Do it yourself

  Continuing from last week (See Farm Sector Reforms – 5) To bring any meaningful improvement in the fragile condition of India's farming community, a comprehensive rural development effort is needed. The traditional farmer welfare measures like periodic hikes in support prices for certain crops, farm input subsidies, interest rate subvention have not yielded the desired results. In view of this, the latest legislative effort I important and desirable. However, this may not be sufficient. A sustainable improvement in Indian farmers' conditions is possible only under a comprehensive rural development mission. The mission should address the problem with structural reforms at three levels, viz., 1. Farm Level; 2. Policy Level and 3. Social Level. All reforms must be pursued "urgently, vigorously, simultaneously" and in a fully integrated fashion, for having a meaningfully sustainable impact. Farm level reforms At farm level farmers are struggling with a multitude...

  Continuing from last week (See Farm Sector Reforms – 4 ) While announcing the famous Rs20trn economic stimulus package in May 2020, the finance minister had made the following 10 key promises for the farm sector in India. It was categorically stated that the governments sees farm sector as a key driver of overall economic growth and also a powerful engine to drive the “self-reliance” agenda. 1.     Essential Commodities Act to be amended to enable better price realization for farmers by attracting investments and making agriculture sector competitive. 2.     A central law to be enacted to provide for inter-state trade and framework for e trading of agriculture produce. 3.     The government to facilitate appropriate legal framework for an enforceable standard mechanism for predictable prices of crops at the time of sowing. 4.     Financing facility of Rs.1Lakh Cr to be provided for funding Agriculture Infrastru...

 Continuing from yesterday (See Farm Sector Reforms – 3 ) The Parliament passed The Essential Commodities (Amendment) Bill 2020. The stated objective of the amendment is to make sure that farmers get remunerative prices for their produce, and large scale private investment in agriculture related infrastructure (cold stores, warehouses and agro processing industry) could be attracted. This amendment was considered necessary to achieve the objectives of The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020, that enables contract farming and forward contracts in agriculture produce. The Essential Commodities (Amendment) Bill 2020, basically changes the following two things: 1.     The power of central government to regulate the supply of food commodities, including cereals, pulses, potato, onions, edible oilseeds and oils etc., has been limited to the extraordinary circumstances like war, famine, extraordinary price ris...

  Continuing from yesterday (see Farm Sector Reforms – 2 ) The second piece of legislation, namely, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 , primarily provides for the following four things: 1.     Forward Sale Agreement: A farmer may enter into a written forward agreement with a person to sell his produce at a predetermined price. Any such agreement shall specify (a) the price (fixed, or benchmarked with a guaranteed minimum); (b) The time of delivery; (c) place and method of delivery; and (d) quality specification for the produce. The ownership and risk of output due to vagaries of nature of otherwise, shall remain with the farmer till he offers a valid delivery to the buyer. 2.     Contract Farming: A farmer may enter into a written agreement with a person to provide farm services for predetermined fee. The service buyer shall specify the crop, quality, and other specifications,...

Continuing from yesterday ( Farm Sector Reforms ) Before commenting on the three specific agriculture sector reform related bills passed by the Parliament recently, three points need to made clear: A.     The farm sector in India is in dire need to major reforms. These reforms are not only critical for the farm sector alone, but for the overall economic growth of the country. The solution to most macro economic problems, e.g., large scale unemployment, dwindling household savings, volatile food inflation (and therefore unpredictability of inflation and interest rate trajectory); fiscal discipline of the governments etc would come through these reforms only. B.     The recent legislative changes are intended to address only two small pieces of the entire rural sector puzzle. Land reforms and social reforms are perhaps the two bigger pieces. C.     The new legislations do not seek to change the status quo materially as most the proced...

Last week, the Parliament passed three important piece of legislation with stated objective to reform and liberalize the production, trade, and pricing of agriculture produce in the country. The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill This law purports to allow farmers the freedom to sell their produce outside the regulated Mandi (APMC) framework. The idea seems to be enable development of a new ecosystem where farmers and traders would enjoy freedom of choice in sale and purchase of agri-produce; and the control of state over trade in agriculture produce would reduce to minimum. It is important to note that this reform was initiated in 2003 with introduction of Model Act. Many states and union territories have already de regulated marketing of fruits and vegetable, trading on electronic platforms like e-NAM, setting up of agri produce markets (Mandis) in private sector, direct marketing of agri produce etc. The reason behind this new law there...

US Federal Reserve Chairman Jerome Powell tried to set many speculations aside in his statement post the recent meeting of the Federal Open Market Committee (FOMC), Powell made the following three things very clear: 1.     US Fed policy Bank Rates, and therefore general rate environment, shall stay low till at least 2023. 2.     There is no threat of material rise in inflation in near term, and 2% inflation target shall remain valid till 2023. Even a temporary violation of 2% inflation target before 2023 shall not impact the decision to keep rates near zero till 2023. This is in sharp contrast to the forecasts made by many global strategists, economists and fund managers, who believe that inflation could become a serious problem in 2021-22. In fact Powell expressed his concerns about the disinflationary pressures persisting. 3.     The job market is expected to improve and below trend unemployment rate of 4% shall be achieved by 202...

In recent days the following three global trends have evoked much interest amongst market participants: 1.     The production, consumption and import of commodities in China have increased materially. 2.     The USD weakness is persisting. The China letting CNY appreciate against USD is noteworthy. 3.     BP in its yearly outlook virtually declared "peak oil" demand, stating that the oil demand growth may not be seen through 2050. These three trends are important in my view as these could materially influence the markets in short term. For past two decades, China has been a major driver of the commodities' demand and hence prices in the global market. The slowdown in Chinese economy in past 5years has led to correction in commodity prices, impacting a large number of commodity driven economies like Australia, Canada, OPEC countries, Brazil etc. This is cited as one of the reasons of sustained deflationary pressure on US, Japan and...

The September 2020 Global Fund Managers' survey conducted by the Bank of America research team found that 58% of the global fund managers believe that global equities are now in a bull market. This percentage is materially higher than the 46% in August 2020. The proportion of fund manager who believe it to be a bear market rally has reduced in September 2020 to 29% from 35% in August 2020. An overwhelming proportion of fund managers believe that "Long US Tech Stocks" is the most crowded trade. Though, the fund managers believing gold to be a crowded trade has reduced materially in September, as compared to August. "Short USD" trade is also seen gaining some popularity . Continuing with the theme, JP Morgan Research (as quoted by Niels Jensen of Absolute Partners), finds that S&P500 is now pricing in almost 0% probability of a recession in US; while 5yr US Treasuries are pricing in almost 100% probability of a recession. In his latest communicat...