Microcredit or Direct Benefit Transfer? Designing a Scheme for Street Vendors

In June 2020, Pradhan Mantri Street Vendor's AtmaNirbhar Nidhi (PM SVANidhi) was launched to help street vendors tide over pandemic-induced financial stress, but there are inherent challenges in the initiative.

In June 2020, the Ministry of Housing and Urban Affairs (MoHUA) unveiled the Pradhan Mantri Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) scheme to support street vendors in regaining their livelihoods.

The idea behind the initiative has been to provide easily repayable loans of up to Rs. 10,000, with the government hoping that it would benefit over 50 lakh street vendors in India.

According to government data released last month, nearly 30 lakh applications were received thus far, with the Centre sanctioning a little over half of them. More than 7.5 lakh loans were disbursed as of November 2020.

Potential challenges

Taking a step closer towards the implementation of the scheme, the government has recently launched a programme for socioeconomic profiling of PM SVANidhi beneficiaries. As per a press release by the MoHUA, a complete profile of each PM SVANidhi beneficiary and their family members would be prepared to extend the benefits of the scheme.

This is undoubtedly a welcome step in the direction of rebuilding the livelihoods of displaced vendors, as this is for the first time that such a mega scheme has been launched for this section of the informal economy. But the key question is whether a microcredit facility like this would be effective in the current scenario.

A street food vendor waits for customers on a footpath in New Delhi, India, November 27, 2018. Photo: Reuters/Anushree Fadnavis/File Photo

Street vending activity – which contributes substantially to India’s urban economy, with a parallel daily turnover to the tune of Rs 80 crore, as per a recent study conducted by the Institute of Social Studies Trust (ISST) and Janpahal – has been most severely impacted by the pandemic, leaving severe longterm impacts on their livelihoods. The impact has been particularly severe for this section since the nature of work requires excessive mobility and access to consumers, goods and markets.

Also read: For Street Hawkers Stripped of Their Livelihood, Direct Income Transfers Can Ease Distress

Street vending, particularly food vending is largely a household-level activity, wherein all members of a household are involved in some or other stage of the production process. Therefore, the loss of earnings for the vendor would mean a loss of livelihood for the family.

In times like these, most vendors, being majorly daily earners, tend to have no fallback option. Therefore, when the pandemic-induced lockdown was announced by the government in March 2020 with a four-hour notice, these migrant daily earning street vendors were left with no choice but to return to their native villages, thus contributing to one of the greatest migrant labour crisis that the country has suffered.

Given the deep impact the pandemic and the subsequent lockdown have had on the millions of street vendors across India, rebuilding their livelihoods will be an uphill task. While these recent announcements to improve access to microcredit have set the ball rolling, these may not be sufficient to relieve them of the pandemic-induced distress. Whatever little capital and earnings that these workers possessed have long been exhausted in trying to feed themselves and their families during the lockdown period.

Furthermore, most of them being migrants had to pay house rents even during the lockdown. Though the microcredit facility would certainly provide a good livelihood-support, enabling them to return to work in the short-term, however, the uncertainty of the pandemic poses a high risk of default by already-ailing vendors, pushing them and their families into a greater financial mire.

Microcredit can serve both as an opportunity as well as a challenge for the poor. While it definitely opens the doors of self-reliance for them, it can also sink them into huge debt. In fact, past experience suggests that such amount extended through microcredit schemes, more often than not tends to be used for settling existing debts, eventually entailing debt accumulation. Given that the current pandemic has put most of these vendors under enormous liabilities, such microcredit facilities could actually end up pushing them into a debt trap.

Direct benefit transfer

What is important at this stage is some sort of a direct benefit transfer (DBT). The government may consider converting the current scheme into some kind of a ‘conditional cash transfer’ scheme such that the beneficiaries receive cash in exchange for complying with certain “conditionalities”.  These conditionalities could, for instance, be linked to the utilisation of the grant to cover their sunk cost to re-start their street vending activities, or towards maintaining hygiene and basic sanitation in their street vending activities.

Also read: Aadhaar Continues to Trip Up Direct Benefit Transfer Schemes, Duping Thousands: Report

Besides easing credit constraints, these kind of conditionalities should effectively increase the opportunity cost of not returning to work, thereby enhancing earnings. While it may be difficult in allocating some amount from the budget towards facilitating a cash scheme for street vendors, it will surely go a long way in alleviating pandemic-induced distress.

Eligibility criteria

Irrespective of the kind of social scheme that the government actually implements ultimately hinges upon its eligibility criteria. Linking it to registration requirements might not be a very good idea as there are only limited street vendors who are actually registered in India. As noted by Majithia in a recent study, in Delhi, out of roughly 3,00,000 street vendors, only about 1,31,00 have some form of occupational identification.

Street sellers in Mumbai. Credit: Danish Siddiqui/Reuters

Street sellers in Mumbai. Photo: Danish Siddiqui/Reuters

In this scenario, there are concerns about whether the benefits of the scheme would actually reach the real beneficiaries. There should be a provision which allows vendors not already registered to avail the benefits of the scheme, of course after due verification and background check.

While undertaking the socioeconomic profiling programme, the government must consider these concerns, so that the intended vision of the scheme is actually realised to its fullest potential.

Prateek Kukreja is a research associate at the Indian Council for Research on International Economic Relations (ICRIER), and Samridhi Bimal is an independent consultant.