The Budget announcement by the FM of setting up a Rs 100 crore India Equity Fund in SIDBI amounts to applying band-aid on a fatal bleeding wound. The Microfinance Act 2010 of Andhra Pradesh and the widespread defaults caused by it, have led to a loss of at least Rs 5,000 crore to MFIs (and basically to the banks who leant to MFIs). This will have to be recapitalised. Against this Rs 5,000 crore need, to allocate Rs 100 crore is very disappointing. Let us keep in mind that the FM has announced a target of Rs 475,000 crore of lending for agriculture. Does micrfinance not deserve even one percent of the allocation? This just shows that the Indian state is captive to medium and large farmers, who absorb over 80 percent of the amount that is given in the name of millions of small and marginal farmers. As it is, over a third of rural households are landless and thus do not get any share of agricultural credit. They, along with small and marginal farmers, were getting something from MFIs, even though they have been denied their rightful place in the plans for financial inclusion.

By giving SIDBI a Rs 100 crore equity fund, at least the FM has for the first time acknowledged that MFIs are another effective channel for lending to the poor, other than SHGs. But SIDBI already has raised USD 300 million (about Rs 1400 crore) from the World Bank to support MFIs with equity and debt. So adding another Rs 100 crore is a mere token. As stated earlier, its main value is the positive signal in favour of MFIs.

At the same time, the FM has announced Rs 500 crore SHG Fund. Given that SHGs already have over Rs 30000 crore of loans from banks, how this 500 crore will help is not clear. If it is used carefully to build self-management capacity among SHGs and their federations, then it will definitely be helpful.

The FM has announced a slew of bills that will be brought to Parliament for regulating or improving regulation of the different parts of the financial sector - banking, insurance, pensions and securities, but he has been silent about bringing any bill to regulate the microfinance sector. Yet, under the Constitution, the regulation of the financial sector and of financial corporations is solely to be done by the Central Government. Had he announced his intent, it would have prevented other state governments from usurping this legislative domain like the Andhra Pradesh government did.

The most disappointing is that for all the talk of financial inclusion, no budgetary provision has been made to take this task up as a national mission. Pranab babu could have left his legacy had he ensured that enough resources were allocated to ensure that every Indian household has a bank account by 2012. Surely, that is not too much to ask in 2011.