Monday, March 3, 2008

Financial Planning Wisdom: Give man a fish.. You feed him for a day .. Teach him fishing you feed him for lifetime.

Financial Planning Wisdom: Give man a fish.. You feed him for a day .. Teach him fishing you feed him for lifetime.

Debt waivers are like giving man a fish . It feeds him for a day. On the other way, increasing economic productivity is teaching a man, fishing . With that , he could be feed for lifetime.

Growth of debt leads to lack of economic growth. They are inversely proportional. On the other way, lack of economic growth or productivity will result to indebtedness.

Debt of farmers is a result of rising costs of agricultural inputs and falling prices of agricultural produce. Both the rising costs of production and decline in farm prices are certain outcomes of trade liberalization and economic reform policies driven by agribusiness corporations.

1. Deregulation of Inputs

Deregulation of the input sector, the entry of seed MNC’s, and the creation of seed monopolies has increased the costs of inputs and the risks of crop failure. In 2002, farmers of Bihar lost Rs. 400 crore due to the failure of an MNC’s hybrid corn. Farmers of Andhra Pradesh and other States ran into losses of Rs. 100 crore due to the failure of Cotton Seed supplied at Rs. 300 / kg by public sector farms, which costs them Rs. 1600/kg while they bought them from an MNC. In spite of the high costs, that MNC’s Cotton performed miserably in the first commercial planting in 2002. The deregulation of the input sector has allowed seed MNC's into Indian agriculture for the first time.

In India's history, our seed security and sovereignty was based on the time tested and adapted farmers varieties, which accounted for 80% of the seed supply. In addition, these varieties tested in the public sector seed farms for our diverse agro climatic zones are appropriate for our socio-economic conditions.

MNC's have been selling untested, ill adapted, high cost seeds which need high cost chemicals and intensive irrigation and is practically unfit for Indian Environment.

II. Deregulation of Imports leading to failing prices of agricultural produce

The second leak in the farmers income is the collapse in farm prices due to deregulation of trade. This leading to dumping activities from developed countries. The level of dumping has increased since 1995 when the W.T.O came into force, even though the proclaimed aim of W.T.O is to "reduce distortions in trade." While the full cost of U.S wheat in 2001 was $ 6.24/bushel, its export price is $3.5/bushel. In the case of soybean, the cost was $6.98/bushel; the export price was $4.93/bushel. For maize, the full coast was $3.47/bushel; export price was $2.28/bushel. The cost of production of rice was $18.66/bushel and it was sold internationally at 14.55/bushel. From 1995 to 2001 dumping jumped from 23% to 44% in the case of wheat, 9% to 29% in the case of soybeans, 11% to 33% in the case of maize, from 17% to 57% in the case of cotton. Removing of Quantative Restriction in this dumping activity made the Indian farmer vulnerable to the distortion of international prices. Annual looses of farmers cross Rs. 1.2 trillion/ year.

Well 60,000 crore is a big money, as debt waiver. However, the losses are bigger than that. The question is how many fishes we can give and how far it will solve the real problem.

Isn’t that making them economically productive, and concentrating in their growth (teaching them fishing), is a better option?


Anthony said...

In the U.K., farmers are seen as custodians of the land. They are given tax exemptions and other sops for that purpose, and even then much of the UK’s agricultural activity is only marginally sustainable.

In India, if the agricultural sector is not stabilized, we will see uncontrolled migration to urban centers that are already struggling with inadequate infrastructure.

In 5-10 years, manufacturing in India will experience massive growth and have the capacity to absorb an influx of displaced agricultural workers.

Until then, PC’s initiatives, while not as comprehensive or system reforming as many would like, have provided a little breathing room and given attention to a sector that has been increasingly neglected since the Gujral administration, when PC first took the helm at the Finance Ministry.

Anthony Mitchell

Joydip Chakladar said...

Anthony , I agree with you that PC's intiative has provided a breathing room and that's what I pointed out, when I talked about giving fish to a person and feeding for a day.

However, if we really think, that employment, in the manufacturing sector, is the long term solution to handle the non-growth issues on agriculture sector , then the effect of the non-growth will not be limited to the farmers , but will come to normal households where we will encounter food security issues.

madhav said...

But look at the fact, why the system of loan to the farmers is created and how.

What I personally feel that, integration of farm sector in the economy on reasonable terms is long term solution.

Need is to organize the farmers if they need to have bargaining power in process of taking reasonable position in the total economy.

The problem of the farmers started the day, some one with good brain, tens of thousands of years back, made to believe the others fellows surrounding him, about the benefits of changing from "hunter / gatherer way of getting food for living" to the "agriculture way of getting food for living"

They divided themselves in to
The one who grows the food
The one who prepares the food
The one who eats the food
In the hunter / gatherer mode getting food for living it was the nature who use to
Grows the food
Prepares the food (fruits etc.)
But the change from the hunter / gatherer to the agriculture to get the food for living, has created the different classes in the human society and created the social and economic pyramid

And then how and why did people take the position at different layers in the pyramid. Listing some of the reasons,
· People took it by own choice
· They are made to believe that they are born for that
· Creating social customs / laws etc.
· Using force
· Cheating believe him
· Emotional blackmail.
If you look at the position of the people involved in the following activity
Grows the food
Prepares the food
A typical person who does the farming and women who cooks the food for family.
We confine farmers in the place away from the cities, generally where the facilities available to them are far inferior compared to what they are available in the cities.
Similarly we confine women to the place called kitchen.
In both the cases, they get the deal far inferior.
Then why does the human accepts the situation where he is? Why he does not try to break the shell he is locked in?
If any chance is available to get free they will leave the position and take up better position at top.
Yes he does? Look at the change in the India itself, no. of people migrating to the cities, women taking up jobs.
If everybody goes to work, then who will cook? Nobody and everybody go for hotel to eat.
Those left behind, most of them are doing the job halfheartedly.
So giving loans to the farmers or clearing of the past loans will not create much effect on the situation.
Unless and until we give better prices to the farm products the farmer will not have the purchasing power to match the lifestyle of the people in the cities.
Apart from this, reduction in the physical labor that farmer need to put in the farming activity required to be reduced.
Both of these measure will rise the price the people pay for the food.
Increase prices of food will reduce the cash available for the other spending.
Reduction in the spending by customers on non food will reduce the market of the non food items.
Reduction in the market of the non food will reduce the industrial output, resulting in cascading effects and finally industrial slow down.
Leads to the fall in the of share prices.
Slowdown of the of financial market.
So where does it all end.
Its balancing act that economist has to play between food and non food sector.
Both sectors should grow proportionately, that the real solution.