Doubling farmers' income

Thought for the day

"Emancipation from the bondage of the soil is no freedom for the tree."

—Rabindranath Tagore (Indian, 1861-1941)

Word for the day

Carte blanch (n)

Unconditional authority; full discretionary power:

Malice towards none

Legalizing the widespread overloading practice by truckers has not helped much. They still went on strike.

Do you read a conspiracy here?

 

First random thought this morning

GST council has announced another round of rate rationalization. With this round, now only 35 items are left in the 28% slab. Most of these items are for use by upper middle class and rich like air conditioners, cars etc. This is significant, as just one year ago, we started with over 220 items in 28% slab.

At this rate, we may move to 18% maximum slab in 2-3years.

Is it natural progression or Rahul Gandhi is setting the agenda and government is just complying?

Doubling farmers' income

Doubling farmers' income by 2022 and ensuring a minimum of 50% profit to farmers are two of the most prominent electoral promises made by the incumbent government.

The government has apparently taken many steps to fulfill its promises, viz., farm loan waivers, better availability of Urea, soil health check to optimize the use of fertilizers and enhance productivity, better crop insurance coverage, sharp increase in government support prices for various major crops, higher budget for irrigation etc.

A recent visit to the rural areas of UP, MP, and Rajasthan however suggested that farmers find the steps taken by the government inadequate. Many social organizations working for the welfare of farmers have also highlighted numerous lacunae in the government endeavor. The former prime minister Dr. Manmohan Singh recently echoed this sentiments and highlighted that the aim of doubling farm income by 2022 may not be attained.

I believe that a part of the criticism of the government efforts (both quantum and direction) may be purely political and undue. However, it is important to note that farmer distress is a genuine problem and they are finding government's effort lacking both in quantum and direction.

I have been repeatedly highlighting the problems faced by Indian farmers and some solutions for making structural changes in the Indian agri sector.

I would like to reiterate some of the earlier discussions. But before that it would be useful to note the following:

(a)   As per NSSO 2013 data 85% of Indian cultivators own less than one hectare land. Another 15% own land measuring between one and four hectares. Only 0.24% farmers owned more than ten hectares of land. The average land holding for all farmers is 0.9 hectares.

(b)   There is huge variation in land holding pattern amongst states. For example, AP and TN have largest proportion of landless farmers (more than 50%): Bihar and West Bengal have largest number of marginal farmers (close to 60%), where Rajasthan has the largest share of large farmers. Same agri policy for all these states is bound to fail. About two third of all rural households have farming as their principle source of income.

(c)    As per last NSSO survey data, the average monthly rural household income in India is about Rs6426 and average Monthly rural household expenses are about Rs6223. About 85% of households earn less than their expenses. About half of this income comes from cultivation and rest from other activities like labour and animal husbandry. 

(e)    Rural household spend about half their income to buy food.

(f)    As per the last available NSSO data, the average per student annual expense for education in rural areas was Rs6788 in 2014. It had risen more than 2.5x since 2008 when it was recorded at Rs2461.

(g)    The average hospitalization expense in rural areas is close to Rs17000 per case of hospitalization as per the last available NSSO data

(h)   Doubling the farmers' income by 2x in 8years (2014-2022) means a nominal growth rate of 9% CAGR. There is little change in real rural wages over past four years, and last year the real wage growth was negative. Considering that rural wages are an important component of rural income and a key determinant of minimum support price for farm produce, the government might need to review its strategy.

To bring any meaningful improvement in the dismal 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 need to be pursued urgently, vigorously, simultaneously and in a fully integrated fashion, for having a meaningfully sustainable impact.

...to continue tomorrow

Pain of professional investing

Thought for the day

"If you are the master be sometimes blind, if you are the servant be sometimes deaf."

— R. Buckminster Fuller (American, 1895-1983)

Word for the day

Garbology (n)

The study of the material discarded by a society to learn what it reveals about social or cultural patterns.

Malice towards none

Will it be Nath vs. Scindhia in MP and Gehlot vs. Pilot in Rajasthan assembly elections later this year, to give a walk over to BJP?

 

First random thought this morning

The Uttar Pradesh government is relentless in propaganda of its "achievements in past one year. Last week too it issued multi page color insertions in national Dailies. The listed achievements included (a) laying foundation stone of an expressway planned a decade ago; (b) water pipelines in some villages; (c) electricity polls in some villages; (d) city gas distribution in Varanasi; (e) community health center in a village; (f) a TCS BPO; (g) cleaning and renovation of few ghats in Varanasi; (h) improvement and upgradation of few roads, etc.

It would be interesting to see if the government would like to take credit for Mukesh Ambani becoming richest Asian during its tenure!

Pain of professional investing

Since past couple of weeks, markets participants have been quite actively discussing the worrisome dichotomy in market, i.e., outperformance of benchmark indices (Nifty and Sensex) over broader market. Nifty has in fact outperformed most of the EM indices in past couple of months.

The outperformance of benchmark indices is giving an optical illusion of "all is well" in Indian markets, whereas most of the investors are experiencing serious loss of value in their respective portfolios.

After 4yrs of bull market (August 2013 to July 2017), it is normal for the broader markets to underperform and market breadth to stay negative during the course of the correction. What has surprised the market participants, in past 8weeks in particular, is that the move has been totally in opposite direction, viz. Benchmark indices have gained ~4%, while the small and midcap indices have fallen over 10%. Market breadth in this period has been very poor.

 

This dichotomy has created some peculiar problems for investors. For example:

(a)   The portfolio investors who hold a large proportion of stocks outside Nifty universe are not able hedge their portfolios by shorting Nifty.

(b)   Sectoral portfolio construction has become difficult as there are no discernible sectoral trends. The divergences are mostly based on market capitalization weight.

(c)    Portfolio diversification is leading to even higher losses, which is counterintuitive at this stage in market.

(d)   Concentrated portfolio in top Nifty stocks has outperformed, but given the valuation premium over mid and small cap, the risk has increased significantly.

(e)    In past couple of years, maximum money has been raised by mutual funds and PMS that aim to invest in mid and small cap stocks or stocks from specific theme or sectors. Most of these funds are underperforming the benchmarks, making investor jittery.

Ideally, these short term market aberrations should not bother an "investor". To the contrary, these are opportunities for investors where they can buy good stocks at bargain value. However, this time more investors are worried than ever. The reason, in my view, is meaningful institutionalization of the equity investment in past couple of years.

The asset under management (AUM) of mutual fund, PMS and other institutional investors has grown substantially in past couple of years. But most of these professional investors (managers who invest money on others' behalf) are in a fix.

They are given supposedly long term money to manage but get evaluated on month to month basis, and in some case even day to day basis. Their remuneration depends on their quarterly "trading" performance and net new money collected and not on the basis of new investment idea discovery.

These investors are therefore under tremendous pressure to generate return on "monthly basis" rather than creating wealth by investing for long term.

The following viral message on social media captures the true essence of the point I am trying to make here. (Please note that I have no means to verify the authenticity of this. I am reproducing it just to highlight my point without any comment on the performance or appropriateness of the strategy of the concerned fund house)...to continue tomorrow

If you find it tough, well it is!

Thought for the day

"The world's been pretty good at coming up with new ways of doing things."

—James Mirrlees (Scottish, 1936-)

Word for the day

Solecism (n)

A breach of good manners or etiquette.

Any error, impropriety, or inconsistency

Malice towards none

Honestly, with hand on your heart, "Did you bet for France in FIFA finals"?

 

First random thought this morning

Past four weeks have been overwhelming for Indian sports lovers. Soccer, tennis, badminton, cricket, hockey, gymnastic etc have seen major events. India earned some glory in cricket, hockey and gymnastic.

Nonetheless, millions of people have remained busy following numerous sporting events. People have been opening newspapers from backside. New soccer stars have become household names, while TV channels have remained submerged in Mumbai floods, Burari suicides, and rapes.

No one is discussing or highlighting any economic distress or failing monsoon. All seems well and stock market continues to rise.

 If you find it tough, well it is!

At the risk of sounding irritatingly repetitive, I would like to reiterate that in past 7 decades we have focused too much on our weaknesses and tried hard to overcome these by importing technology, energy, intellectual property, capital, and consumption patterns. The root cause of many economic problems, e.g., current account deficit, fiscal deficit, energy deficiency, excessive dependence on external IPR & capital flows, etc. could be traced to this misplaced focus.

In my view, just by focusing on our intrinsic strengths, we can not only conveniently reverse the flow of trade to pre British era but also be successful in achieving our secular goals of sustainable and faster economic growth.

I have been suggesting that implementing the programs like the few illustrated below, we could improve the balance of payment substantially and structurally:

(a)   Indians spend approx USD25bn annually on education and related overseas travel. Creating 5 Special Education Zones (SEZ) with liberal VISA, forex, taxation and real estate ownership rules, and allowing foreign institutions to freely set up campuses could potentially reverse this flow. Students from India, far-east, middle-east and Africa who find it difficult to get VISA for US/UK etc. or find that expensive could also benefit from this. Our politicians have often spoken about recreating Nalanda and Takshila. This in my view is the easiest way to do that.

(b)   It is common knowledge that India holds tremendous potential for tourism. However lack of proper infrastructure and a holistic approach to harness the potential has traditionally constricted the growth of this sector. On the other hand Indian outbound tourists flow is rising. The government and hospitality sector entrepreneurs will have to think really big to reverse these flows and bring India on world tourism map. Developing some world class self contained international tourism centers, e.g., on lines of Macau, Bangkok, Dubai, Santorini, Las Vegas, etc. with liberal VISA, forex, taxation and real estate ownership could be the first step in this direction.

(c)    Vindavan, Tirupati, Varanasi, Gaya, etc. all have potential to be as desirable, venerable and popular destinations as Mecca, Vatican and Jerusalem.

Converting these centers of Indian religion and culture into self contained special zones with international airport, adequate number of high star category hotels, and annual event calendar could add substantially to India's external sector.

For example, Vrindavan can have two annual events Holi and Janamashtmi, when more than half million foreign tourist can visit the holy town

(d)   Considering the worsening demographic profile of rich countries in Europe and Japan, the rising need for healthcare assistants can be hardly emphasized more. Opening one world class nurse training institute in each state with special emphasis on teaching foreign languages to the trainees, may do the same wonders as ITeS did in last two decades.

(e)    Operating special incentive schemes for building global consumer brands may help in substantially enhancing the value of Indian exports. The government, for example, consider providing special incentives (tax rebates, promotion through government campaigns, etc.) for all locally developed consumer brands that are able to achieve more than US$500mn in merchandise sale in a year.

These projects also have the potential to generate large scale productive employment opportunity for local talent, besides contributing to economic growth and true globalization of Indian economy.

I acknowledge some of these suggestions may sound extremely difficult to implement in the current socio-political narrative. But then who said running a government in India is an easy task!