Do it yourself

A lot of the recent macro research effort of stock market participants has been devoted to the state of rural demand in the country. In their latest commentary, most consumer goods companies have reported continued pressure on rural demand. Even though many market economists and analysts have forecasted imminent recovery in rural demand, the corporate commentary did not sound that much sanguine. Nonetheless, higher food prices and expected good monsoon are expected to help the rural economy to some extent. A good performance of the rural sector is important for investors. Almost two third of the Indian consumers derive their livelihood directly from the rural economy, including farming, horticulture, animal husbandry, cottage industry, forestry, etc. The rural economy directly supports a large number of industrial enterprises, like crop protection, farm equipment, transportation, food processing, etc.; besides providing material indirect support to industries like textile, consumer s...

Last week, I mentioned that unemployment in India is a multidimensional problem and it would require a multipronged strategy. The traditional “industrialization” strategy may not yield much significant results in the modern Indian context as the industries are now mostly capital and technology intensive and offer significantly lower opportunities for unskilled and semi-skilled workers, which form a large part of the Indian workforce. Implementing the traditional Keynesian model of creating employment through public spending is also challenging due to stressed fiscal conditions, focus on privatization of public enterprises, and diminishing labour intensity of construction activity. In the past fifteen years MNREGA (Rural capacity building) and PMGSY (Rural roads to improve accessibility) have been extremely successful in generating rural employment. These two schemes have not only supported the rural economy during the period of stress, but also created much useful capacities in the r...

  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 – 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...

Continuing from yesterday ( see Farm sector economics in India - 2 ) I have said this earlier also, and I do mind reiterating. To bring any meaningful improvement in the fragile condition of India's farming community, a comprehensive rural development effort is needed. Any piecemeal solution like occasional loan waiver shall have almost no sustainable impact. 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 my view, 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....

Continuing from last week (See Farm sector economics in India ) The issue of laborers migrating from large cities and industrially developed towns to villages & towns of industrially backward UP, Bihar, Jharkhand, Chhattisgarh, etc has caught everyone's attention in past few weeks. This migration is being widely seen as a fall out of COVID-19 induced lockdown of socio-economic activities. Indubitably, the lockdown has prompted many workers to wind up their household and move back to their home towns. But it would be a grave mistake to assume that lockdown is the only reason for the migration. The rate of unemployment amongst migrant and other workers was rising consistently since past few years. Demonetization and GST dealt a major blow to the jobs in unorganized and MSME sector. Besides, these workers were faced with the double whammy of stagnant to declining wages and rising cost of living. To highlight my point, I would cite my favorite example again. ...

Continuing from yesterday ( see here ) Before planning for any reform in the India's form sector, it is critical to understand the key characteristics of the India's farm sector. To be successful, any strategy, plan, policies and programs must be in congruence with such characteristics. Unfortunately, most of the policy initiatives and programs implemented in past couple of decades have not been congruent with the characteristics of the farm sector. The following are some of the typical characteristics of the India's farm sector which have been hindering the growth and profitability of the sector and large proportion of population associated with the farming and allied activities. Farm sector of India As per the 6th Economic Census (2014) and Agriculture Census of India (2017), and NSSO (2013) data the following are the broad contours of the farm sector of India: Non-farm activities 1.     There are about 3.5cr rural commercial (no...