Indian Economy: News and Discussion (Jan 1 2010)

[Theo_Fidel]

What we do have, though, is a case of the tail wagging the dog - lack of significant agricultural reforms and investment in production, distribution and warehousing/supplychaining has meant that food supply shocks are amplified in effect, and the only effective measure is an interest rate hike, which is the equivalent of using a sledgehammer on a mouse, affecting other sectors that were not overheating. Massively investing in widening the irrigated land base and food supply chains will allow us to grow faster at a sustained rate; money no longer spent on debt repayment due to higher rates will instead go into investment.

On this note agriculture is still 20% of GDP.

Agriculture is experiencing inflation of about 20%.

http://in.reuters.com/article/economicN ... 5920100217

Food prices rose an annual 17.4 percent in January, easing slightly from a rise of 19.2 percent in December.

So all by itself it is causing an inflation of 4%, or about half of our total inflation.

Without agriculture our inflation is a manageable 4%-5% per annum.

I'm hard pressed to see how cutting of the flow of money will restrict agricultural inflation. More likely to tank the rest of the economy. Hope the government shows some courage to stay the course.

Also this high Agricultural inflation means it is becoming a bigger part of real GDP. Probably rising to 25% if this continues. Not good.

[Suraj]

I'm hard pressed to see how cutting of the flow of money will restrict agricultural inflation. More likely to tank the rest of the economy. Hope the government shows some courage to stay the course.

Indeed, which is why I mentioned the sledgehammer & mouse analogy - it just clamps down credit to the entire economy in a bid to lower food price rise. GoI's approach to food inflation has been blinkered for a long time - the usual approach is a combination of rate hikes and actions on hoarders. The end result is that the economy as a whole grows slower than what its potential is, since growth elsewhere has been sacrificed in a bit to clamp down food prices by cutting money supply.

A more sustainable solution would be investing more in irrigation, storage and distribution channels, which will ensure lesser monsoon shocks, less wastage and greater economies of scale in distribution. Agriculture remains the most heavily politicized sector of economy, with the most intrusive government policies and populist patronage. As unglamourous as it may be, agricultural reforms hold the key to increasing annual Indian GDP growth from 7-8% to a sustained 10% or more in the next decade, just as fiscal reforms in the early 2000s boosted us from the 5-6% to 8% range.

Also, agriculture is no longer 20% of GDP - it was barely over 18% a couple of years ago, and falling due to the differential growth rates; the services and industry are growing 3-8% faster than agriculture in any given year. Agriculture is no longer even the largest component of rural economic output - services is.

[Neshant]

Agriculture in the future will be more prized than manufacturing industries even though we are conditioned to think of progress as being a shift away from agriculture towards manufacturing/service economy.

Agri has been a terrible place to be for the last 30 years with low prices and getting printed up foreign paper currency for produce. But this will not be the case going forward.

[Theo_Fidel]

Also, agriculture is no longer 20% of GDP - it was barely over 18% a couple of years ago, and falling due to the differential growth rates; the services and industry are growing 3-8% faster than agriculture in any given year. Agriculture is no longer even the largest component of rural economic output - services is.

Isn't inflation a form of growth as well. Meaning more money has to be sent to that sector.

As far as the structural change in investment here is a nice little graphic and blurb.

http://www.livemint.com/2010/02/2122190 ... the-I.html

The share of investment in India is now approaching that of China’s, which invested an average of 40.7% of its GDP in the five years ended 2008.

I don't think this is true. The latest China figures have investment at 55% or better

Interestingly, despite the lukewarm rate of growth of bank credit, growth in bank funding to infrastructure has been very high indeed—the Reserve Bank of India data show that for the year ended 20 November, the latest date for which the disaggregated numbers are available, loans for infrastructure increased by 47.2% on an annual basis.

When I add up those percentage rates for 2011-2012 - 55.5% + 38.2% + 10.3% it works out to 104% !!
How is that possible or is there some DDM effect going on here. Anyone?

[Theo_Fidel]

Agriculture in the future will be more prized than manufacturing industries even though we are conditioned to think of progress as being a shift away from agriculture towards manufacturing/service economy.

Agri has been a terrible place to be for the last 30 years with low prices and getting printed up foreign paper currency for produce. But this will not be the case going forward.

I don't think this can be true.

Agricultural inflation is due to the rising cost of inputs. Labor these days refuses to work without tractors, baling machines and mechanized threshers. Just this year the cost of pesticides has doubled due to Rice leaf mites in my area.

Actually the bureaucratic problems have improved a bit with computerization at the Kerala/TN border. It took me all of 35 minutes to get through in October. I even managed to find a private buyer for most of my product before I even got there. Even though the prices were not much higher it saved me a lot of stress.

I've still lost money this year. Most agriculture in India is simply not profitable.

The worst is yet to come.

The population is abandoning farming in huge droves. The young simply don't want anything to do with it anymore. Entire villages have moved out in my area. Large chunks of fields are simply being left barren as we are producing way more food than the market can bear.

Enough OT.

[Suraj]

Theo - the differential growth rates I mentioned are all real GDP growth rate for the respective sectors. For example, for the current fiscal agricultural growth is slated to be 0% or slightly negative, while services GDP will report a real growth rate around 9%; that significant differential means agriculture progressively shrinks as a percentage of overall GDP.

Thanks for posting the graph on investment on consumption - it clearly indicates the investment/GDP rising above 30% for the first time in 2004-05 and since remaining continuously north of 30%, as I mentioned previously.

[AjayKK]

What kind of inflation would you like?

http://www.dnaindia.com/money/comment_w ... ke_1350864

[rsingh]

Theo wrote

Agricultural inflation is due to the rising cost of inputs. Labor these days refuses to work without tractors, baling machines and mechanized threshers. Just this year the cost of pesticides has doubled due to Rice leaf mites in my area.

Actually the bureaucratic problems have improved a bit with computerization at the Kerala/TN border. It took me all of 35 minutes to get through in October. I even managed to find a private buyer for most of my product before I even got there. Even though the prices were not much higher it saved me a lot of stress.

I've still lost money this year. Most agriculture in India is simply not profitable.

The worst is yet to come.

The population is abandoning farming in huge droves. The young simply don't want anything to do with it anymore. Entire villages have moved out in my area. Large chunks of fields are simply being left barren as we are producing way more food than the market can bear.

Enough OT.

Theo, Tractors and other machines decrease your costs and not other way around. Guys in Haryana (school drop outs) are getting bumper harvests using these machines. These guys are not big landlords but earn enough to spend a week in Singapur ( diwali holidays). It seems somebody is "managing" your land in big way . Please post me the area where land is left barren and villages are empty..............it will be corrected within one month

[vijayk]

Deleted. The article has been posted in the US/geopolitical thread in the strat forum sometime ago.

[Theo_Fidel]

Theo, Tractors and other machines decrease your costs and not other way around.

I guess it helps that Haryana is right next to Delhi. But here in Nagercoil at the bottom of India there is no huge booming city.

Most farms here are 5 acres or less.

A typically team of 10-20 laborers can plant a 5 Acre farm here in 3 days flat. A tractor rents at Rs10,000-Rs15,000 a week, plus Petrol. You can do the math.

[CalvinH]

Theo, Tractors and other machines decrease your costs and not other way around.

I guess it helps that Haryana is right next to Delhi. But here in Nagercoil at the bottom of India there is no huge booming city.

Most farms here are 5 acres or less.

A typically team of 10-20 laborers can plant a 5 Acre farm here in 3 days flat. A tractor rents at Rs10,000-Rs15,000 a week, plus Petrol. You can do the math.

Theo ji is right. Haryana has a lot of advantages in terms of (and not limited too)
1. Ready market in nearby cities like Delhi including established mandis (markets) and facilities for transport.
2. Good soil quality which enables cash crops
3. Better yield due to good soil and availability of water

If the factors enabling good yield such as soil quality and water are not there than one needs large acreage to realise benefits of tractors and similar tools.

[Suraj]

States' finances show perceptible progress

On February 12, state governments together held close to Rs 101,461 crore ($22 billion) worth of 14-day treasury bills. Five years earlier, just before the Twelfth Finance Commission presented its report, that number was Rs 13,351 crore ($2.9 billion). Investment by states in 14-day treasury bills provides the closest measure of the cash available with states, pending spending.

And, if trends from Andhra Pradesh and Uttar Pradesh (the two states to have already presented their budget for 2010-11) are anything to go by, the fiscal health of states is going to improve during the next financial year as the economy revives (see graphic).

Besides, the Thirteenth Finance Commission, whose recommendations would be made public on Thursday, is expected to contribute to the cause through higher devolution.

“The economy is looking better, so the share in central taxes will go up; the pay commission is behind us, so bunching should not occur. Hopefully, things will improve,” said the finance secretary of a north Indian state.

During the past four years, rapid economic expansion, higher share of central taxes, conditional debt restructuring, interest rate relief and a shift to value-added tax helped improve the financial position. “One of the biggest changes seen in the last five years has been that states do not want to use the overdraft facility available to them,” says a government official who was closely associated with the last finance commission.

During the current financial year, based on budget estimates, states would report a revenue deficit of 0.5 per cent of the gross domestic product (GDP). In contrast, they had a surplus for three consecutive years. The gross fiscal deficit, too, is budgeted to rise to 3.2 per cent of GDP in 2009-10, compared with 2.6 per cent in the revised estimates for last year. States resorted to large borrowings, since the Centre, as part of the stimulus package, agreed to relax the ceiling on fiscal deficit to 4 per cent from 3.5 per cent.

Despite all this, a report on state finances released by the Reserve Bank of India yesterday said that over the past five years, there has been a compression in consolidated expenditure due to rationalisation of revenue expenditure, led by lower interest payments. As a result, the revenue expenditure to GDP ratio declined from an average level of 13.3 per cent during 2000-05 to 12.4 per cent during 2005-10.

External commercial borrowings decline 15.3% in Jan

Foreign currency loans by the Indian companies declined 15.3 per cent to $1.32 billion (Rs 6,100 crore) in January 2010 from $1.56 billion (Rs 7,176 crore) a year ago, according to data released by the Reserve Bank of India (RBI). The external commercial borrowings (ECBs) fell as overseas markets re-opened after the holiday season.

Generally, overseas borrowing activity slows in the month of December with the onset of holiday season in the western markets. In November 2009, foreign currency borrowings totalled $ 2.35 billion.

Indian companies have borrowed $15.16 billion from the overseas markets so far during the current financial year, as compared to $16.8 billion borrowed during the same period last year. Both figures seem pale in comparison to the $25.62 billion borrowed during the same period in 2007-08.

RBI has recently introduced changes in the procedure for ECBs. According to revised norms, loan arrangers will be able to make changes in the drawdown or repayment schedules, as long as the average maturity of the loan remains the same.

[Theo_Fidel]

http://www.freshplaza.com/news_detail.asp?id=59441

Prospects of a better rabi or winter crop and government’s measures on curbing rising prices have resulted in a declining trend in prices of potato, onions and pulses.

Onion prices in various markets across Nashik, a key hub, declined by a whopping 85% to Rs 700 per quintal on Tuesday against Rs 1300 per quintal three weeks back, largely due to entry of late kharif crop into the market.

According to department of consumer affairs data, onion prices in the last three months have declined in all major metros. Similarly in case of potatoes, retail prices have declined by more than 55% across all metros. The decline has been particularly steep in Delhi where prices have come down by a huge 111% to Rs 9 a kg against Rs 19 per kg three months back.

In case of pulses such as urad and masoor, retail prices in major cities have also started to come down significantly. In Bangalore, urad dal prices have declined by 45% to Rs 55 a kg on Tuesday from Rs 80 a kg three months back. In Delhi, masoor dal prices have come down by 16% to Rs 59 a kg from Rs 69 during the same period.

Looks like food inflation is easing a bit.

[Suraj]

Theo: the fall in food inflation is along expected lines - they were forecasted to moderate by March due to the higher than usual rabi crop sowings late last year. This should reflect as a healthy agricultural growth figure in Q4.

Note that Q3 GDP data is due on Friday (Feb 26th). Here's a Bloomberg estimate for the next fiscal year, starting April 2010, which also mentions the total quantum of the Indian stimulus measures - $162 billion, though they don't provide a breakdown:
India May Grow 8.2% Next Year

India’s economic growth may surpass 8 percent in the coming financial year, Finance Ministry projections showed, allowing scope for a reduction in stimulus measures that would help the nation restrain its debt burden.

“The economy has posted a remarkable recovery from the global recession,” according to the annual Economic Survey prepared by officials advising Finance Minister Pranab Mukherjee, released in New Delhi today. “The recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months.”

The challenge for Mukherjee is to unwind 7.5 trillion rupees ($162 billion) of fiscal stimulus and curb consumer-price inflation that’s the highest in the Asia-Pacific region, according to data compiled by Bloomberg. The payoff may be cheaper debt-financing costs and averting investor concerns at the sustainability of faster economic growth such as in China.

India must cut its debt to 68 percent of GDP by March 2015 from the current 82 percent, the ministry said, citing recommendations of the 13th Finance Commission, a government panel appointed to suggest a roadmap to reduce government debt.

“If the exit path is well articulated and well executed, the local-currency rating could be upgraded,” Moody’s Investors Service sovereign analyst Aninda Mitra said in a Feb. 19 interview. Moody’s ranks India’s rupee-denominated debt at Ba2, two levels below investment grade.

The traditional presentation of the economic survey the day before the budget:
Highlights of Economy Survey 2009-10

* Economy likely to grow by up to 8.75 per cent in 2010-11
* Full recovery; return to 9 per cent growth in 2011-12
* Broad recovery gives scope for gradual stimulus roll back
* High double-digit food inflation in 2009-10 major concern
* Signs of food inflation spreading to other sectors
* Farm & allied sector production falls 0.2% in 2009-10
* Need serious policy initiatives for 4% agriculture growth
* Moots direct food subsidy via food coupons to households
* Favours making available food in open mkt
* Favours monthly ration coupons usable anywhere for poor
* Gross fiscal deficit pegged at 6.5 pc of GDP in 2009-10
* India 10th largest gold holding nation at 557.7 tonnes
* Exports in April-December 2009 down 20.3 per cent
* Imports in April-December 2009 down 23.6 per cent
* Trade gap narrowed to USD 76.24 bn in April-December.
* 32.5% savings & 34.9% investment (of GDP in 2008-09) put India in league of world's fastest growing nations.
* Govt initiates steps to boost private investment in agri
* Wants credit available at reasonable rates on time for private sector to invest in agriculture
* Slowdown in infrastructure that began in 2007, arrested
* Domestic oil production to rise 11 per cent in 2009-10
* Gas output up 52.8 per cent to 50.2 billion cubic meters with RIL starting production
* India world's 2nd largest wireless network with 525.1 million mobile users
* Virtually every second Indian has access to phone
* Auction for 3G spectrum to provide existing and foreign players to bring in new technology and innovations.

[VinodTK]

Survey: India will beat China

[nachiket]

A more sustainable solution would be investing more in irrigation, storage and distribution channels, which will ensure lesser monsoon shocks, less wastage and greater economies of scale in distribution. Agriculture remains the most heavily politicized sector of economy, with the most intrusive government policies and populist patronage. As unglamourous as it may be, agricultural reforms hold the key to increasing annual Indian GDP growth from 7-8% to a sustained 10% or more in the next decade, just as fiscal reforms in the early 2000s boosted us from the 5-6% to 8% range.

Doing that will increase productivity and reduce inflation slowly in the long term. In the short term prices will continue to rise. The government has to be seen to be taking immediate measures to tackle inflation especially food inflation. Whether these measures actually have a beneficial effect or not it at least makes it less likely that the government will be voted out of power due to supposedly anti-poor policies.

[Theo_Fidel]

A more sustainable solution would be investing more in irrigation, storage and distribution channels, which will ensure lesser monsoon shocks, less wastage and greater economies of scale in distribution. Agriculture remains the most heavily politicized sector of economy, with the most intrusive government policies and populist patronage. As unglamourous as it may be, agricultural reforms hold the key to increasing annual Indian GDP growth from 7-8% to a sustained 10% or more in the next decade, just as fiscal reforms in the early 2000s boosted us from the 5-6% to 8% range.

Doing that will increase productivity and reduce inflation slowly in the long term. In the short term prices will continue to rise.

I'm not sure it is so simple to integrate the Agriculture sector into a modern economy.

The real problem is that the customer has no bearing capacity. So food items can not diversify into more processed products.

In my case it increases costs about 40%-50% to put my products into cold storage. But the customer is not ready to pay that premium. No one will buy a premium product around here. The only time it helps is if weather or other factor causes a huge drop in supply. Even then the customer restricts his/her consumption, switches to some other fruit, etc causing wastage.

I've mentioned this in passing before, but most watered areas have no down time in terms of agriculture. Because of our climate farmers can bring a product to market in 2 months flat in most areas. There is a reason we havn't had a famine in a while. We are producing way too much food, because we can. A lot of the losses are caused because of this. But the costs of the inputs still cause large chunks of our population to be out of the market.

[Suraj]

Third quarter GDP is out, registering a lower than expected 6.0% growth, due to -2.8% agricultural growth, and oddly enough -2.2% growth in social and personal services. Interestingly they are now reporting results in 2004-05 prices which is even more bizarre considering the IIP and inflation data are reported using 1993-94 base year.
Official 2009-10 Q3 GDP data: CSO
Q3 real GDP growth: 6.0%
Q3 nominal GDP growth: 11.9%
Q1-Q3 real GDP growth: 6.7%
Gross fixed capital formation: 33.2%
Private final consumption: 59.5%
Government final consumption : 11.2%

[RamaY]

Suraj-ji,

Would it be possible to have a separate thread on Indian Budget? Perhaps we can use this thread to track Indian federal as well as state budgets?

thanks

[Suraj]

Sure, as long as you are willing to work on keeping it going by collecting information and keep the discussions focussed.

[shravan]

India seen as potential buyer for IMF gold
25 Feb 2010, 0400 hrs IST, REUTERS

[RamaY]

Sure, as long as you are willing to work on keeping it going by collecting information and keep the discussions focussed.

Definitely. That is my objective, but I would like to make sure that it resonates with other BRFites. For example 2010 budget is ~$200B in size. If you add “net” addition by state budgets; it is definitely in $350B mark (2010 Andhra Pradesh budget has a net addition of ~$8-10B out of its ~$20+B budget).

I would like to track the overall investment by sector and see what projects are getting completed and discuss overall productivity.

I also would like to see if we can come up with alternative solutions to india’s problems by investing these budget allocations smartly. In other words, I would like create a planning commission think-tank in BRF.

[Suraj]

Go ahead, with just a couple of pieces of advice:
* the thread will survive on its own merits and on the enthusiasm of those driving and contributing to it (we have had budget threads in the past)
* vina will mock you mercilessly for the planning commission analogy

[RamaY]

Go ahead, with just a couple of pieces of advice:
* the thread will survive on its own merits and on the enthusiasm of those driving and contributing to it (we have had budget threads in the past)
* vina will mock you mercilessly for the planning commission analogy

In that case, let me do some groundwork. I will post my data and analysis in this thread. Once we have enough participation, then we will create a separate thread. We can move related posts into that threat any time. Thanks to the archiver tool.

[Muppalla]

Entire budget related e-book

http://drop.io/livemintebook/asset/budgetebook

[RamaY]

Thanks Muppala garu. I am trying to separate TRUE unplanned expenditure portion of the budget so we know how much it costs to Run the govt AS IS. Everything else is a PLANNED portion IMO. For example the defense budget has ~Rs 48000 towards capital expenditures and this can be planned over a period of say 5-10 years. It gives ~$100B fund to modernize the defense sector over next 10 years (key components of the plan being: C4, BMD, Strategic Deterrence, IA, IAF1, IAF2, IN, Long-range Deployment, Mountain Divisions, Next-gen soldier etc., each containing a $10B budget).

2010 budget has nearly 95000 crores allocated for farm subsidies. But it doesn't know/specify the effectiveness of the subsidies.

I proposed this Subsidy Structure in July 2009. My program achieves the following:

- Farm Insurance Program (Rs 48,000 Crores): ~1 Crore families receive anywhere between Rs 24000 to Rs 48000 annual subsidies based on their arable land ownership (1-4 Acres). Assuming a 70% loan recollection, either in cash or in farm products, ~33,000 crores or this money will come back to GOI, to fund next year subsidies.

- Farm Development & Employment Scheme (Rs 60,000 Crores): ~1 Crore families will be allocated 5 Acres of non-agricultural land and Rs 60,000 annual grant for 5 years. This would create employment for 10-20 million non-skilled in agri-sector. Adding to that the eco system that is developed around this program.

[vijayk]

http://dealbook.blogs.nytimes.com/2010/ ... ions-rise/

As India Sells Assets, Political Tensions Rise

In the last 10 months, India has raised $3.5 billion selling off pieces of state-run companies, more than such sales brought in during the previous four years.

Overburdened with debt, New Delhi desperately needs the cash, in part to finance development projects like roads, schools and hospitals that may help sustain the country’s impressive growth. But there are serious doubts about whether India can maintain the trend, or accelerate it, as economists have urged, The New York Times’s Vikas Bajaj writes.

After skirting the worst of the global financial crisis, Indian leaders are facing perhaps an even greater challenge: reducing a large fiscal deficit while raising more money to develop the country. Economists say India must speed up a series of long-pending economic reforms — in particular, selling large stakes in state-owned companies.

Economists’ arguments have taken on added weight because India’s efforts to bolster growth and reduce endemic poverty are running up against daunting fiscal realities. With government debt already at 80 percent of G.D.P., policy makers cannot easily borrow more money without significantly driving up interest rates and making it more difficult for the private sector to borrow.

The large debt has not been subject to the kind of criticism and scrutiny that has been directed at Greece and other European countries because India owes more than 90 percent of its debt to its own people. By contrast, more than 80 percent of Greek debt is owed to foreigners.

India’s federal and state governments are already spending more money on interest payments, for instance, than on the country’s armed forces and social services like education and health care.

“We are committed to bringing it down in the next two years {Write it on the wall. NEXT YEAR },” Sunil Mitra, a senior Finance Ministry official, said of the deficit. “If that is to happen you must have resources. Divestment has to be one of them.”

[Prem]

Gandhinagar: It's official now. There is no economic slowdown in Gujarat. According to a government report, in 2009-10 the state registered 12.99% Gross State Domestic Product (GSDP) growth, which is more than the target of 11.2% set by the Planning Commission under the 11th Five-Year Plan (2007-12).
In fact, as Union finance minister announced in the budget on Friday, India’s likely GDP growth in 2009-10 is 7.2%. As for Gujarat, encouraged by its GSDP, the state now plans to achieve 14% and 15% growth in 2010-11 and 2011-12 respectively."The state has a target to achieve 11.2% growth during the 11th Five-Year Plan, as against 9% set for the nation. The state's economy at current prices has recorded an annualised growth rate of 15.04 % for the past six years (2004-05 to 2009-10), one of the highest in the country.GSDP at current prices in 2009-10 is estimated at Rs3,81,028 crore as against Rs3,37,217 crore in 2008-09, showing an increase of 13 per cent," the state government's statement under the Gujarat Fiscal Responsibility Act (GFRA), 2005, for 2009-10 says.

http://www.dnaindia.com/india/report_gu ... -s_1353534

[vera_k]

^^^

The math doesn't add up. More likely that Gujarat GDP will be between $300-$400 billion in 2020, which by itself would be a pretty creditable achievement. It may reach 1/2 trillion assuming a 20% currency appreciation and 20% increase due to change in the base year similar to PRC.

[Muppalla]

An alternative view about budget 2010

http://www.editorialjunction.com/?p=4071&print=1

[Muppalla]

And yet another pro-farmer budget

The real heroes of India's success story were our farmers. Through their hard work, they ensured “food security” for the country.— Pranab Mukherjee, interim budget speech Feb. 16, 2009

This Budget belongs to 'Aam Aadmi'. It belongs to the farmer, the agriculturist, the entrepreneur and the investor. — Pranab Mukherjee, budget speech, Feb. 26, 2010

Gee! Another pro-farmer budget. Going by the media, every budget this past decade has been one. Editorials across ten years have always found “a new thrust” to agriculture that spelt “good news” for the farmer. Rarely mentioned are the massive subsidies, now larger than ever before, for the Corporate sector. This year alone, the budget gifts over Rs. 500,000 crore in write-offs, direct and indirect, to the Big Boys. That's Rs. 57 crore every single hour on average — almost a crore a minute. Beating last year's Rs. 30 crore an hour by more than 70 per cent. (See Tables 5 and 12 of the “Statement of Revenue Foregone” section of the budget.)

I diagree with the tone of this article. In my view, the earlier Indian agriculture is corporatized the better for India. It can be kept with highest protectionism and not involve global onslaught. However, the current model of leaving to mid level and low level farmers is not sustainable. The small farmer simply cannot raise the capital and not in a postion to take risks. I beleive we need very big farmers and farm lad leased to Indian companies. That way there is risk protection and also productivity.

[RamaY]

I diagree with the tone of this article. In my view, the earlier Indian agriculture is corporatized the better for India. It can be kept with highest protectionism and not involve global onslaught. However, the current model of leaving to mid level and low level farmers is not sustainable. The small farmer simply cannot raise the capital and not in a postion to take risks. I beleive we need very big farmers and farm lad leased to Indian companies. That way there is risk protection and also productivity.

Muppala-garu,

I might agree with your opinion w.r.t that article, but -

If we corporatize agriculture where can we employ millions of un-skilled labor from that sector? Most of them are in 30-60 age group and are very difficult to retrain. I believe the need of the hour is not subsidies but agri-insurance type program where govt ensures that the millions of small farmers (<5 Acres owners in highly irrigated areas and <10 acres owners in high-lands) receive assured incomes out of their crops.

There are multiple aspects to farm-industry and food-security in my opinion.

- Food Security
- Employment
- Renewable water resources
- Environment Impact
- Culture & Heritage (Man-Nature equilibriam)
- Energy Security (Bio-fuels)
- Renewable timber industry
- Forestry and Flora Founa

Our agricultural policy should encompass all the above items (not exclusive list) IMHO. Profit Optimization, the fundamental principle of market economy brings this strategic area a tactical objective and breeds greed.

Appreciate your comments.

[Muppalla]

If we corporatize agriculture where can we employ millions of un-skilled labor from that sector? Most of them are in 30-60 age group and are very difficult to retrain. I believe the need of the hour is not subsidies but agri-insurance type program where govt ensures that the millions of small farmers (<5 Acres owners in highly irrigated areas and <10 acres owners in high-lands) receive assured incomes out of their crops.

In my opinion it is impossible. Water+power+risk are the costs of the farmer. The returns again are dependent upon the market access for the farmer to be self sufficient. It is impossible for the Government to ensure all these things. Corruption or no-corruption, I do not see it is practical in the long run. A small farmer, without any help is not even in a position to earn something equivalant to what a Jr.Clerk in Government is able to earn just from salary. Currently small and marginal farmers are at the mercy of many all the way. This is true even in water-fed agricultural areas.

Regarding employment that you are referring, even the corporates have to employ them to do the agriculture. The companies will take the land on lease. The farmer gets assured lease money. Leasing also become formal in the rural sector. Modern farming may reduce the employment but I predict a rural agro-industries in the new setup. A lot of supply chain industires. I think there will be a lot of changes which will in the long run can help.

I believe, government is looking in that direction for a second green revolution. However, I personally believe going towards global players when every county protects agriculture will be utter disaster. If we can do "Indian company only" corporatization, we will be doing good.

[vera_k]

The number of people directly involved in farming has to be gradually decreased over time to something like 5% (or even less) of the population in order to industrialise and become a developed country. Mechanisation and food processing will have to be mainstays in order to get there.

[krishnan]

For that to happen you need to increase farm production. You cant expect 5% to support 95 % population

[Suraj]

If we corporatize agriculture where can we employ millions of un-skilled labor from that sector? Most of them are in 30-60 age group and are very difficult to retrain. I believe the need of the hour is not subsidies but agri-insurance type program where govt ensures that the millions of small farmers (<5 Acres owners in highly irrigated areas and <10 acres owners in high-lands) receive assured incomes out of their crops.

There are multiple aspects to farm-industry and food-security in my opinion.

- Food Security
- Employment
- Renewable water resources
- Environment Impact
- Culture & Heritage (Man-Nature equilibriam)
- Energy Security (Bio-fuels)
- Renewable timber industry
- Forestry and Flora Founa

Agriculture as an economic activity, and rural areas as a region, are not capable of supporting a large population. Like any other industry, economies of scale matter. Paying small farmers to raise crops will ensure that neither #1 (food security) nor #2 (employment) will be achieved. What you'll instead have are legions of small unproductive farms producing just enough (after subsidies) to keep the farmer solvent. Any systemic shocks, whether they be bad monsoons, or a crop disease, will send all those people underwater, in the process affecting items #1 and #2. This is like the old Great Leap Forward efforts to increase steel production by having everyone run backyard furnaces. Not going to work.

It is true that millions will have to be retrained. It is a very difficult exercise, but there's no way around it. Actions like small farmer insurance are just dole measures that will punt the problem into the future. By doing so, we'll just be copying what the western countries are doing about their own systemic issues, pushing the moment of reckoning into the future.

The first step in resolving this matter is to recognize the magnitude of the problem, and understand that millions of people *will* have to be urbanized, working in services and industry, not agriculture. This requires a significant amount of further reforms in a range of areas, from the employment act to environmental clearance related ones. Many low hanging fruits can be reaped through de-politicization of the agricultural sector, and enabling investment in storage and distribution chains, but this will have to be together with measures to move most of the agricultural workforce into other industries.

[vera_k]

For that to happen you need to increase farm production. You cant expect 5% to support 95 % population

Farm production has to increase as consumption increases, not because 5% can't support 95%. That will happen, over an extended period of time, similar to the process in the United States, because that is the only way to free up people to take on more value added tasks.

[Suraj]

Indian manufacturing output grows most in 1.5 years in February

India’s manufacturing output climbed the most in 1 1/2 years in February, vindicating Finance Minister Pranab Mukherjee’s decision to raise taxes to prevent excessive demand from fueling inflation.

HSBC Holdings Plc and Markit Economics’ Purchasing Managers’ Index rose to 58.5 last month from 57.6 in January, according to a report released today. That was the 11th monthly reading above 50, which indicates a gain in factory production.

Finance Minister Mukherjee in his Feb. 26 budget said India has weathered the worst global economic crisis since the 1990s, reversing some of the tax cuts initiated last year. Faster economic growth may fuel inflation and prompt Reserve Bank of India Governor Duvvuri Subbarao to raise interest rates.

RamaY: Do you plan to summarize the budget statements here ? So far I have no posted anything on it, since you mentioned your intention to do so.

[kumarn]

RIYADH: India will grow at the rate of 9 to 10 per cent for the next 25 years, Prime Minister Manmohan Singh said here Monday.

[RamaY]

Regarding employment that you are referring, even the corporates have to employ them to do the agriculture. The companies will take the land on lease. The farmer gets assured lease money. Leasing also become formal in the rural sector. Modern farming may reduce the employment but I predict a rural agro-industries in the new setup. A lot of supply chain industires. I think there will be a lot of changes which will in the long run can help.

I like this idea and thought about it. I have doubts on the long-term effectivenss of corporate-farming model, though. I believe that governments cannot absolve themselves from the responsibility of basic life needs - Food, education, health. Efficiency for efficiency sake is not useful for humanity and environment, in my opinion.

Corporizate-farming will definitely bring modernization and associated food processing industry. But will it really end farm subsidy programs? We see this phenomenon in west to some extent. Can the western (for example USA) agri-industry survive without Govt. subsidies?

Taxpayers sent $13.4 billion in farm subsidies to more than 1.4 million recipients in 2006, according to a new update of the Environmental Working Group's Farm Subsidy Database website. Source

Other issues are -
1. What would have been the outcome of GM-brinjal Vs natural-brinjal issue in a corporate-agri world?
2. What would be the situation w.r.t water sources and reserves?