this figure falls to 2%.” ⁸

Owing to lack of maintenance, the capacity of the older systems is decreasing. Many major and medium irrigation (MMI) projects seem to remain under execution due to enormous cost and time overruns. At the same time water conflicts are increasing. Shortages of basic rural infrastructure - from roads to electrification - are hindering the growth of off-farm activities

Therefore, unless efforts are made for developing rural infrastructure, poverty would not be eliminated.

Why Poverty?

Poverty is not new to India. Indian masses have been living in poverty over centuries. It would be observed from the writings of Swami Vivekananda that poverty is the main curse and the reason for economic disparities. On 29^th August, 1893, news appeared in ‘Salem Evening News’ quoting Swami Vivekananda

“India with an area much smaller than the United States contains twenty three hundred million people and of these three hundred millions earn wages averaging less than fifty cents per day. In some instances the people in whole districts of the country subsist for months and even years, wholly upon flowers produced by a certain tree which when boiled are edible. In some districts the man eat rise only, the women and children must satisfy their hunger with water in which rice is cooked. Half of the people live upon one meal a day; the other half people live upon one meal a day, the other half know not whence the next meal will come.”⁹

On 20^th September, 1893 Swami Vivekananda said “It is bread that the suffering millions of burning India cry out for parched throats they ask for bread, but we give them stone. It is insulting to a starving people.”¹⁰

In the year 1894, Swami Vivekananda wrote “So long as the millions live in hunger and ignorance, I hold every man a traitor who, having been educated at their expense pays not the least heed to them.” ¹¹

The Duke of Argyll, Secretary of State, said “…of chronic poverty and permanent reduction to the lowest level of subsistence amongst the vast population of India has no parallel in the Western world”.

Prior to independence, rulers of this country did not bother to tackle the problem of poverty. However, even after the independence things have hardly changed. In fact ‘Poverty’ has benefited politicians, bureaucrats, bankers, social workers (NGOs) and micro finance companies. Poverty is a good business in India and an essential element for socio-economic and political exploitation. The aim is to nurture and nourish poverty, as it helps in psychological exploitation of nearly 75% people. It is the spring board on which elections are fought on Roti (bread), Kapda (clothes) and Makan (house). It is really difficulty to imagine the poisonous string of dire poverty.

Why people are poor?

People in rural areas are poor as they lack capital, are Illiterate, do not have any alternate employment opportunities, there is excessive pressure of population on agriculture, there is disguised labour, high population growth, large families, caste system forcing people to stick to the traditional and hereditary occupations, lack of basic infrastructure facilities like electricity, roads, sanitation, housing, safe drinking water, etc. Urban poverty is mainly due to people migrating to cities in search for job opportunities where they live in unhygienic environments and live in slums in an environment of appalling stench, filth and dense humanity. According to a UN Expert Group, a slum is an area that combines to various extents the following characteristics ¹²:

                     • Inadequate access to safe water;

                  • Inadequate access to sanitation and other infrastructure;

                  • Poor structural quality of housing;

                  • Overcrowding; and

                  • Insecure residential status.

Poverty is a condition in which a person fails to maintain a living standard adequate for his physical and mental efficiency. It is the result of low level of assets, with low level of returns on those assets. In fact poor’s have no assets other than their labour.

“Absolute poverty is a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information.”¹³

“Poverty has various manifestations, including lack of income and productive resources sufficient to ensure sustainable livelihoods; hunger and malnutrition; ill health; limited or lack of access to education and other basic services; increased morbidity and mortality from illness; homelessness and inadequate housing; unsafe environments; and social discrimination and exclusion.” ¹⁴

The National Commission for ‘Enterprises in Unorganised Sector’ had set up a committee under the Chairmanship of Shri Arjun Sengupta, who  in his report dated May 16, 2006 had mentioned that 836 million (i.e. 77% per cent) people live on a per capita consumption of less than  20 a day in India. ¹⁵ Whereas, Dr. N. C. Saxena Committee in his report says that 50 per cent of people live below the poverty^16. Whereas Prof. Suresh D. Tendulkar Committee report says that 37 per cent people live below the poverty^17. .The World Bank has its own estimate of poverty at 41.6%.

Planning Commission member Shri Abhjit Sen has argued that evaluation of poverty should be done not on the basis of calorie intake but on the basis of income as according to him calorie intake of 2,400 for rural areas and 2,100 for urban areas would make 64 per cent of urban India and 80 per cent of rural India below the poverty line. A rural development ministry panel has said that 50 per cent of Indians are below the poverty line considering the criterion of calorie intake and suggested that they be covered under BPL schemes.

Every committee has evaluated poverty on different hypothesis. There is no common parameter. Though, experts know that majority of Indians are poor, but do not want to work out the exact figure and do not want to press the alarm button. For measuring poverty more rigid definitions need to be used. In fact poverty is a condition where people are unable to fulfil their basic needs.

New Norms for Defining Poverty:

India's poor will now be defined on the basis of access to six basic amenities, in addition to the amount of food they consume. The Centre has decided to redefine poverty as deprivation by including access to facilities like education, health, infrastructure, clean environment and benefits for women and children. This is in tune with the United Nations “Copenhagen Declaration 1995”.

There are two inter-related aspects of poverty - urban and rural poverty. Rural poverty is largely due to non availability of basic facilities in rural areas and unemployment. This is the reason for people migrating to towns and cities. Rural populace depends mainly on monsoon and irrigational facilities. Crop-failure and low agricultural production has forced farmers in the debt-traps, which has resulted into farmers committing suicide. People in the annual income bracket of less than 50,000 depend heavily on money lenders. The indebtness of people in the annual income bracket of less than  50,000 is as under: ¹⁸

              a. Banks 13.0 %

              b. Money lenders 34.9%

               c. Other Institutional & Non- Institutional 52.1 %

Challenges before India:

•  To bring millions of families above the poverty line.
•   Eradication of illiteracy.
•  Improvement in  public health by providing potable drinking water, sanitation , reduction of  infant mortality and child malnutrition.
• Massive investment in power generation, telecommunications and other physical and social infrastructure.
•    Accelerated acquisition of technology capabilities to raise productivity in agriculture, industry and services.
•  Developing banking infrastructure

Conclusion:

India has developed one of the largest banking infrastructures, which is unparallel to any county.  Poverty alleviation is a big challenge to our society. Elimination of poverty, ignorance, diseases and inequality of opportunities and providing a better and higher quality of life are the basic premises of development of rural infrastructure. Despite many large scale rural development schemes, the number of people living in poverty has not declined. The number of poor is multiplying at a time when the number of billionaires is on increase. Poverty still remains ubiquitous in rural regions. Rural development implies both the economic betterment of people as well as greater social transformation. Inadequate basic infrastructure is the reason which has hampered the progress of numerous villages and their habitatants. Private investors do not want to invest in rural projects due to no or low returns to their capital and also due to uncertainties and delays involved in realising anticipated revenue from the poverty-stricken users. Despite all draw backs, we have to develop rural infrastructure so that rural masses can lead a dignified life.

“For India's rapid and sustained growth, major investments in power, transport, water, and urban development are needed. Inadequate power supply remains a critical constraint to growth; while GDP grew at an average of about 8% a year over the past five years, electricity generation only grew at an average of 4.9% per year. The national and state highway networks have not kept pace with the tremendous growth in demand for road transport: only about 30% of state highways are two-lane and more than 50% are in poor condition. Inadequate urban infrastructure is hampering the expansion of growth centers.”¹⁹

References:

1. DO.NABARD.SPD/ /RIDF XVII(Gen)/2011-12 19 April 2011

2. India’s Sanitation for All: How to Make it Happen -Asian Development Bank Series: 18

3. World Bank 1995

4. Asian Development Bank had conducted a study on ‘Impact of Rural Roads on Poverty Reduction: A Case Study-Based Analysis October 2002

5.Rural Roads A life line for Villages : The World Bank

6. Working Group on Rural Roads in the 11 ^th    Five Year Plan, Government of India,

    Planning Commission, Ministry of Rural Development, November 2006

7. Report of the Committee on India Vision 2020 Planning Commission Government of

    India New Delhi

8. United Nations World Water Development Report, UNESCO 2003

9. The complete works of Swami Vivekananda Volume -III, page 465-466 published

     in 1994

10. Ibid Volume -I, page 20 published in 1994.

11. The Ibid Volume -V, page 58 published in 1994.

12. United Nations Human Settlements Programme (UN-HABITAT), Twenty First Session of Governing Council-16 - 20 April 2007, Nairobi, Kenya

13. World Summit on Social Development, 19 April 1995, “Copenhagen

        Declaration” United Nations

14. Ibid

15. Report of Arjun Sengupta on ‘Social Security for Unorganised Workers’ (May 16,

     2006)

16. Report of Dr. N.C. Saxena Committee (21st August 2009)

17. Report of Prof. Suresh D. Tendulkar Committee (December, 2009)

18. Pushing Financial Inclusion–Issues, Challenges and Way Forward A

      Presentation by Dr. K.C.Chakrabarty, Deputy Governor, RBI, At 20thSKOCH

     Summit 2009, Mumbai on July 17, 2009

19. India Country Strategy-2009-12, The World Bank

Empowering Rural India: Expanding Electricity Access by Mobilizing Local Resources   The World Bank 2010