India uninc – Foreword

I have known Prof. R. Vaidyanathan for nearly fifteen years. He did an exhaustive study on the Non-Banking Finance Sector a decade ago which was in a sense an eye-opener for many of us in the industry. The study established that the Non-Banking Financial Sector involving large companies and small moneylenders plays a very important role in the economy of India. The Non-Banking Finance Sector plays an important role in meeting the credit requirements of the small businesses in timely fashion at appropriate risk adjusted rates. He also showed us that a larger portion of credit requirements of sectors like trade, transport, hotels etc. are met by the Non-Banking Finance Sector.

While most of our discussions used to revolve around Non-Banking Finance Companies or NBFCs, Prof. Vaidyanathan enlarged the scope of his study by introducing the role of UIBs or Unincorporated (Uninc.) bodies like money lenders, chits etc. to consider Non-Banking Finance Sector or the NBFS as a whole.

Prof. Vaidyanathan has been associated with a number of regulatory bodies and also sits on the boards of many large corporates as independent Director. But he has retained his abiding interest in small and medium businesses and their financing.

Prof. Vaidyanathan is a prolific writer in business journals and magazines. He has consistently highlighted the role of non-corporate India as well as the non-banking finance sector of our Economy. He has also dwelt on the salient differences between the Indian Economy and that of US in terms of structure, employment, institutions, instruments and regulations. He argues that Indian paradigms need Indian answers and not ‘solutions’ copied blindly from western text books.

In this seminal work, he brings out the salient aspects of the Unincorporated or Non-Corporate India primarily consisting of Partnership and Proprietorship firms, what is termed as the P&P sector.

He estimates their share in National Income — more than 40 percent — in savings/capital formation and employment. He explains that they occupy a significant part of the service sector and also have greater real growth rates. In a sense, they have been the engines of our economic growth in the last two decades. He argues that they occupy a fairly large space in our economy but get lesser attention due to our focus on the corporate sector. From that point of view he calls for re-focusing our reform process to facilitate the growth of these small and medium enterprises. India Uninc. is the victim of corruption and bribery by government agencies and lack of timely availability of credit at reasonable interest rates.

In that context, there is a need to reform regulatory and governance mechanisms at the state level. He also highlights the role of caste as social capital in some clusters of economic activity in India. It provides a refreshing perspective on the role of caste in capital formation, risk taking, facing failures and credit transactions with trust. He brings out the importance of a separate developmental and regulatory agency for Non-Banking financing entities which would go a long way in facilitating orderly and faster growth of the Unincorporated sector.

He brings out the issues of Charity and giving as practised by these small businesses from times immemorial and how without a CSR regulatory framework they have been performing acts of charity as part of their ethos.

An important point about his writing is that he backs up his claims with statistics and a generous dose of wit! I am confident that this book will be in a sense a ‘tilting point’ in discussions pertaining to our economy and reform process. Hence it is critical that policy planners, bankers, government officials, corporate denizens and academics go through this book to understand the economic issues of real India and its strengths and weaknesses.


I wish Prof R. Vaidyanathan all the best in this endeavour.

Mr. R. Thiagarajan, Founder, Shriram Group, Chennai


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