Do it yourself

"Face the facts of being what you are, for that is what changes what you are."

—Soren Kierkegaard (Danish, 1813-1855)

Word for the day

Oleaginous (adj)

Having the nature or qualities of oil.

Containing Having oil.

Malice towards none

It's rather surprising to see that our market experts are bothered in equal measure about the French presidential elections and Delhi Municipal elections!

First random thought this morning

Arvind Kejriwal is behaving like the puerile young man who is cutting the branch of the tree he is sitting on.

By tagging anyone and everyone of his party members who chose to speak against him as "sold to BJP", he has implied that AAP members and MLAs are saleable if you pay the right price, thus seriously dissipating the credibility of all AAP members.

Failure is not an option here

In five decades of post Nehru period, there have been many national movements which have attempted to redefine the India's social, political and economic milieu.

Most notable of these movements are Naxalite movement of 1960's spearheaded by Charu Mazumdar and Kanu Sanyal et. al.; Jaiprakash Narayn's "Total Revolution" in 1970s, V. P. Singh's "Jan Morcha" in late 1980's, and L. K. Advani's "Ram temple" movement in early 1990's.

Besides, many regional movements have also had notable impact on the Socio-political order. Kanshiram's movement for social justice to the bottom of the pyramid, viz., "Bahujan Samaj" is amongst the most prominent ones.

Though most of these movements have had material influence on our socio-political order, none of these movements could sustain to achieve a potent revolution that could catalyze a complete break away from the politically feudal, economically colonial and socially divisive legacy of British Raj.

After five decades, the society continues to be deeply divided on the lines of religion, caste, and community. Socio-economic inequalities obdurately persist. Social and gender prejudices run deep into citizens' mindset.

The political consequence is that the populace as a whole still prefers to closely identify with religion, caste, community, region rather than the Nation. Reflecting the divide, the elected representatives are often seen pursuing parochial agenda; sometime at the expense of broader national interests.

The economic consequence is that we have failed to devise a "National" approach in economic planning and programming. A fragmented approach in defining economic agenda, has often led to clash of regional aspirations and misallocation of scarce national resources. Indian Railways, various river water disputes, conspicuous regional growth imbalances and wasteful "tax exempt industrial zones" are some classic examples.

In this backdrop emergence of a strong Nationalist leader in PM Narendra Modi is a critical developments. Though it's still some distance away to qualify as a redefining national movements, it appears well on course.

The single most important contribution of PM Modi's efforts to the social order could be identified as rise of hope in the society in general. It is particularly significant because this rise in hope has occurred at the expense of general skepticism over political establishment.

The question is whether this rise in hope will get channelize into the economic sphere in terms of larger and deeper investment commitments, improvement in risk profile of entrepreneurs, and better compliance standards.

A failure on part of the government in general and PM Modi in particular could lead the country into a renewed bout of skepticism, risk averseness and non-compliance.......to continue

Read with the following

Growth is a collective, consistent and continuous effort

Take factories to farms

Improving farm income

Shed the colonial past

Friday, May 5, 2017

Shed the colonial past

"It is the knowledge that all men have weaknesses and that many have vices that makes government necessary."

—James Monroe (American President, 1758-1831)

Word for the day

Minatory (adj)

Menacing; threatening.

Malice towards none

As per the latest Cleanliness rankings, MP emerges as the cleanest state in the country and the neighboring UP as the dirtiest.

First random thought this morning

Sometime I wonder whether we live in a democratic country or feudal village.

National media prominently shows, as a novelty, how the president of ruling party and vice president of principle opposition party eat food with poor people. Prime Minister visits temple, of course as a VVIP, but takes off his shoes himself. CM of a large state himself performs Kanya Pujan during Navratri. All events are reported as hallmark of the benevolence and humility of leaders.

A different view is to see how a minister gets out of his office. The driver brings the car 20minutes early, runs the AC to cool it. One person carries the briefcase and files. One person runs and holds the gate of lift so that minister does not have to wait. Some ministers like someone to hold their mobile phone too. This is true even for most of the Hawai Chappal wearing Delhi ministers.

Shed the colonial past

India became an independent political union 70years ago. However, it continues to remain far from becoming an economic and social union till date.

In past two decades, some notable efforts have been initiated to make India a strong economic union. The most pertinent being development of golden quadrilateral of national highways, development of dedicated freight corridors, a uniform goods and services tax, and more recently proposal to develop a national market for agriculture produce.

Many efforts have been made to promote cross state investments through tax concessions, e.g., tax holidays for setting up new industry in industrially backward areas, subsidies for new units in SEZ, Agro processing zones, Software Technology Parks, to reduce regional inequalities.

So far, these initiatives have brought some incremental changes in the direction and trajectory of economic growth. These measures are usually found inadequate in bringing any structural change in the economy, something we need desperately at this point in time of history. It remains to be seen whether GST will bridge the inequalities of widen these.

The economic model adopted post independence era, which was mostly an extension of the exploitive colonial model used by British Empire, has promoted inequalities, injustice and unsustainability. This is the economic paradigm we need to change by instituting fundamental reforms. Improving efficiency of the extant system is just not sufficient.

It is pertinent to take note some basic data points, before I extend my argument any further.

(a) The four largest populated states, viz., UP, Bihar, MP and West Bengal are amongst the poorest ones. These four states account for almost 40% of total population of India. Whereas their contribution to India's total GDP is just ~20%. The annual revenue gap (the difference between the revenue earned and revenue expenditure) for these states is much higher than the national averages. Bihar earns just 31% of its revenue expenditure requirement; UP 51%; MP 46% and West Bengal 45%.

(b) The four richest states in India, viz., Maharashtra, Tamil Nadu, Gujarat and Karnataka account for less than 25% the total population; whereas their contribution to national GDP is over 40%. Maharashtra (72%), Tamil Nadu (79%), and Gujarat (75%) are able to cover their revenue expenditure much better.

(c) Five top states Maharashtra, Tamil Nadu, Gujarat, Karnataka and Andhra Pradesh account for close to 70% of total exports from India. Whereas the resource rich states like Jharkhand, Chhattisgarh, West Bengal, Odisha, Punjab etc. lagged much behind.

(d) The economic inequalities are fully reflected in the social parameters like child mortality, literacy, women health, availability of drinking water and sanitation also.

The point is if we keep more than 50% of the population just at the sustenance level, how do we create enough demand to grow faster and higher! ....to continue next week

Read with the following

Growth is a collective, consistent and continuous effort

Take factories to farms

Improving farm income

Thursday, May 4, 2017

Improving farm income

"Preparation for war is a constant stimulus to suspicion and ill will."

—James Monroe (American President, 1758-1831)

Word for the day

Dox (v)

To publish the private personal information of (another person) or reveal the identity of (an online poster) without the consent of that individual

Malice towards none

Why Shri Narendra Modi visiting a temple should be a national news?

First random thought this morning

I almost killed myself and two school children yesterday in order to avoid hitting a dog who suddenly decided to take a stroll on a busy road and came in front of my car from nowhere. Police refused to file an FIR and take any action against the errant canine.

Why can't animals be treated just like human being and punished for endangering others life, littering and encroaching public land.

Cases of killing and mutilation of bodies of infants and young children by stray dogs are reported frequently in India. There are many cases of attacks on adults, old and infirm also.

Why is it so that media, liberals, nationalists, politicians and civil society has never made hue and cry over these deaths.

Improving farm income

As I suggested yesterday (see here), to improve the health of farm sector, and liberate 40% of Indian population from perennial distress, we need a combination of administrative, legal, social, economic and financial sector reforms. In particular the following 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.

Rise in productivity

My discussion with many farmers, agriculture scientists and rural activists suggests that a substantial rise in productivity is possible without cumbersome land, marketing and labor reforms or building expensive infrastructure.

Aggressive promotion of collective farming, institutionalization of farm equipment rental business, creating more awareness about intensive farming and moving the farmers away from traditional cereal crops towards cash crops could enhance yields by 50-100% in most cases.

In this context, implementation of the food security law is critical. If implemented in right earnest this could transform Indian agriculture from a mere self sustenance activity into a truly commercial activity.

This measure combined with the financial inclusion efforts, could have meaningful impact on the livelihood and productivity of small and marginal farmers.

Substantial rise in prices of agriculture produce

A substantial rise (2 to 3x) in most agriculture produce price could potentially bring back interest in agriculture sector and incentivize substantial investment leading to higher productivity and eventually lower food inflation.

This one time measure could help making taxation of this sector politically and finically feasible thus improving the fiscal balance of the country.

The negative could be substantial rise in food inflation in the short term leading to higher rates.

Substantial fall in land prices

Substantial fall in prices of agriculture land could also help in improving yields and therefore attract fresh investments in the sector.

Such a fall, however could have serious impact on the consumer discretionary spend, as a large part of the growth in discretionary spending has been contributed by the wealth effect created through higher land prices.

The best solution therefore would come only from a mix of the above three. Any solution on these lines might take ~5years to implement and another ~5years to have a meaningful impact on structure of agriculture sector in the country.

Read with the following

Growth is a collective, consistent and continuous effort

Take factories to farms

Wednesday, May 3, 2017

Take factories to farms

"A king without power is an absurdity."

—James Monroe (American President, 1758-1831)

Word for the day

Floriferous (adj)

Producing blossoms; flower-bearing.

Malice towards none

Since 2011, we have seen two mass movements - anti corruption movement led by octogenarian Anna Hazare and Nirbhaya movement led by young students.

Both seem to have failed miserably.

Why?

First random thought this morning

I have travelled over 100,000kms on Indian highways, both state, national and express, during past 5years. Many of these highways and expressways pass through villages and small towns.

I find it strange that I did not come across any foot over bridge (FoB) on these roads.

I did meet some highway police personnel posted on these roads. Not surprisingly, none of them was clear about their duties. Most of them were either sleeping in their new SUVs or were busy negotiating deals with some truck or taxi driver.

Take factories to farms

Talking about a faster and sustainable economic growth in India, without materially improving the state of agriculture in the country, would be totally futile and nonsensical.

The mission of the government to double farm income by 2020 is commendable. However, it may not be sufficient. The farm income must rise much higher, led by superior productivity gains and higher realization.

The measures initiated so far, e.g., higher support prices, cheaper credit, crop insurance, improved irrigation, cash fertilizer subsidy, better market access (eNAM, roads etc.) have definitely improved the state of agriculture in the country. But this improvement may not be sufficient. A lot more needs to be done, rather urgently.

Firstly, the business of agriculture in the country needs to be restructured; well, as a business.

A material part of the agriculture in India continues to be a sustenance measure, not a business. It suffers from huge disguised unemployment, underemployment and poor returns.

Secondly, the historical transition of farm workers to industry during the developing stage of growth may not work in current Indian context.

The so called developed economies have transited the labor from farm to factories, when industry and mining were still labor intensive and global competition was not much. The productivity gains were immediate and tangible.

It is no longer the case.

The industry in India is already capital intensive. Even traditional labor intensive industries like gems & jewellery, textile, leather, mining and construction are becoming increasingly automated to stay viable against the global competition. Emulating China model may not work in India, as our political and economic model is entirely different.

Moreover, the skill and training requirement for modern industry do not allow a straight farm to factory transition. So the options get limited to unskilled construction sector jobs and building industry around farms where the skill of the farmers could be suitable employed.

While MNREGA and ambitious rural road program is taking care of unskilled construction jobs, there is little effort to take factories to farms.

The ambitious Make in India program mostly aims to substitute imports. We are trying to compete with manufacturing powerhouses like China, Vietnam, Taiwan, etc. This defies the basic principle of making economic decisions.

Whereas, what we need is to promote the export traditional Indian stuff, that is our strength.

In past few years, I have interacted with a number of farmers in India to understand the economics of Indian agriculture. What I gathered, may be summarized as follows:

(a) 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.

For example, in Delhi, Haryana, Himachal, Punjab, Rajasthan, Western & central UP and many of parts of MP the yield in now even less than the fixed deposit interest rates.

Land priced at Rs10lac an acre yields less than Rs70000/year for a medium and large farmer. For a small and marginal farmer the yield is Rs20000 to Rs40000 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.

Pertinent to note here is that a typical landless, marginal or small farmer household deploys 3-4 adults for 6 months in the farm. At ~Rs3000/month minimum wage rate the cost of self labor itself comes to about Rs55000-75000/year.

(b) 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.

(c) 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.

In my view, to make agriculture a viable business and control food inflation on sustainable basis the three things need to happen, viz.,

(a) Substantial rise in productivity;

(b) Substantial rise in price of agriculture produce; and

...to continue tomorrow

Read with the following

Growth is a collective, consistent and continuous effort

Friday, April 28, 2017

Taxing farmers may yield nothing

"Sheep, like people, are ungovernable when hungry."

—John Muir (American, 1838-1914)

Word for the day

Green-Collar (adj)

Noting or pertaining to workers, jobs, or businesses that are involved in protecting the environment or solving environmental problems.

Malice towards none

You speak one lie 100times, and people start believing it to be true.

This adage does not seem to be applying to AAP.

The more they lie, the more people disbelieve them. So much so that many have started discounting their truths also.

First random thought this morning

Our government seems to be pushing the Make in India policy hard. Reportedly, it now wants all government procurements to be sourced locally. It also wants metro trains to have at least 75% local content. It sounds like a great idea.

The small problem is that many of our large trade partners like USA also seem to be copying our idea of localization, and many of us are not liking it.

An American investor who recently visited Patanjali facilities in Haridwar, got the impression that this desi enterprise certainly has tacit support of thegovernmen (States and Central). If global corporations like Coke, Pepsi, HUL, Nestle, P&G etc. get hit due to this, this pain will certainly reflect on likes of TCS, Infosys.

Taxing farmers may yield nothing

Tax on agriculture income is one of the favorite topic of market economists and strategists. Most of them believe that by taxing agriculture income, the government could materially improve its fiscal position.

In my view, taxing agriculture income would add only an insignificant amount to the government's kitty. Anyone betting big on taxation of agriculture income may perhaps need to spend 6months in any village of the country to understand what I am trying to suggest.

About 40% India's total population is directly dependent on farming. As per the latest available NSSO survey (70th Round, June 2013), the country has about 90.2 million agricultural households.

Among the major States, Rajasthan has highest percentage of agricultural households (78.4 percent) among its rural households followed by Uttar Pradesh (74.8 percent) and Madhya Pradesh (70.8 percent). Kerala has the least percentage share of agricultural households (27.3 percent) in its rural households preceded by other southern States like Tamil Nadu (34.7 percent) and Andhra Pradesh (41.5 percent).

Close to three fourth of these farmers belong to OBC, SC and ST category. Two third of these farmer household have crop cultivation as their primary source of income. 22% of these household survive on wages. While the others have livestock and agri related activities as their primary source of income. About 44percent of estimated agricultural households have MGNREG job card.

Average monthly income of the agricultural households, including net receipts from cultivation, farming of animals, nonfarm business and income from wages/salaries, during the agricultural year July 2012- June 2013 was estimated as Rs.6426/per household (Average 5people).

About 52 percent of the agricultural households in the country are estimated to be indebted. The average amount of outstanding loan per agricultural household was Rs.47000/- (approx.).

Among the major States, Andhra Pradesh had the highest share of indebted agricultural households in the country (92.9 percent) followed by Telangana (89.1 percent) and Tamil Nadu (82.5 percent). Assam (17.5 percent), Jharkhand (28.9 percent), and Chhattisgarh (37.2 percent) were the major States with lowest share of indebted agricultural households.

The average amount of outstanding loan was highest for Kerala (Rs.213600/-) followed by Andhra Pradesh (Rs.123400) and Punjab (Rs.119500). Assam (Rs.3400), Jharkhand (Rs.5700) and Chhattisgarh (Rs.10200) were the States with lowest amount of average outstanding loan.

About 83% (80% in 2003) of the total farming households in India are either landless or marginal (holding less than 1 hectare or 2.47 acres cultivable land). The average gross cropped area per agricultural household is period 0.937hectare (2.31 acre). The average value of production (which included value of harvested crop, pre-harvest sale and value of by-products) per agricultural household during the period was Rs.40580/-.

However, if we adjust this average income for the loss due to crop damage due to natural causes (at least once in three years), the average income per farmer household will be much lower.

It is most pertinent to note that this income does not account for the cost of self-labor and own seeds used.

As the following table shows, only 0.24% or appx 2,15,000 agriculture household are large farmers (owning more than 6hectare cultivable land). They collectively own approximately 5.8% of the total cultivable area.

Assuming that they earn more than average farmer household income of Rs41000/hectare per crop, and are able to take three crops every year, the average income for the large farmer household may not be more than Rs41000 X 3crops X 6hectare=Rs7,38,000. Dividing this income between two adult members of the house and adjusting for expenses like depreciation on equipments, interest on loans, and one bad year in five years, the government may not get virtually any tax.

I understand that there are numerous cases of false reporting of agriculture income to convert black money without any tax.

There are some large farmers, who hold large chunks of Benami Land, and may be earning much more than the averages mentioned above.

But these are anomalies. These need to be handled as such. Making a rule based on these exceptions may not yield much results.

As such, agriculture is a totally unviable business in India. With over 40% population engaged in an unviable and least productive business, an economy cannot be expected to grow faster on sustainable basis.

If we want Indian economy to grow faster on sustainable basis, supporting restructuring and reorganizing India's farm sector is a pre-requisite.

...to continue

Read with the following

Growth is a collective, consistent and continuous effort