Thought for the day
”The formula 'Two and two make five' is not without its
attractions.”
-
Fyodor Dostoevsky (Russian, 1821-1881)
Word for the day
Mot juste (n)
The exact, appropriate word.
(Source:
Dictionary.com)
Teaser for the day
Heard on Raisina Hills - "The real budget will be
presented from the ramparts of Red Fort on 15th August. Arun Jaitley just
fulfilled the accountant's job. Arundhati Roy is not wrong in calling Modi a
totalitarian. But she has belittled herself by calling Mahatma
'Casteist'."
Be ready for market rally on 18th August!
Hope is a good thing...
The economic and political commentary last year emphasized
a lot on positive impact of above average monsoon on the Indian economy,
especially food inflation. Most had hoped that bumper crop would help bring
down the persistent food inflation that would eventually lead to much needed
monetary easing.
This was however not the case.
In my view, to make
agriculture a viable business and control food inflation on sustainable basis
one or more of the three things need to happen, viz., (a) Substantial rise in
productivity; (b) Substantial rise in price of agriculture produce; and/or (c)
fall in price of agriculture land.
As of this morning, rise in general price level appears the
foremost concern for the politician and common people alike.
There is a broader consensus that to restart the jammed
investment cycle interest rates need to come down. Most also agree that it
would not be possible to bring rate structure down on sustainable basis if
general price levels do not show a definite down trend.
So far, we have heard some seriously concerned voices emanating
from New Delhi. These do sound credible. However, we are yet to see a workable
plan to bring prices down on sustainable basis. Various ministers and
bureaucrats appear tentative in their thoughts and rely too much on hope that
things will fall in place automatically - "global correction in commodity
and energy prices", "further progress in monsoon", "curbs
on hoarding will augment supply" etc.
A deeper study of the economics of Indian agriculture, would
suggest that food inflation will only accelerate in next many years, even if
things start changing at fast pace from today.
Currency debasement is the easiest and hence most popular tool
to camouflage the fiscal profligacy of the government of day.
In next couple of days I shall to examine the structure of
retail inflation in the country and suggest likely solution in my view.
I find In past one decade, the rise in the price of agriculture
produce has lagged the rise in land prices significantly. Consequently, the
yield on agriculture land has collapsed in most areas.
Land priced at Rs5-10lac an acre yields less than Rs75000/year
for a medium and large farmer. For a small and marginal farmer the yield is
Rs25000 to Rs50000 per acre/year, excluding the cost of self labor. If we
adjust the yield for one crop loss every three year, lease rent and 24-30%
interest that small and marginal farmer pays, agriculture is completely
unviable business.
If we factor in rising labor cost and lower subsidy in input
prices (fertilizer, electricity, diesel and water) the viability gap will
likely only increase going forward.
A large majority of farmers in India are landless. Many of these
farmers take land on lease. The rent varies from Rs5000/acre to 50% of produce.
A lost crop puts such farmers in a debt trap that may take up to 5years to get
out.
The next generation of landless farmer is therefore least likely
to prefer agriculture over construction or industrial labor. Availability of
agriculture labor is likely to shrink even further from the current alarming
levels.
Given the low returns, the current generation of medium and
large farmers is also not much interested in taking farming as occupation. Most
would want to sell the land or convert it into non-agriculture land. Given the
uneconomical holding size, low yields, unavailability of formal credit, and
lack of interest in large farmers, mechanization of agriculture is not
happening at desired pace.
...to continue tomorrow
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