The Indian Economy Blog

May 12, 2006

Nirmala’s Problem

Filed under: Agriculture,Banking,Regulatory reforms — Amit Varma @ 4:09 pm

The Times of India reports:

In a remote village in Tamil Nadu, little Nirmala (12), rolls her nimble fingers over a sheaf of tobacco leaves, pins them adroitly into a tumti yale and seals the edges. She has to do this about 2,000 times a day, like she has been doing for over two years now. Even while she is sleeping, she smells the pungent tobacco, the memory bringing forth a psychological cough.

And why does Nirmala do this? The report continues:

In Tamil Nadu’s Vellore district, every household has two or three Nirmalas, pledged as collateral. It’s a vicious cycle of poverty, labour — mostly child labour — and families on the brink of self-destruction.

Every household has a story: the family takes a loan, then unable to repay it on time pledges a child as a labourer. The child is bonded to the menial work for life — for most often the family is not able to pay back and get the child released.

Slavery, essentially. In this case the loan sharks take slaves as “collateral,” while in other cases they keep squeezing their victims dry, often driving them to suicide, with crazy rates of interest. The problem here is not the loan sharks themselves, but the conditions that allow them to exist. When there clearly is demand for capital, why are these loan sharks the only people satisfying the demand? Why isn’t our rural landscape flush with micro-financers, rural bankers, and so on? Also, an unrelated point: where are the manufacturing units that you’d expect to spring up to utilise the cheap labour available?

The answers to these questions lies in obstacles that the government places in the way of private enterprise in this country, and a part of the solution lies in removing those obstacles. Nirmala’s parents need more options. And so does Nirmala.

(I’m co-writing an article with a friend — a co-blogger here — in which I’ll elaborate on these themes. Watch this space, and suchlike.)


  1. I just can imagine if a legitimate manufacturing company hires Nirmala, everyone will come down on that company like a ton of bricks.

    Nirmala shouldn’t be working but should be in school.

    It actually ties back to questions of quotas and reservations. For politicians it is so much easy to announce quotas and reservations in school and in jobs and say they have done their part without actually doing the hard work of making sure kids have access to schools (and have qualifications to do a job competently) and that Nirmala’s parents have access to credit and unskilled (or semi-skilled) jobs so that they can actually send Nirmala to school (even if the school is free).

    Nirmala is exhibit A for the unworkable social and economic policy short cuts politicians take to dust their hand and declare victory over economic and social injustices to vast majority of Indians.

    Comment by Chandra — May 12, 2006 @ 9:57 pm

  2. Oh, Nirmala shouldn’t be working, but her parents should have options, whether to borrow easy capital at reasonable rates, or for employment.

    And let’s not even start talking about quotas and reservations!

    Comment by Amit Varma — May 13, 2006 @ 7:52 am

  3. Nirmala’s story is truly heart-rending. I would add that in addition to access to credit as well as employment opportunities for her parents, agri-insurance and rural self-development initiatives can help. My self-development initiatives I mean identification of suitable small business opportunities; providing seed capital, training and market access for the same. If farmers could band together in Gujarat to bring about the White revolution using the mechanism of a cooperative, there must be other forms of similar interventions that the Govt. can take.

    Comment by little Ram — May 13, 2006 @ 9:59 am

  4. Amit,

    I didn’t mean to bring in the reservation discussion per se (I realize there is a parallel discussion going on about it). I was referring to easy options politicians peruse to say that their job is complete in helping people in economic and social need.

    Comment by Chandra — May 13, 2006 @ 10:07 pm

  5. It takes two sides to cause this.
    It takes the loan sharks and it takes the feckless families too.
    Before you come down on me like a ton of bricks for blaming the victim hear me out.

    If ever there was a state with abundant jobs in India it is Tamil Nadu. For anyone who shows the slightest enterprise and moves to find jobs they are out there in plenty.

    No industrialist worth his salt will invest in Vellore type areas because there is quite simply nothing there. No water, No electricity, No roads, No decent housing, No real agriculture. Even in the US no one is going to build anything in the middle of Montana or Alabama. The only industry there is some Tanneries but even that has been highly restrict because of pollution of a so called river that has never actually flowed.

    Half the loans taken by these people are for weddings they can not afford, for pilgimages they can not afford and alcohol. Yes there are ligitimate cases but remember all the people there are in the same situation and yet it is a small minority that sell their children into slavery. How do the rest manage ?

    In these brutal social structures, women are considered the property of men, and so are the children. To be disposed of as they see fit. Without breaking that structure all attempts at reform will fail. The men will take the earnings and squander it.

    Communities in Tamil Nadu that value their children and women have prospered. Vellore is not be amongst them.

    Comment by Theo — May 14, 2006 @ 11:23 am

  6. Chandra, I know, I know! :) I agree with you.

    Theo, thanks for your thoughts, I know nothing about Vellore and so will refrain from commenting on it. But regardless of how things are there, poor farmers and loan sharks are a problem across the country, and my comments on them are in that broader context.

    Comment by Amit Varma — May 14, 2006 @ 11:18 pm

  7. Hi Prashant

    Thanks for the mail on the discussion on Vellore. I must say I was born and brought up in Vellore at the CMC Hospital and College, Vellore Campus. I loved the town and it’s a great place to live.

    “In Tamil Nadu’s Vellore district, every household has two or three Nirmala’s, pledged as collateral.”…this my friend Prashanth is an exaggeration…I wonder if the writer knows the difference between a village and a district.

    All the same the catch-22 with the Beedi Tycoons of Vellore has been a dilemma for decades. It will be great if more organizations like world vision and others bring it to the lime light. There is a lot of potential for micro finance in Vellore.

    CMC Community Health Department (CHAD) has done very well for it self in Vellore. They have worked hard to provide their best to 2 or 3 blocks in Vellore district. In the process broke many of the records set for community health development in the nation.

    Just to show a small window of the kind of work that goes on in CMC Vellore “The 100 years since Ida Scudder opened the first small clinic have seen remarkable growth. Here is an example of the daily activity that goes on there today: 2,000 outpatients per day, 1,000 inpatients, 43 operations, 22 clinics, and 16 births.there is the work of CHAD, CONCH, and RUSHA, which go out to the villages and rural areas bringing methods of disease prevention, health care and community empowerment to tens of thousands more. Started with one woman and her vision, CMC employs over 4300 people today.”

    Check out more on information on life, history and industry in Vellore District

    Comment by Mani Pulimood — May 15, 2006 @ 9:03 pm

  8. Here is a really interesting article in WSJ today (need subscription) about SKS Microfinance Pvt. Ltd – a for-profit microlender – in Hyderabad doing extremely well in that region.

    “Mr. Akula, the 37-year-old founder of SKS Microfinance Pvt. Ltd., is at the forefront of the latest trend in “microlending,” or making tiny loans that help entrepreneurs lift themselves up from the lowest rungs of poverty. Long the province of charitable institutions, microlending is starting to attract the attention of big business. Intrigued by India’s red-hot economy and potential market of more than a billion consumers, financial giants such as Citigroup Inc., ABN Amro Holding NV and HSBC Holdings PLC have already provided millions of dollars for SKS to lend out. SKS, in turn, says it has notched up healthy profits for the past three years.”

    His quote…

    “This can work driven only by greed,” says Mr. Akula, a one-time McKinsey & Co. consultant who was born in India and grew up in Schenectady, N.Y. “That’s the magic of it.”

    Comment by Chandra — May 16, 2006 @ 5:46 am


    i feel the problem is a result of multiple factors aggravating each other n inturn leading nirmala to abject poverty n hopeless life:

    1 lack of any credible microfinance in villages

    2 lack of education

    3 hand to mouth exsistance which makes immediate survival much more imp than the hope for any brighter future.

    4 hence families dont encourage kids to study bcause for them its loss of two hands n burden of one extra mouth

    5 poor families in india ask for lone not only for farming but also for occasions like marriage,death, birth which r often celebrated beyond once capacity n is an investment without any monetary return(they seek social return by it)

    6 in their zeal for reducing NPA bank’s have gone a bit too far….they look towards a small farmer in suspicion n ask for so many formalities that it becomes impossible for people to get loan….while a loan shark is ever available…with all kinds of loan.

    but i m sure with focus on edu.,microfinance and with the help of people like Mr.Akula….Nirmala wont remain a bonded labour for long

    Comment by shashank — May 21, 2006 @ 7:04 pm

  10. How, pray tell, will microlending relieve the “Nirmala” problem in rural India? Merely advancing capital does not turn the masses into mini entrepreneurs and free them from bondage. I have been told that Indian farmers and artisans in villages such as weavers, who are entrepreneurs, still need the middleman to sell their wares to the market. Therein lies the exploitation.

    Even if microlending became more available, in any society, and in a poorer society even more so, only a small fraction of the population wants to go into business for themselves. The overwhelming majority wants jobs.

    The child labor/child abuse/child slavery problem (the three are interconnected) cannot be entrusted to free market principles. Not everything can be solved by Reaganomics, as we free marketers here in the US like to say. Certain problems in a civilized society must be solved by concerned people – whether the government, or government funded NGO’s, charity driven NGO’s, good old missionaries…take your pick.

    Comment by Sarat — May 23, 2006 @ 11:55 pm

  11. Sarat, you offer the solution – jobs (especially unskilled and semi-skilled). But enablers – government (you still look to the same one that has one word all social and economic ills – quotas?) and NGOs – secular and religious – aren’t upto the task. The “good old missionaries” can’t generate those jobs either.

    The only thing that will help the poor families are large scale manufacturing jobs to make things that people want to buy all over the world. And only open trade and open economy can generate the jobs needed. However, the enablers of that are busy slicing and dicing the society for the next elections. Until then Nirmala, her family, and we wait.

    OT – I am used to reading “prey tell” in old Victorian English novel set in 17th/18th century – like Patrick O’Brian novels. It’s a little funny to see it used now – nothing personal.

    Comment by Chandra — May 24, 2006 @ 12:01 pm

  12. “Pray tell” is just a calculated glibness conveying skepticism and not at all considered archaic in the society that I make a living in. And having written a lot of ad copy, I do take my choice of words rather seriously.

    Anyhow, I agree with you on job creation, not microlending as the prime economic force. The government’s role should always be that of a facilitator, not a manager. The posts on Galbraith were very eloquent on this issue. However, even the most free market economy – prime example, the U.S. – does look to its government and not private enterprise on certain human issues. Education, food for the poor, shelter for the poor, medical and financial assistance for the old are all government funded, and yes, government managed programs in the U.S. They are called – public schools, food stamps, medicaid, medicare, social security, etc.

    Not that the U.S. is a model society, but in terms of government involvement on human issues, it has not used Reaganomics as an out. Free markets must be complemented by good governance if you want a society to measure up to the standards of civilization.

    Comment by Sarat — May 24, 2006 @ 10:41 pm

  13. Sarat,

    “…job creation, not microlending as the prime economic force.”

    True, but this post is about access to credit. I think everyone needs access to credit – whether one is a crorepati or family living hand-to-mouth. Until recently most middle-class in India did not have access to credit. Now things have changed for the better. But people without steady job still don’t have access to credit. Nirmala is bounded labour because her parents don’t have access to cheap credit. It is hard thing to make it happen even with government pressure because traditional banking system is all about risk avoidance. That’s where for profit making microlending can make a difference – NGOs can try but they will, by their nature, be inefficient which may not be bad thing in dire situations like Vellore.

    With regards to social programs, India already provides big part of budget for economic subsidies. And these accrue only to people who already own businesses. It’ll be a double blow to the economy if India starts social program (the new employment guarantee scheme is one of those) without cutting down economic subsidies – we will end up going from Soviet socialism to European socialism without getting rich in the middle. European socialism is not sustainable with being a rich country to begin with. So I think we need to get our market mechanisms (long way to go) right first, in order to reduce the burden any social programs, before killing the not so golden goose.

    Comment by Chandra — May 25, 2006 @ 4:59 am

  14. I agree,this post is about micro finance/access to cheaper credit.But then title of the post is misleading.Child labour/abuse/slavery is a serious economic problem and as Sarat has rightly mentioned must be solved by the government.Economic subsidies can not be the excuse

    Comment by sun — May 26, 2006 @ 11:32 am

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