09/12/08
01/12/08
Decline in Industry GDP by half-Only hope of revival is higher growth in Agri Sector
Growth rate of Agriculture GDP declined to2.9% in the first half year up to Sep 2008 from 4.5% during the same period last year.The PM’s Economic council predicted annual growth of 2% in Agri GDP. However it is predicted that Agri GDP growth would be 4.0%.Construction sector did better at a growth rate of 10.5% compared to 9.75 % during comparable
Agri GDP, at constant prices, for the half year ending Sep 08 was Rs 2, 38,000 crore where as manufacturing & electricity, gas and water supply GDP for the same period was Rs 2, 76,000 crore. Growth rate of GDP of manufacturing sector fell sharply by half to 5.3% from 10.1% and that of electricity, gas and water supply decreased by more than to 3.1% from 7.4%.Yet credit off take of industry increased by Rs 60,400(from Mar 08 to Aug 08), more than 50% of the incremental credit, while credit to agricultural sector actually decreased by Rs 11,000 (minus 10%) crore during the same period. The ratio of agricultural credit to agricultural GDP was only 33 per cent at end-March 2007 where as the ratio of industrial credit to industrial GDP was a whopping 94%. Despite such high credit increase to industry, the sector’s growth rate was reduced by half, and yet industry is crying for more money. In fact RBI, at the behest of Finance Ministry, did increase liquidity by a whopping sum of Rs 1, 80,000 crore in October 08. Government pleaded with the industry to cut the prices of their goods to enable people to buy their products, but industry refused and made a counter demand to cut interest rates, dilute prudential norms and give more credit to them. This response of a sector is akin to having the cake (read money) and eating it too (read absorbing like a sponge without corresponding increase in production). Credit to farm sector has decreased and their voice-less complaints for a share of 18% in bank credit are going unheeded. If farm sector is given direct finance of 8% invest finance and 10% of crop loans, the agri GDP growth rate of 4% can easily surpassed and this sector will be the growth driver in this period of industrial slowdown.
The above data does not reflect the developments since October and adverse economic impact of terrorist attacks on Mumbai In November. The last two months have seen a sharp contraction in economic activity as a direct consequence of the global credit crunch. The coming slowdown will specially manifest itself in the ‘trade, hotels, transport and communication’ sub-sector, which grew by 10.8 per cent in July-September, on top of 11 per cent during the same quarter of last year. Government economists however are optimistic about growth in the second half. But CMIE has said that the industrial output is expected to grow by 6.3 per cent in FY'09 as against its earlier estimate of 8.3 per cent. "Sharp downward revisions in forecasts of electricity, textiles, cement, commercial vehicles, machinery, fertilisers, crude oil, petroleum products, man-made fibres and PVC pipes and tubes have pulled down our forecast for overall industrial production growth from 8.3 per cent to 6.3 per cent." However Prime Minister, who has taken over the portfolio of Finance, expressed confidence that despite economic recession and the difficult situation in western countries, India's growth rate would be maintained at around 7.5 per cent in 2008-09.
Decline in growth rate in AP too
A P, which registered a record growth rate of 10.63 % last year far surpassing the national average, is likely to close the year at 8%. The forecasts for agricultural and allied sectors too would come down. The agriculture sector (barring animal husbandry and fisheries segments) alone grew at 10 % last year. “Huge expenditure on irrigation facilities and expansion of credit base from Rs 16,000 crore in 2004-05 to Rs 43,000 crore helped the sector out-beat the national average. Animal husbandry and fisheries segments contributed to 40 %to the total agriculture sector against 25 % nationally, Govt. spokesman said.
What different Agencies predict about Prospects of Indian Economy?
ICRIER: India would have grown 7.5 per cent this year (a slowdown from 9 per cent in 2007-08), had the global crisis not occurred. The global crisis is likely to bring India’s growth rate to below 6% in 2008-09. With the first half GDP growth rate 7.8%, this implies a sharp slowdown in the next two quarters. In the first half of next year, the economy would have grown below 7% in the absence of the external crisis. The global crisis may reduce Indian growth rate to as low as less than 4 % in 2009-10.
OECD: Growth has continued to slacken to under 8% by the second quarter of 2008. Inflation is high, driven by commodity prices, but the peak appears to have passed. The current account deficit has risen substantially and there is downward pressure on the exchange rate. The economy is projected to slow further over the next year and to recover in tandem with the world economy in 2010.Unchecked fiscal spending during the expansion has left the Indian authorities with little room for manoeuvre in the ongoing slowdown. At the same time, foreign institutions have become more reluctant to invest in India. A period of fiscal retrenchment (restraint) seems desirable, focused on making government subsidies available only to those in real need.
NOMURA-Japan: India's economic growth will start falling sharply from the fourth quarter of 2008 mainly due to a drop in investments, demand and exports. Potential fallout from last week's terror attacks in Mumbai is an added "downside risk. Nomura also cut its estimate for India's gross domestic product growth in 2008/09 to 6.8 per cent from 7.2 per cent, and expects 2009/10 GDP growth to slow to 5.3 percent from its earlier estimate of 6.9 percent, according to the note.
There are increasing signs of non-linear economic effects: vicious negative spirals from falling asset prices, sagging confidence, rising job losses, tightening lending standards and weakening demand, as well as increasing multiplier effects on domestic demand from the slump in exports. "We forecast inflation to ease sharply due to falling commodity prices and rising economic slack, and consequently expect the RBI to embark on an aggressive rate-cutting cycle,”
Increase in Fiscal Deficit
As of Oct 08, With the lower tax collections this fiscal, the Centre’s fiscal deficit has shot up to Rs 1,17,070 crore till October 2008, which is 87.8% of the full-year target. It was a little over half its full fiscal target at 54.5% a year ago. Revenue deficit too has surpassed the full year target of Rs 55,184 crore at 157.7% to amount to Rs 87,027 crore at October end this year. The Centre’s revenue deficit was much lower at 80.5% of the Budget estimate (BE) in October 2007.
Gross tax revenue growth slowed to 20.3% for April-October from a year ago.
Dip in Exports and Hike in Imports
India’s exports in October, 2008 registered a dip of 12.1 per cent and stood at $12.82 billion, as against $14.58 billion in the same month last year, when overseas sales of Indian goods had risen by nearly 50 per cent. In rupee terms, India’s export registered a growth of 8.2 per cent and stood at Rs 62,387 crore, as against Rs 57,641 crore in the same month last year. Exports during April to October period stood at $107.8 billion as against $87.14 billion in the same period last year, registering an increase of 23.7 per cent.
Imports during the month under consideration increased 10.6 per cent and stood at $23.36 billion, as compared to $21.12 billion in the corresponding month of 2007. With imports outpacing exports, the trade deficit grew by 61.25 per cent to $10.53 billion, compared to $6.53 billion in the month.
All the above indicators point toward slow down in industrial output. The one ray of hope is Agri GDP growth of 4%.In fact the growth rate of Agri sector could be much more if public investment in irrigation& rural power supply, Bank direct loaning to farm sector are doubled in the next three years and research & development and extension efforts are intensified.
Growth rate of Agriculture GDP declined to2.9% in the first half year up to Sep 2008 from 4.5% during the same period last year.The PM’s Economic council predicted annual growth of 2% in Agri GDP. However it is predicted that Agri GDP growth would be 4.0%.Construction sector did better at a growth rate of 10.5% compared to 9.75 % during comparable
Agri GDP, at constant prices, for the half year ending Sep 08 was Rs 2, 38,000 crore where as manufacturing & electricity, gas and water supply GDP for the same period was Rs 2, 76,000 crore. Growth rate of GDP of manufacturing sector fell sharply by half to 5.3% from 10.1% and that of electricity, gas and water supply decreased by more than to 3.1% from 7.4%.Yet credit off take of industry increased by Rs 60,400(from Mar 08 to Aug 08), more than 50% of the incremental credit, while credit to agricultural sector actually decreased by Rs 11,000 (minus 10%) crore during the same period. The ratio of agricultural credit to agricultural GDP was only 33 per cent at end-March 2007 where as the ratio of industrial credit to industrial GDP was a whopping 94%. Despite such high credit increase to industry, the sector’s growth rate was reduced by half, and yet industry is crying for more money. In fact RBI, at the behest of Finance Ministry, did increase liquidity by a whopping sum of Rs 1, 80,000 crore in October 08. Government pleaded with the industry to cut the prices of their goods to enable people to buy their products, but industry refused and made a counter demand to cut interest rates, dilute prudential norms and give more credit to them. This response of a sector is akin to having the cake (read money) and eating it too (read absorbing like a sponge without corresponding increase in production). Credit to farm sector has decreased and their voice-less complaints for a share of 18% in bank credit are going unheeded. If farm sector is given direct finance of 8% invest finance and 10% of crop loans, the agri GDP growth rate of 4% can easily surpassed and this sector will be the growth driver in this period of industrial slowdown.
The above data does not reflect the developments since October and adverse economic impact of terrorist attacks on Mumbai In November. The last two months have seen a sharp contraction in economic activity as a direct consequence of the global credit crunch. The coming slowdown will specially manifest itself in the ‘trade, hotels, transport and communication’ sub-sector, which grew by 10.8 per cent in July-September, on top of 11 per cent during the same quarter of last year. Government economists however are optimistic about growth in the second half. But CMIE has said that the industrial output is expected to grow by 6.3 per cent in FY'09 as against its earlier estimate of 8.3 per cent. "Sharp downward revisions in forecasts of electricity, textiles, cement, commercial vehicles, machinery, fertilisers, crude oil, petroleum products, man-made fibres and PVC pipes and tubes have pulled down our forecast for overall industrial production growth from 8.3 per cent to 6.3 per cent." However Prime Minister, who has taken over the portfolio of Finance, expressed confidence that despite economic recession and the difficult situation in western countries, India's growth rate would be maintained at around 7.5 per cent in 2008-09.
Decline in growth rate in AP too
A P, which registered a record growth rate of 10.63 % last year far surpassing the national average, is likely to close the year at 8%. The forecasts for agricultural and allied sectors too would come down. The agriculture sector (barring animal husbandry and fisheries segments) alone grew at 10 % last year. “Huge expenditure on irrigation facilities and expansion of credit base from Rs 16,000 crore in 2004-05 to Rs 43,000 crore helped the sector out-beat the national average. Animal husbandry and fisheries segments contributed to 40 %to the total agriculture sector against 25 % nationally, Govt. spokesman said.
What different Agencies predict about Prospects of Indian Economy?
ICRIER: India would have grown 7.5 per cent this year (a slowdown from 9 per cent in 2007-08), had the global crisis not occurred. The global crisis is likely to bring India’s growth rate to below 6% in 2008-09. With the first half GDP growth rate 7.8%, this implies a sharp slowdown in the next two quarters. In the first half of next year, the economy would have grown below 7% in the absence of the external crisis. The global crisis may reduce Indian growth rate to as low as less than 4 % in 2009-10.
OECD: Growth has continued to slacken to under 8% by the second quarter of 2008. Inflation is high, driven by commodity prices, but the peak appears to have passed. The current account deficit has risen substantially and there is downward pressure on the exchange rate. The economy is projected to slow further over the next year and to recover in tandem with the world economy in 2010.Unchecked fiscal spending during the expansion has left the Indian authorities with little room for manoeuvre in the ongoing slowdown. At the same time, foreign institutions have become more reluctant to invest in India. A period of fiscal retrenchment (restraint) seems desirable, focused on making government subsidies available only to those in real need.
NOMURA-Japan: India's economic growth will start falling sharply from the fourth quarter of 2008 mainly due to a drop in investments, demand and exports. Potential fallout from last week's terror attacks in Mumbai is an added "downside risk. Nomura also cut its estimate for India's gross domestic product growth in 2008/09 to 6.8 per cent from 7.2 per cent, and expects 2009/10 GDP growth to slow to 5.3 percent from its earlier estimate of 6.9 percent, according to the note.
There are increasing signs of non-linear economic effects: vicious negative spirals from falling asset prices, sagging confidence, rising job losses, tightening lending standards and weakening demand, as well as increasing multiplier effects on domestic demand from the slump in exports. "We forecast inflation to ease sharply due to falling commodity prices and rising economic slack, and consequently expect the RBI to embark on an aggressive rate-cutting cycle,”
Increase in Fiscal Deficit
As of Oct 08, With the lower tax collections this fiscal, the Centre’s fiscal deficit has shot up to Rs 1,17,070 crore till October 2008, which is 87.8% of the full-year target. It was a little over half its full fiscal target at 54.5% a year ago. Revenue deficit too has surpassed the full year target of Rs 55,184 crore at 157.7% to amount to Rs 87,027 crore at October end this year. The Centre’s revenue deficit was much lower at 80.5% of the Budget estimate (BE) in October 2007.
Gross tax revenue growth slowed to 20.3% for April-October from a year ago.
Dip in Exports and Hike in Imports
India’s exports in October, 2008 registered a dip of 12.1 per cent and stood at $12.82 billion, as against $14.58 billion in the same month last year, when overseas sales of Indian goods had risen by nearly 50 per cent. In rupee terms, India’s export registered a growth of 8.2 per cent and stood at Rs 62,387 crore, as against Rs 57,641 crore in the same month last year. Exports during April to October period stood at $107.8 billion as against $87.14 billion in the same period last year, registering an increase of 23.7 per cent.
Imports during the month under consideration increased 10.6 per cent and stood at $23.36 billion, as compared to $21.12 billion in the corresponding month of 2007. With imports outpacing exports, the trade deficit grew by 61.25 per cent to $10.53 billion, compared to $6.53 billion in the month.
All the above indicators point toward slow down in industrial output. The one ray of hope is Agri GDP growth of 4%.In fact the growth rate of Agri sector could be much more if public investment in irrigation& rural power supply, Bank direct loaning to farm sector are doubled in the next three years and research & development and extension efforts are intensified.
19/11/08
NO PLACE FOR AGRICULTURAL ISSUES IN THE INDIA ECONOMIC SUMMIT- 2008, CONVENED BY CII!
In the three day India Economic Summit which concluded on the 18th Dec 2008, the F M urged industries to cut prices, but the industrialists refused in a chorus; instead they demanded cut in interest rates and taxes and more bank loans. The Economic Summit would appear to be of the Industrialists, by the Industrialists and for the Industrialists.
Every thing under the sun is discussed in the Economic Summit, except problems facing agriculture which were highlighted by the World Economic Forum, such as: PRESSURE ON LAND and WATER, SLOW PROGRESS IN PRODUCTIVITY, RURAL URBAN DISPARITIES where pointed reference was made that ” India’s economic growth is not benefiting rural populations as much as those living in urban areas. Rural communities are most disadvantaged when it comes to infrastructure, education, sanitation and healthcare”.
These problems should have been at the centre stage of Economic Summit discussions. But unfortunately none of the eminent speakers touched on these problems even in passing. Thus agricultural issues were ignored in the economic summit also. Rural infra development is woefully lagging behind, pressure on land and water remain unsolved. Rural/ Urban economic disparities continue to widen and the Summit failed to address these pressing problems being faced by 70% of the population and the entire focus was on cutting interest rates and taxes to revive industrial growth.
‘A review by the Planning Commission is reported to have found that barring rural telephony and housing, all other sectors chosen for focused attention under the Rs 1.76 lakh crore five-year (2005-09) rural infrastructure programme are lagging behind the set targets. Notably, the situation is particularly dismal in key areas of irrigation, rural roads and rural electrification, though it is below par also in the provision of safe drinking water. Sadly, in the first four years, only one-third of the target for rural connectivity and electrification, vital for inclusive growth, could be attained. Worse still, the progress was an abysmal 10 per cent in the case of electric supply to the below-poverty-line households. The achievement in critical areas of irrigation and potable water supply, too, was far from satisfactory, being 50 per cent and 60 per cent, respectively. There is, obviously, no way that such huge backlogs in these sectors can be made up in the last year, especially considering that the funding for many of these programmes has shrunk this year in real terms.’ B.S-'Missing the mark again'-19-11-08
Can industry grow when agriculture and rural Bharath are languishing? Can they ignore 70% consumers who are in rural Bharath and still revive industrial growth? This lopsided priority is continuing despite tall claims of inclusive growth.
WHITHER INCLUSIVE GROWTH WHEN 70% OF POPULATION DEPENDENT ON AGRICULTURE IS LANGUSHING?
High time to realign our priorities by developing rural infrastructure and give a big boost to rural economy.
“EVERY THING ELSE CAN WAIT BUT NOT AGRICULTURE” Nehru
In the three day India Economic Summit which concluded on the 18th Dec 2008, the F M urged industries to cut prices, but the industrialists refused in a chorus; instead they demanded cut in interest rates and taxes and more bank loans. The Economic Summit would appear to be of the Industrialists, by the Industrialists and for the Industrialists.
Every thing under the sun is discussed in the Economic Summit, except problems facing agriculture which were highlighted by the World Economic Forum, such as: PRESSURE ON LAND and WATER, SLOW PROGRESS IN PRODUCTIVITY, RURAL URBAN DISPARITIES where pointed reference was made that ” India’s economic growth is not benefiting rural populations as much as those living in urban areas. Rural communities are most disadvantaged when it comes to infrastructure, education, sanitation and healthcare”.
These problems should have been at the centre stage of Economic Summit discussions. But unfortunately none of the eminent speakers touched on these problems even in passing. Thus agricultural issues were ignored in the economic summit also. Rural infra development is woefully lagging behind, pressure on land and water remain unsolved. Rural/ Urban economic disparities continue to widen and the Summit failed to address these pressing problems being faced by 70% of the population and the entire focus was on cutting interest rates and taxes to revive industrial growth.
‘A review by the Planning Commission is reported to have found that barring rural telephony and housing, all other sectors chosen for focused attention under the Rs 1.76 lakh crore five-year (2005-09) rural infrastructure programme are lagging behind the set targets. Notably, the situation is particularly dismal in key areas of irrigation, rural roads and rural electrification, though it is below par also in the provision of safe drinking water. Sadly, in the first four years, only one-third of the target for rural connectivity and electrification, vital for inclusive growth, could be attained. Worse still, the progress was an abysmal 10 per cent in the case of electric supply to the below-poverty-line households. The achievement in critical areas of irrigation and potable water supply, too, was far from satisfactory, being 50 per cent and 60 per cent, respectively. There is, obviously, no way that such huge backlogs in these sectors can be made up in the last year, especially considering that the funding for many of these programmes has shrunk this year in real terms.’ B.S-'Missing the mark again'-19-11-08
Can industry grow when agriculture and rural Bharath are languishing? Can they ignore 70% consumers who are in rural Bharath and still revive industrial growth? This lopsided priority is continuing despite tall claims of inclusive growth.
WHITHER INCLUSIVE GROWTH WHEN 70% OF POPULATION DEPENDENT ON AGRICULTURE IS LANGUSHING?
High time to realign our priorities by developing rural infrastructure and give a big boost to rural economy.
“EVERY THING ELSE CAN WAIT BUT NOT AGRICULTURE” Nehru
09/11/08
GOVT. TOEING THE LINE OF INDUSTRIALISTS- RBI INFUSES SURFEIT OF FUNDS FOR INDUSTRY – AGRICULTURISTS STARVED of CREDIT - ONLY 1/3rd of AGRI LOAN TARGET MET
i. Prime Minister meets industrialists and assures them that the government would take necessary monetary and fiscal steps to boost economic growth and more credit at reduced rates. All Public Sector Banks, immediately after meeting FM, announce reduction in interest rates by 75 basis points. Thus the second demand made by the industrialists to slash interest rates is fulfilled. The first demand of release of funds is more than fulfilled by the RBI by pumping in Rs 280,000 crore, approximately equivalent to 7 per cent of banks’ deposit liabilities. Thus attempt to arm twist Government by ASSOCHAM, raising the bogey of 25% layoff of jobs, has succeeded as more than necessary funds are released even with poor industrial growth rate which is only half of previous year despite increase in industrial credit to 45% from 40%. The situation has been one of over-extension of credit relative to the resources of the banking system. The year-on-year incremental credit-deposit ratio is a staggering 96 per cent. No wonder the banks have no resources to lend. After three years of unbridled 30 per cent per annum credit expansion, there is bound to be a slowdown. Rather than suddenly pumping in over Rs 280,000 crore of liquidity into the system within a few weeks, it would have been preferable to stager the release. Injecting large doses of liquidity would only result in hyper inflation with in a year.
ii. Agri credit only one third of target amount of Rs 2,80,000 crore-No hope of reaching target
While industry was slurping with surfeit of funds, agriculture is starving of credit. In the first half year, credit of only Rs 95,064. Crore was extended to the farm sector. This is lower than the Rs 101,022 crore given over the corresponding six months period of 2007-08. The current year’s target is Rs. 2,80,000 crore. The decline in disbursals over the first half of the current fiscal is indicative that the year may end far short of the target figure. The fact that just 22 per cent of farmers had access to formal bank credit, and 27 per cent had to depend on moneylenders while 51 per cent could do neither, is proof of failure of the policy of lending to Agriculture 18% of net bank credit. Agri credit was never extended up to the mandated level of 18% of net bank credit, the figure did not exceed 10% to 14% band since 1990s, that too taking into account 30% of it being given as indirect finance. The present slowdown, more than ever before, highlights the need for investments in farming and farm related industries. The FAO report has also highlighted long-term challenges facing global agriculture such as land and water constraints, low investment in rural infrastructure and agricultural research, expensive agricultural inputs in relation to farmgate prices.
iii. CREDIT CRUNCH or CREDIT SURFEIT!
Where is the credit crunch? Up to October 2008 this fiscal, total credit grew by a whopping sum of Rs.2,53,000 crore (10.7%) compared to a small growth of Rs 95,500(4.9%) crore during comparable period last year. Investments grew only by 8% during this period compared to a high of 20% during comparable period last year, yet investment/deposit ratio is 30% as against required 24% which means excess liquidity is diverted for investments instead of for loaning. Credit deposit ratio increased to 75% from 70% during the same period. On Y-o-Y basis, credit to industry, which provides employment for less than 20% of work force and contributing just about 25% to the GDP, grew by 45% (Rs 2,18,200 crore) by Aug 08 compared to industrial credit growth of 40% (Rs.1,43,600 crore ) during the previous year. Growth in industry GDP, however, plummeted to 5% from 10%. Agriculture, providing employment to 60% of the work force and a GDP share of 20%, witnessed declining share in incremental credit to 8% from 13% during the same period last year. The mandated credit to agriculture is 18%.The amount that should have been given to agriculture is thus diverted to industries. In October 08,obliging Industrial captains on their demands to increase credit flow to industry, RBI released funds available for banks with a whopping sum of Rs2,80,000 crore. So the question to be answered is not why there is credit crunch - but why industry absorbed double the credit while their performance halved? Industrialists are claiming with out basis that there is credit crunch while in fact there has been credit surfeit to industry. Let them now crank their machines and perform to reach at least last year level of industrial GDP growth instead of crying wolf and drawing a red herring to divert countries attention from the real issue of their non performance despite credit surfeit. Let RBI and government find out what industry did with all the credit absorbed by them with out increasing industrial out put.
iv. MASTER STROKE
So what did industrialists gain from their meeting with the prime minister? Unlimited credit flow even after 45% growth in credit to industry despite there being lesser Industrial growth. And cut in bank interest rates at the cost of depositors as inflation is still double digit and bank deposit rates are reduced now. P.M gained nothing worth while as there is really no real threat of layoffs. Industrialists went from the meeting to draw money from banks that too at reduced interest rates laughing all the way. So whose master stroke it is?
i. Prime Minister meets industrialists and assures them that the government would take necessary monetary and fiscal steps to boost economic growth and more credit at reduced rates. All Public Sector Banks, immediately after meeting FM, announce reduction in interest rates by 75 basis points. Thus the second demand made by the industrialists to slash interest rates is fulfilled. The first demand of release of funds is more than fulfilled by the RBI by pumping in Rs 280,000 crore, approximately equivalent to 7 per cent of banks’ deposit liabilities. Thus attempt to arm twist Government by ASSOCHAM, raising the bogey of 25% layoff of jobs, has succeeded as more than necessary funds are released even with poor industrial growth rate which is only half of previous year despite increase in industrial credit to 45% from 40%. The situation has been one of over-extension of credit relative to the resources of the banking system. The year-on-year incremental credit-deposit ratio is a staggering 96 per cent. No wonder the banks have no resources to lend. After three years of unbridled 30 per cent per annum credit expansion, there is bound to be a slowdown. Rather than suddenly pumping in over Rs 280,000 crore of liquidity into the system within a few weeks, it would have been preferable to stager the release. Injecting large doses of liquidity would only result in hyper inflation with in a year.
ii. Agri credit only one third of target amount of Rs 2,80,000 crore-No hope of reaching target
While industry was slurping with surfeit of funds, agriculture is starving of credit. In the first half year, credit of only Rs 95,064. Crore was extended to the farm sector. This is lower than the Rs 101,022 crore given over the corresponding six months period of 2007-08. The current year’s target is Rs. 2,80,000 crore. The decline in disbursals over the first half of the current fiscal is indicative that the year may end far short of the target figure. The fact that just 22 per cent of farmers had access to formal bank credit, and 27 per cent had to depend on moneylenders while 51 per cent could do neither, is proof of failure of the policy of lending to Agriculture 18% of net bank credit. Agri credit was never extended up to the mandated level of 18% of net bank credit, the figure did not exceed 10% to 14% band since 1990s, that too taking into account 30% of it being given as indirect finance. The present slowdown, more than ever before, highlights the need for investments in farming and farm related industries. The FAO report has also highlighted long-term challenges facing global agriculture such as land and water constraints, low investment in rural infrastructure and agricultural research, expensive agricultural inputs in relation to farmgate prices.
iii. CREDIT CRUNCH or CREDIT SURFEIT!
Where is the credit crunch? Up to October 2008 this fiscal, total credit grew by a whopping sum of Rs.2,53,000 crore (10.7%) compared to a small growth of Rs 95,500(4.9%) crore during comparable period last year. Investments grew only by 8% during this period compared to a high of 20% during comparable period last year, yet investment/deposit ratio is 30% as against required 24% which means excess liquidity is diverted for investments instead of for loaning. Credit deposit ratio increased to 75% from 70% during the same period. On Y-o-Y basis, credit to industry, which provides employment for less than 20% of work force and contributing just about 25% to the GDP, grew by 45% (Rs 2,18,200 crore) by Aug 08 compared to industrial credit growth of 40% (Rs.1,43,600 crore ) during the previous year. Growth in industry GDP, however, plummeted to 5% from 10%. Agriculture, providing employment to 60% of the work force and a GDP share of 20%, witnessed declining share in incremental credit to 8% from 13% during the same period last year. The mandated credit to agriculture is 18%.The amount that should have been given to agriculture is thus diverted to industries. In October 08,obliging Industrial captains on their demands to increase credit flow to industry, RBI released funds available for banks with a whopping sum of Rs2,80,000 crore. So the question to be answered is not why there is credit crunch - but why industry absorbed double the credit while their performance halved? Industrialists are claiming with out basis that there is credit crunch while in fact there has been credit surfeit to industry. Let them now crank their machines and perform to reach at least last year level of industrial GDP growth instead of crying wolf and drawing a red herring to divert countries attention from the real issue of their non performance despite credit surfeit. Let RBI and government find out what industry did with all the credit absorbed by them with out increasing industrial out put.
iv. MASTER STROKE
So what did industrialists gain from their meeting with the prime minister? Unlimited credit flow even after 45% growth in credit to industry despite there being lesser Industrial growth. And cut in bank interest rates at the cost of depositors as inflation is still double digit and bank deposit rates are reduced now. P.M gained nothing worth while as there is really no real threat of layoffs. Industrialists went from the meeting to draw money from banks that too at reduced interest rates laughing all the way. So whose master stroke it is?
19/10/08
Bonus of a petty sum of Rs 50 for paddy! Are farmers beggars? Farmers should now demand and get what they deseserve
While fixing MSP of paddy, government ignored representations and agitations of farmers’ bodies, ignored recommendations of the CACP to fix MSP of paddy at Rs 1000, it also ignored recommendations of Prof. Swaminathan commission to fix MSP at cost plus 50% (which works out to Rs 1350 a quintal of paddy) to fairly compensate 600 million farmers. The Government with utter disregard to all the above representations and recommendations announced a petty amount of Rs 50 as bonus for paddy. In the case of employees, Government went out of its way to give 5 million of them more than what the pay panel recommended costing to the exchequer Rs17, 800 Crore annually and additional Rs 29,400 crore by way of arrears. Why this discrimination. It is very simple. Government does not go by the value of food for life, they do not bother about livelihood problems of farmers and their dependants; they go by the perceived threat to existence of their Government if employees are not given what they demand even though the incremental value addition is negligible and even after studies of Asian Bank reveal that they are already over paid. Such a threat to their existence is not perceived by the government even when 600 million farmers are not fairly compensated for their toil, tribulations and risks undertaken. This is the stark reality. After the CACP recommended MSP of Rs 1000, input costs like diesel prices, labour wages have sky rocketed. Farmers could not get labour during transplanting and harvesting time which was vividly chronicled by the news papers. They could not get fertilizers and had to visit shops several time, resort to agitations and on some occasions stake their very lives to get a bag of fertilisers and also lose life in the process. Government is indifferent to all these travails and tribulations of the farmers and throws at them a few rupees for all the risks they take and labour they invest.
2. Look at the record of increase in MSP of paddy for the past several years. From 1993 to 1999 the average increase was only Rs25 and the increase in the next two years was a petty amount of Rs20. During 2003-04 there was no increase at all. And look at the increase in input costs and cost of daily necessities, medical and education expenses during the very same years. There is a whopping difference between what the farmer pays for all the above and what farmer receives for his produce. The difference is succinctly put forth by the Planning Commission by candidly confessing that: “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold increase in overall real per capita GDP.”
3. The Standing Committee on Agriculture in their Report dated 22nd July 2008, has stated that the prices of agricultural produce received by the farmers are lower than the prices of the same prevailing in a free market and are often less than the cost of cultivation. Remunerative prices should be fixed for farmers’ produce. The focus of our development is more towards raising industrial production and recently on the service sector; this lop-sided growth of our economy is increasing the gap between the rich of the cities & poor farmers of the villages. Farmer centric policies which can only solve our food security and unemployment problem are not on the agenda of the successive governments. .
4. A study conducted by ANGRAU, Hyderabad brought out startling revelations about non-profitability of agriculture.” In order to get Rs4000 per month (equivalent to salary of a peon), a farmer needs 15 to 20 acres of dry land in Telengana and Rayalaseema areas and 5 acres wet plus 2 1/2 acres dry land in coastal area in A.P. If it is totally wet land, 10 acres of land where paddy can be cultivated is needed.”
5. The Commission headed by Arjun Segupta revealed that Average monthly income per family household (Rs./Month) from cultivation (2003) of small farmer and big farmer was Rs1578 and Rs 8321 respectively. In comparison, the lowest paid government employee now gets pay and perks exceeding Rs 10,000 per month. The NCF recommended that the “net take home income” of farmers should be comparable to those of civil servants. There is absolutely no comparison between the paltry amount a farmer gets for producing life sustaining food to the pay and perks of bureaucrats. How can such wide disparity be justified in economic terms? Such wide unacceptable disparities in farm and non farm incomes have occurred mainly because agriculture produce is under priced for decades and the amount is transferred as subsidy in a disguised form to organized sector including government employees whose productivity increased only nominally, with successive pay raises. Can this be sustained in a democratic society wedded to inclusive growth? Even politically agri workers are in majority
6.From all the above data and observations it is abundantly clear that the successive government which came to power on the promise of improving the lot of farmers have studiously ignored farmers’ welfare and catered to the needs of non-farm sectors and to the organized & articulate urban consumers at the cost of farmers. Why is this happening in a democratic country decade after decade resulting in decadence of agriculture and culminating in the suicides of the farmers even though they form majority of the population and majority of voters? This is a very serious matter affecting livelihood of the farmers and agricultural workers which should be discussed, debated and farmers should determinedly decide as to future course of action to redress their grievances and to better their lot by their own strength and with a will to change their destinies for the better by themselves by using their vote power.
While fixing MSP of paddy, government ignored representations and agitations of farmers’ bodies, ignored recommendations of the CACP to fix MSP of paddy at Rs 1000, it also ignored recommendations of Prof. Swaminathan commission to fix MSP at cost plus 50% (which works out to Rs 1350 a quintal of paddy) to fairly compensate 600 million farmers. The Government with utter disregard to all the above representations and recommendations announced a petty amount of Rs 50 as bonus for paddy. In the case of employees, Government went out of its way to give 5 million of them more than what the pay panel recommended costing to the exchequer Rs17, 800 Crore annually and additional Rs 29,400 crore by way of arrears. Why this discrimination. It is very simple. Government does not go by the value of food for life, they do not bother about livelihood problems of farmers and their dependants; they go by the perceived threat to existence of their Government if employees are not given what they demand even though the incremental value addition is negligible and even after studies of Asian Bank reveal that they are already over paid. Such a threat to their existence is not perceived by the government even when 600 million farmers are not fairly compensated for their toil, tribulations and risks undertaken. This is the stark reality. After the CACP recommended MSP of Rs 1000, input costs like diesel prices, labour wages have sky rocketed. Farmers could not get labour during transplanting and harvesting time which was vividly chronicled by the news papers. They could not get fertilizers and had to visit shops several time, resort to agitations and on some occasions stake their very lives to get a bag of fertilisers and also lose life in the process. Government is indifferent to all these travails and tribulations of the farmers and throws at them a few rupees for all the risks they take and labour they invest.
2. Look at the record of increase in MSP of paddy for the past several years. From 1993 to 1999 the average increase was only Rs25 and the increase in the next two years was a petty amount of Rs20. During 2003-04 there was no increase at all. And look at the increase in input costs and cost of daily necessities, medical and education expenses during the very same years. There is a whopping difference between what the farmer pays for all the above and what farmer receives for his produce. The difference is succinctly put forth by the Planning Commission by candidly confessing that: “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold increase in overall real per capita GDP.”
3. The Standing Committee on Agriculture in their Report dated 22nd July 2008, has stated that the prices of agricultural produce received by the farmers are lower than the prices of the same prevailing in a free market and are often less than the cost of cultivation. Remunerative prices should be fixed for farmers’ produce. The focus of our development is more towards raising industrial production and recently on the service sector; this lop-sided growth of our economy is increasing the gap between the rich of the cities & poor farmers of the villages. Farmer centric policies which can only solve our food security and unemployment problem are not on the agenda of the successive governments. .
4. A study conducted by ANGRAU, Hyderabad brought out startling revelations about non-profitability of agriculture.” In order to get Rs4000 per month (equivalent to salary of a peon), a farmer needs 15 to 20 acres of dry land in Telengana and Rayalaseema areas and 5 acres wet plus 2 1/2 acres dry land in coastal area in A.P. If it is totally wet land, 10 acres of land where paddy can be cultivated is needed.”
5. The Commission headed by Arjun Segupta revealed that Average monthly income per family household (Rs./Month) from cultivation (2003) of small farmer and big farmer was Rs1578 and Rs 8321 respectively. In comparison, the lowest paid government employee now gets pay and perks exceeding Rs 10,000 per month. The NCF recommended that the “net take home income” of farmers should be comparable to those of civil servants. There is absolutely no comparison between the paltry amount a farmer gets for producing life sustaining food to the pay and perks of bureaucrats. How can such wide disparity be justified in economic terms? Such wide unacceptable disparities in farm and non farm incomes have occurred mainly because agriculture produce is under priced for decades and the amount is transferred as subsidy in a disguised form to organized sector including government employees whose productivity increased only nominally, with successive pay raises. Can this be sustained in a democratic society wedded to inclusive growth? Even politically agri workers are in majority
6.From all the above data and observations it is abundantly clear that the successive government which came to power on the promise of improving the lot of farmers have studiously ignored farmers’ welfare and catered to the needs of non-farm sectors and to the organized & articulate urban consumers at the cost of farmers. Why is this happening in a democratic country decade after decade resulting in decadence of agriculture and culminating in the suicides of the farmers even though they form majority of the population and majority of voters? This is a very serious matter affecting livelihood of the farmers and agricultural workers which should be discussed, debated and farmers should determinedly decide as to future course of action to redress their grievances and to better their lot by their own strength and with a will to change their destinies for the better by themselves by using their vote power.
14/10/08
Miniscule share of food grain prices in Inflation flare up
Inflation has crossed 12% mark and every one, as usual, pointed the accusing finger at food prices without any confirming data. A detailed analysis made by IIMK shows that increase in food grain prices is not the cause of hyper inflation. Average increase of food articles up to Aug 2008 was only 5% compared to price raise of 13.50% of non-food articles, 14% mineral oils and 15% basic metals. In fact the average inflation rate of 9 per cent recorded for food articles between December 2006 and August 2007 was much higher than in 2007-08. So much for the scare created that food grains are becoming scarce and therefore exports must be banned and traders should not be allowed in the mandis. There was of course price raise of edible oils (14.80%). The root cause of the high inflation of edible oils was larger edible oils imports since November 2007 at soaring international prices.
Over the years, India has emerged as one of the largest consumers and importers of edible oils in the world. Presently, India accounts for 10 per cent of the world edible oil consumption and 14 per cent of world imports. The per capita consumption of edible oils, which was around 7.5 kg per annum in mid-1990s, is now over 11 kg .Our dependence on imports has increased considerably over the years from 17 per cent of the consumption requirements in mid-1990s to nearly 40 per cent now .
During 2006-07, the production of oil seeds declined by 13 per cent from 27.98 million tonnes in the previous year. As the higher imports have occurred against rising international prices of edible oils, the result was higher domestic edible oils prices.
Since 2002 world edible oil prices have been gathering an upward momentum and during the last one year the prices have hit the roof. The global year-on- year edible oils inflation was in the range of 100.6 per cent to 104.3 per cent in March 2008 (over March 2007). In June 2008 (over June 2007), the same figure was in the range of 50-83 per cent. A combination of factors – higher demand for vegetable oil from the biofuel industry, an upward movement in crude oil prices and the rising demand from the consumption markets such as India and China – has been responsible for the oils market. This is despite the world witnessing higher edible oils output during the last few years. Even in the latest report on inflation as on 26th Sep 2008, it was stated that there is decline in prices of bajra, maize, masur, gram, moong, raw wool and cotton, tomatoes, onions, dry chillies, black pepper and Inflation of 30 essential commodities is only 7.74%.
So what is the moral of the story? Stop blaming high inflation on prices of food grains and essential commodities. Do not scapegoat farmers for hyper inflation. Lift ban on export of food grains and restore custom duties on import of palm oil. Restore futures trading. Take steps to increase production of oil seeds by focusing on developing improved variety of seed material, 100% seed replacement and invest more in improving dry land farming.
Inflation has crossed 12% mark and every one, as usual, pointed the accusing finger at food prices without any confirming data. A detailed analysis made by IIMK shows that increase in food grain prices is not the cause of hyper inflation. Average increase of food articles up to Aug 2008 was only 5% compared to price raise of 13.50% of non-food articles, 14% mineral oils and 15% basic metals. In fact the average inflation rate of 9 per cent recorded for food articles between December 2006 and August 2007 was much higher than in 2007-08. So much for the scare created that food grains are becoming scarce and therefore exports must be banned and traders should not be allowed in the mandis. There was of course price raise of edible oils (14.80%). The root cause of the high inflation of edible oils was larger edible oils imports since November 2007 at soaring international prices.
Over the years, India has emerged as one of the largest consumers and importers of edible oils in the world. Presently, India accounts for 10 per cent of the world edible oil consumption and 14 per cent of world imports. The per capita consumption of edible oils, which was around 7.5 kg per annum in mid-1990s, is now over 11 kg .Our dependence on imports has increased considerably over the years from 17 per cent of the consumption requirements in mid-1990s to nearly 40 per cent now .
During 2006-07, the production of oil seeds declined by 13 per cent from 27.98 million tonnes in the previous year. As the higher imports have occurred against rising international prices of edible oils, the result was higher domestic edible oils prices.
Since 2002 world edible oil prices have been gathering an upward momentum and during the last one year the prices have hit the roof. The global year-on- year edible oils inflation was in the range of 100.6 per cent to 104.3 per cent in March 2008 (over March 2007). In June 2008 (over June 2007), the same figure was in the range of 50-83 per cent. A combination of factors – higher demand for vegetable oil from the biofuel industry, an upward movement in crude oil prices and the rising demand from the consumption markets such as India and China – has been responsible for the oils market. This is despite the world witnessing higher edible oils output during the last few years. Even in the latest report on inflation as on 26th Sep 2008, it was stated that there is decline in prices of bajra, maize, masur, gram, moong, raw wool and cotton, tomatoes, onions, dry chillies, black pepper and Inflation of 30 essential commodities is only 7.74%.
So what is the moral of the story? Stop blaming high inflation on prices of food grains and essential commodities. Do not scapegoat farmers for hyper inflation. Lift ban on export of food grains and restore custom duties on import of palm oil. Restore futures trading. Take steps to increase production of oil seeds by focusing on developing improved variety of seed material, 100% seed replacement and invest more in improving dry land farming.
19/09/08
Worsening Economic conditions of Weaker Sections
Benefits of Economic Reforms bypassed them
ABSTRACT
Economic development does not necessarily result in equitable distribution of the fruits of development. It often results in sectoral disparities, rural urban disparities, regional disparities and disparities among social groups. While some divergence in income distribution can be explained rationally in economic terms, continued widening of disparities is a cause for concern. The extent and reasons for the disparities should be gone into meticulously before they assume intolerable proportions and result in social tensions, economic deprivations and political upheavals. Timely and appropriate remedial measures need to be initiated to bring the national income distribution system back to the justifiable levels, before it is too late. Wise Statesmen do it, ensure economic equity and govern for longer time; unwise rulers ignore the danger signals and bring ruination unto the economy as well as unto them selves. In this paper, economic disparities that have occurred in the course of economic development in India, among social groups, are analyzed, conclusions arrived at suggestions for correcting gaping disparities are made.
SUMMARY
*Ownership of wealth in the form of income generating assets and employable education are the twin engines, driving production and acquisition of needed skills leading to self employment or getting into wage employment, which largely determine income levels.
*In the survey of economic disparities in the social groups (SCs,STs,OBCs) wide variations are observed in incomes, expenditures, wealth, debt /bank credit and educational areas.
i) Incidence of poverty is found to be highest for ST/SC group, BCs rank next in incidence of poverty. Poverty Incidence-1987-88 to 2004-05, STs/STs together are most poor with poverty ratio of 41% in rural areas 46% in urban areas; 88 per cent of the Scheduled Castes and Scheduled Tribes and 80 per cent of the OBC population belong to the poor and vulnerable group. Growth process has bypassed overwhelming population of the SCs and STs and OBCs. Common People, constitute more than three-fourths of the population consisting of all those whom the growth process has, by and large, bypassed
ii) There is a rapid growth of middle class and the rich.
iii) In the rural as well as in the urban areas, average asset-holdings per household are substantially higher for the ‘Others’ group than for the SC/ST group. The average monthly expenditure of a farmer household at Rs.2770 is higher than the monthly income of Rs.2115 indicates that the expenditure
levels are higher than the income, especially for the small and marginal farmers. iv) Among the socially and economically backward groups such as SCs and OBCs, majority of the holdings are of less than a hectare. The SCs in particular have more than half of their holdings of less than half a hectare.
v) Scheduled Castes and Other Backward Classes are more dependent on informal sources and loans are used more for consumption purpose than the “other” group.
vi) The SC and OBC farmers are more likely to rely on informal sources of credit. vii) SCs have the highest share of loans for marriages, social functions etc; which are non-productive in nature, followed by the OBCs and the STs.
viii) Banks’ Finance for weaker sections up to March 2007 was only about Rs 1 lakh crore against a requirement of Rs1,40,000 crore. The deficit was Rs 40,000 crore. While public sector banks extended credit to an extent of 7.2%, private sector banks provided credit to a paltry extent of 1.5%. ONLY 7 OUT OF 28 PSBs HAVE ACHIEVED THE TARGET and NONE OF THE PRIVATE BANKS ARE ANY WHERE NEAR THE TARGET of 10%, even though the recoveries of loans given ,at 95%, is excellent.
ix) Even with education up to primary level, 83 per cent are in the poor and vulnerable group. Among SCs/STs, the ratio of graduates and diploma holders is very low compared to the overall average ratio, resulting probably in lower income ratio too.
x) Unemployment rate is higher among SC/STs, both in rural and urban areas compared to the overall average rate of unemployment.
** (Please see Annexure for detailed data analysis)
Conclusions:
The analysis made brings out very vividly continuing widening of differentials in income levels among various social groups. Income is a function of possession of productive assets, education imparting needed skills either for self employment or wage employment. It is evident that the weaker sections’ asset levels and educational levels are woefully inadequate to generate better incomes. Lack of availability of adequate credit from institutional sources, over dependence on non-institutional sources at high rates of interest and high level of borrowings for consumption purposes, are resulting in further erosion in incomes and these vulnerable social groups are entering into debt trap. Rural incomes being lesser than urban incomes for similar work and efforts and economic activities is quite evident with no rational explanation other than studied neglect of people living in rural areas since Independence. These undesirable characteristics and trends are likely to continue unless corrective action is taken promptly and decisively and adequately. Any delay might lead to economic erosion of real incomes thereby leading to social tensions and political upheavals.
Suggestions to better the economic conditions of the weaker sections
Solutions to improve economic conditions are to be based on enhancing the capacity of weaker sections’ for self employment and wage employment. Capital and skills are needed to be self employed. And they don’t have both. We will discuss measures needed to provide capital for self employment first and then discuss enhancing skills acquisition & capabilities subsequently.
(A)Measures to provide capital for self employment
We are now confronted with the problem of finding capital and are reminded of the famous saying of the noted economist and Nobel Laureate Ragnar Nurkse that “Poor are poor, because they are poor”! According to Prof. Ragnar Nurkse “the vicious circle of poverty” that runs from low income to low savings to low investment to low productivity and then back to low real income can be broken by 4an increase in savings and investments”. The import of the statement is poor are poor because they lack savings and therefore can not infuse investments in income generating assets like land, production facilities and marketing arrangements*. So the solutions start with finding money for buying income generating assets and as they are poor they can not buy these from out of their own savings.
(i)What then is the solution? The money is to be borrowed and institutions have to loan them funds. This is exactly the objective in introducing a sub limit of 10% for loaning to weaker sections*, in 1985, which sub limit covers, inter-alia, social groups of SCs and STs as well as economic activities by small & marginal farmers and rural artisans where preponderant majority of disadvantaged social groups get self employed. The intention is to provide finance by banks direct to help the weaker sections to buy income generating assets enabling them to improve their earning levels.
(ii)But the expected intention did not materialize as Public sector banks loaning did not exceed 6% of net bank credit and private sector banks did not reach a level of more than 2%. The outstanding credit to weaker section showed an increase from Rs. 82,332 crore to Rs.98,970 crore only by March2007. Consequently there was a shortfall in lendings to weaker sections to the extent of a whopping Rs40,000 crore. If the trend continues the deficit would double to a huge sum of Rs80,000 crore by March 2009. The RBI also observed that” the performance of banking system in general and the private sector banks in particular, in meeting the sub-targets set for agriculture and weaker sections is far from satisfactory”. The internal working group of the RBI observed that “there is a need for a change in the mind set of all concerned. As banks have exhibited a sense of reluctance, even due to reasons beyond their control, there appears to be a need for putting in place a mechanism of incentives and disincentives to persuade banks to step up the flow of credit to this segment of borrowers. The IWG suggests that RBI may consider measures to penalize banks for failure to reach the sub target of 10.0 per cent set for weaker sections. This would probably act as an effective factor to prompt the hitherto unwilling bankers to step up their efforts to channel more credit to the unorganized sector rather than earmarking a particular target under the priority sector. Such a disincentive mechanism may be conceived by Reserve Bank, so that assured flow of credit may be provided by the banks to small and marginal farmers, micro enterprises and weaker sections”.
(iii) Advances to weaker sections of Scheduled Commercial Banks
(a)The small and marginal farm holdings account for 42.0 per cent of agricultural land; but the share of small and marginal farmer, who form part of weaker sections, was only 21.3 per cent in the total advances to agriculture at end March 2007. The credit to this sub-segment should have been double of what has been given.
(b)Size of Credit Limit-wise Classification of Outstanding Credit of SCBs (end-March)
The share of small loans of Rs 25,000 and below reduced to13.3% from 49.5% in 1996, where as the share of big loans has more than doubled, from 25% to 55% during the same period.
(iv) In the Report on “Conditions of work and promotion of livelihoods in Un Organised Sector” Submitted to the Prime Minister in August 2007,by the National Commission for Enterprises in the Un Organised Sectors, (Chairman,Arjun Sengupta), the Commission’s observation on changes in credit policies adversely affecting availability of credit to small people is worth mentioning here: ‘A close look at RBI guide lines/directives to banks, reveal that apathy either deliberately or by mistake also exists at the top and policy planning level…as the credit system operating under the existing guidelines of RBI. It emerges that small borrowers are competing with large and strong borrowers. The coverage under priority sector lending (which includes lendings to weaker sections) has increasingly been diluted, enabling big borrower loans at the direct expense of small borrower loans.
As part of the so-called process of” aligning bank credit to the changing needs of the society”, the scope and definition of the priority sector, once dominated by small farm related loans ,were fine-tuned by including new items and enhancing credit limits of constituent sub-sectors to more than Rs.40 lakh. Over the years particularly after the mid-nineties, relatively high credit worthy activities like housing, education, transportation and loans to professionals have been included in the priority sector.
This has affected unfavourably the credit flow to the needy sector.
(v) In order to increase credit flow to weaker sections, the ‘Report on Conditions of Work and Promotion of Livelihoods in the Un-organised Sector’ (Chairman: Dr. Arjun K. Sengupta), has made some definite recommendations. The Internal Working Group of the RBI to Review the Recommendations of the NCEUS Report on Conditions of Work and Promotion of Livelihoods in the Un-organised Sector made,in May 2008, certain recommendations on the recommendations of the Arjun Sengupta commission.
A summary of the recommendations and action points emerging out of the Internal Working Group is presented below along with our suggestions.
1) Revision in the weaker sections Targets:
(a) NCEUS has stated that, of the18.0 per cent credit earmarked for agricultural sector, 10.0 per cent may be exclusively set aside for small and marginal farmers. It has also suggested shifting the small and marginal farmers from the present weaker sections category to agriculture sector. Currently, small and marginal farmers are covered under the weaker sections. The weaker section quota for small and marginal farmers may then be released for other socio economically weaker segments. It advocates allocation of 12.0 per cent to socio-economically weaker sections for purposes of housing, education, etc., with a loan ceiling of Rs. 0.5 million. This would amount to an increase of 2.0 per cent additional quota in priority sector lending for weaker sections from current level of 10.0 per cent.
(b) The IWG suggests that RBI may consider measures to evolve a system of disincentive to banks for failure to reach the sub target of 10.0 per cent for weaker sections.
Policy change
(c) In the Annual Policy for the year 2008-09, it has been announced that the shortfall in lending to weaker sections also to be reckoned for the purpose of allocating amounts for contribution to RIDF, with effect from April 2009.
(d)ADVERSE IMPACT: This allowance enables banks to avoid lending to weaker sections by conveniently transferring the required amount to RIDF which will not directly benefit weaker sections by any stretch of imagination. This leads to avoiding purposive duty to finance weaker sections and this easy facility of transfer to RIDF should not be allowed.
This will reduce total finance to weaker sections and still facilitate showing that the target of lending is achieved.The concession in no way increase production and investment finance to weaker sections. Therefore this is incorrect and weaker section’s unfriendly. Only direct finance extended to weaker sections for production purpose should be reckoned for the purpose of achieving the target. On the other hand, If the target credit to weaker sections is increased from 10% to 12%, additional credit availability will increase by Rs 1 lakh crore more, ie, from outstanding level of Rs1 lakh crore as on March 2007, to Rs 2 lakh crore, by March 2009.
2. Explicit Target for Small and Micro Enterprises:
(a)The Commission recommends that an explicit target of 10 per cent be set for lending to small and micro Enterprises. Furthermore, within the 10.0 per cent quota set for the small and micro enterprises, the Commission has recommended the following.
A 4 per cent target be set with respect to micro enterprises with capital investment (other than land and building) up to Rs.0.5 million, which is to be gradually enhanced to 8 per cent of the net bank Credit-to be achieved in a phased manner in 5Years.
(b)The IWG is broadly in agreement with the intent of this recommendation. Within the aggregate loans to small and micro enterprises sector, banks are required to allocate 40.0 per cent to micro enterprises with investments in plant and machinery up to Rs 5 lakh under the present policy.
3. Monitoring of Credit Flow:
(a)The NCEUS recommends that: the Reserve Bank should separately monitor the credit flow to marginal and small farmers and to the micro-enterprise sector, with capital investment up to Rs.0.5 million and between Rs.0.5 to 2.5 million. .
(b) The IWG agrees with the NCEUS and recommends that RBI should make available in timely fashion detailed information on the flow of credit to weaker sections.
4.Setting up of Credit Guarantee Fund in NABARD:
(a)In order to reduce the perceived risk of default of the larger segment of marginal and small farmers, due to which the banks do not approach them actively, the Commission has recommended that the Government may set up a Credit Guarantee Fund in NABARD, on the lines of the CGF set up by the Ministry of Micro, Small and Medium Enterprises, which provides guarantee cover on loans to small units.
(b) An alternative proposal has been mooted by RBI to offer a credit guarantee scheme through the DICGC to distressed farmers.
(vi)CIFA proposals
It is unfortunates that the RBI continues to dilute the norms for achieving direct finance to weaker sections even after Sengupta commission pointed out such dilutions in the past and cautioned against moves to water down the spirit of extending credit to disadvantaged and unorganized groups. CIFA strongly demands that policy dilutions made by the RBI as detailed above in paragraph 1 should be withdrawn and only direct credit to weaker sections for the purposes of generating incomes should be reckoned toward weaker sections finance target. The target should be increased to 12% as recommended by the commission. CIFA further urges the RBI and the Government to implement the recommendations of the Arjun Sengupta Committee (detailed in paragraphs 2 to 4) and also recommended by the IWG of the RBI, to accelerate credit flow to weaker sections. The IWG suggestion that RBI may consider measures to penalize banks for failure to reach the sub target set for weaker sections should be made operative forthwith.
Loans to weaker sections should be given on composite basis covering credit needs for purchase of machinery, equipment etc, working capital and consumption needs for one year repayable from out of net income generated over period of 10 years. D.I.R scheme of interest rate at 4% should be charged for loans given to weaker sections up to Rs 2 lakhs.
(B)Enhancing skills acquisition & capabilities
(i) Provision of credit for a small/micro enterprise, is a necessary condition but not a sufficient condition for the enterprise to generate income. The person should be equipped with the necessary skills and capabilities. By equipping a person with the skills and capabilities, he can chose either to start an enterprise on his own by availing bank loans and government assistance or chose to be gainfully wage employed. Many studies have shown that net income derived from small land holdings is not sufficient for family expenses. One study (2003) puts the monthly income of a small farmer at Rs1578 which is woefully inadequate It is therefore essential that their income is augmented by their simultaneously engaging in activities allied to agriculture like dairying, mini poultry, bee keeping vegetable, fruits and flower growing etc; In order to ease pressure on land and to prevent further fragmentation it should be the objective of Rural Planning that at least one member from each small land holder family comes out and engages in non-farming rural activities. Composite loans covering all these activities should be provided by banks repayable from net income, over a period of 10 years at DIR interest rate of 4%.
(ii) Establishing mini rural agro processing and rural service centres for selected clusters of villages, with provision of infrastructural facilities like, roads, water, power sheds and godowns and marketing linkages is the ideal solution for providing non farm employment in rural areas. Big industrial units, banks, insurance agencies and philanthropic institutions can adopt these rural processing and service centres and provide man power, material and monetary resources. A system of reservation of items manufactured in rural centres should be evolved to ensure assured market for the products. Mega agro processing centres are capital intensive and can provide employment for only a few hundreds, where as for the same investment, rural mini agro processing and rural service enterprises with simple machines can engage many thousands of semi skilled people.
(iii) Young rural people should be provided vocational training in various manufacturing processes and crafts for which there are raw materials available locally and this vocational training can start immediately after a person completes VII standard. At the end of vocational training, they should also be imparted training in entrepreneurial capabilities the absence of which is resulting in failure of many self employed enterprises in the un-organized sector. After these kinds of trainings, they should be encouraged to be taken as apprentices in established processing and service units. Meritorious students should be provided opportunities for higher learning. There can be a system of reservations up to say, 25% for these rural meritorious candidates in higher learning centres. Thus trained and equipped, they are ready either to start their own unit or be gainfully employed. The need of the hour is to train lakhs of rural people by enhancing and equipping thousands of rural ITIs than pour thousands of crores of rupees in establishing a few IITs/ IIMs which train only a few thousands. The priority should be changed towards training rural youth for employment than pour thousand of crores of money to benefit already highly qualified people who go abroad anyway and get employed and the investment in IITs/IIMs is a loss to the nation. Training rural youth is a gain to the nation.
(iv)Providing grading facilities and godowns for storage as well as marketing arrangements and linkages with retail chains are the neglected areas so far and to make any rural employment to be successful, these arrangements are essential and the government and Producers’ organizations have an important role to play in making these arrangements.
(v)Rural youth have the same potential as urban youth. If necessary facilities and opportunities are provided they will prove equal to their urban bred and urban educated cousins. What is required is change in the mind set of the Governments, Planning Bodies with focus on employment and income generation than on mere Macro GDP numbers. So our Planning Mandarins should change their mind set and have as objective, providing opportunities for employment and income generation, and not macro level increase in GDP which benefits only a few who already have wealth and higher education anyway. Top down planning should be replaced by bottom up planning.
If focus is changed from mere GDP growth to employment growth and growth in incomes of the lower half of the populace, then we can see a SHINING INDIA where most of the people are smiling, than the present India where 25% are smiling and 75% are weeping.
(vi) We conclude this paper with the heart felt and soulful observations of Prof. M.S. Swaminathan in his Report of National Commission on Farmers-2006.
“Economic growth which bypasses a large population is joyless growth and not sustainable in the long run. What then is the future for India’s rural population numbering over 700 million? We cannot be silent onlookers to a situation where 30% of India is shining and 70% is weeping. Equity considerations can not be ignored for too long. Faster growth in agriculture with improvement in welfare of the rural population is important. The need is not only to register increase in agriculture (rural) production in million tons but actual improvement in rural incomes” (which will benefit millions of weaker sections)
REAL INDIA LIVES IN VILLAGES - OUR AIM IS GRAM SWARAJ
*A note on Advances to priority Sectors and Weaker Sections: Genesis and subsequent changes
At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial banks should increase their involvement in financing the priority sectors, viz., agriculture and SSIs. The
description of the priority sectors was later formalised in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the priority sectors constituted by the Reserve Bank in May 1971. Although initially, there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by March 1979. Subsequently, on the basis of the recommendations of the Group on the Modalities of Implementation of Priority Sector Lending Policy and the Twenty Point Economic Programme, all commercial banks were advised to achieve the target of priority sector lending of 40.0 per cent of aggregate bank advances by 1985. Broad sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector. Since then, there have been several reviews and changes in the scope of priority sector lending and the targets and sub-targets applicable to various bank groups. that priority sector advances constitute 40.0 per cent of Adjusted Net Bank Credit8 (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Advances to weaker sections: 10.0 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Benefits of Economic Reforms bypassed them
ABSTRACT
Economic development does not necessarily result in equitable distribution of the fruits of development. It often results in sectoral disparities, rural urban disparities, regional disparities and disparities among social groups. While some divergence in income distribution can be explained rationally in economic terms, continued widening of disparities is a cause for concern. The extent and reasons for the disparities should be gone into meticulously before they assume intolerable proportions and result in social tensions, economic deprivations and political upheavals. Timely and appropriate remedial measures need to be initiated to bring the national income distribution system back to the justifiable levels, before it is too late. Wise Statesmen do it, ensure economic equity and govern for longer time; unwise rulers ignore the danger signals and bring ruination unto the economy as well as unto them selves. In this paper, economic disparities that have occurred in the course of economic development in India, among social groups, are analyzed, conclusions arrived at suggestions for correcting gaping disparities are made.
SUMMARY
*Ownership of wealth in the form of income generating assets and employable education are the twin engines, driving production and acquisition of needed skills leading to self employment or getting into wage employment, which largely determine income levels.
*In the survey of economic disparities in the social groups (SCs,STs,OBCs) wide variations are observed in incomes, expenditures, wealth, debt /bank credit and educational areas.
i) Incidence of poverty is found to be highest for ST/SC group, BCs rank next in incidence of poverty. Poverty Incidence-1987-88 to 2004-05, STs/STs together are most poor with poverty ratio of 41% in rural areas 46% in urban areas; 88 per cent of the Scheduled Castes and Scheduled Tribes and 80 per cent of the OBC population belong to the poor and vulnerable group. Growth process has bypassed overwhelming population of the SCs and STs and OBCs. Common People, constitute more than three-fourths of the population consisting of all those whom the growth process has, by and large, bypassed
ii) There is a rapid growth of middle class and the rich.
iii) In the rural as well as in the urban areas, average asset-holdings per household are substantially higher for the ‘Others’ group than for the SC/ST group. The average monthly expenditure of a farmer household at Rs.2770 is higher than the monthly income of Rs.2115 indicates that the expenditure
levels are higher than the income, especially for the small and marginal farmers. iv) Among the socially and economically backward groups such as SCs and OBCs, majority of the holdings are of less than a hectare. The SCs in particular have more than half of their holdings of less than half a hectare.
v) Scheduled Castes and Other Backward Classes are more dependent on informal sources and loans are used more for consumption purpose than the “other” group.
vi) The SC and OBC farmers are more likely to rely on informal sources of credit. vii) SCs have the highest share of loans for marriages, social functions etc; which are non-productive in nature, followed by the OBCs and the STs.
viii) Banks’ Finance for weaker sections up to March 2007 was only about Rs 1 lakh crore against a requirement of Rs1,40,000 crore. The deficit was Rs 40,000 crore. While public sector banks extended credit to an extent of 7.2%, private sector banks provided credit to a paltry extent of 1.5%. ONLY 7 OUT OF 28 PSBs HAVE ACHIEVED THE TARGET and NONE OF THE PRIVATE BANKS ARE ANY WHERE NEAR THE TARGET of 10%, even though the recoveries of loans given ,at 95%, is excellent.
ix) Even with education up to primary level, 83 per cent are in the poor and vulnerable group. Among SCs/STs, the ratio of graduates and diploma holders is very low compared to the overall average ratio, resulting probably in lower income ratio too.
x) Unemployment rate is higher among SC/STs, both in rural and urban areas compared to the overall average rate of unemployment.
** (Please see Annexure for detailed data analysis)
Conclusions:
The analysis made brings out very vividly continuing widening of differentials in income levels among various social groups. Income is a function of possession of productive assets, education imparting needed skills either for self employment or wage employment. It is evident that the weaker sections’ asset levels and educational levels are woefully inadequate to generate better incomes. Lack of availability of adequate credit from institutional sources, over dependence on non-institutional sources at high rates of interest and high level of borrowings for consumption purposes, are resulting in further erosion in incomes and these vulnerable social groups are entering into debt trap. Rural incomes being lesser than urban incomes for similar work and efforts and economic activities is quite evident with no rational explanation other than studied neglect of people living in rural areas since Independence. These undesirable characteristics and trends are likely to continue unless corrective action is taken promptly and decisively and adequately. Any delay might lead to economic erosion of real incomes thereby leading to social tensions and political upheavals.
Suggestions to better the economic conditions of the weaker sections
Solutions to improve economic conditions are to be based on enhancing the capacity of weaker sections’ for self employment and wage employment. Capital and skills are needed to be self employed. And they don’t have both. We will discuss measures needed to provide capital for self employment first and then discuss enhancing skills acquisition & capabilities subsequently.
(A)Measures to provide capital for self employment
We are now confronted with the problem of finding capital and are reminded of the famous saying of the noted economist and Nobel Laureate Ragnar Nurkse that “Poor are poor, because they are poor”! According to Prof. Ragnar Nurkse “the vicious circle of poverty” that runs from low income to low savings to low investment to low productivity and then back to low real income can be broken by 4an increase in savings and investments”. The import of the statement is poor are poor because they lack savings and therefore can not infuse investments in income generating assets like land, production facilities and marketing arrangements*. So the solutions start with finding money for buying income generating assets and as they are poor they can not buy these from out of their own savings.
(i)What then is the solution? The money is to be borrowed and institutions have to loan them funds. This is exactly the objective in introducing a sub limit of 10% for loaning to weaker sections*, in 1985, which sub limit covers, inter-alia, social groups of SCs and STs as well as economic activities by small & marginal farmers and rural artisans where preponderant majority of disadvantaged social groups get self employed. The intention is to provide finance by banks direct to help the weaker sections to buy income generating assets enabling them to improve their earning levels.
(ii)But the expected intention did not materialize as Public sector banks loaning did not exceed 6% of net bank credit and private sector banks did not reach a level of more than 2%. The outstanding credit to weaker section showed an increase from Rs. 82,332 crore to Rs.98,970 crore only by March2007. Consequently there was a shortfall in lendings to weaker sections to the extent of a whopping Rs40,000 crore. If the trend continues the deficit would double to a huge sum of Rs80,000 crore by March 2009. The RBI also observed that” the performance of banking system in general and the private sector banks in particular, in meeting the sub-targets set for agriculture and weaker sections is far from satisfactory”. The internal working group of the RBI observed that “there is a need for a change in the mind set of all concerned. As banks have exhibited a sense of reluctance, even due to reasons beyond their control, there appears to be a need for putting in place a mechanism of incentives and disincentives to persuade banks to step up the flow of credit to this segment of borrowers. The IWG suggests that RBI may consider measures to penalize banks for failure to reach the sub target of 10.0 per cent set for weaker sections. This would probably act as an effective factor to prompt the hitherto unwilling bankers to step up their efforts to channel more credit to the unorganized sector rather than earmarking a particular target under the priority sector. Such a disincentive mechanism may be conceived by Reserve Bank, so that assured flow of credit may be provided by the banks to small and marginal farmers, micro enterprises and weaker sections”.
(iii) Advances to weaker sections of Scheduled Commercial Banks
(a)The small and marginal farm holdings account for 42.0 per cent of agricultural land; but the share of small and marginal farmer, who form part of weaker sections, was only 21.3 per cent in the total advances to agriculture at end March 2007. The credit to this sub-segment should have been double of what has been given.
(b)Size of Credit Limit-wise Classification of Outstanding Credit of SCBs (end-March)
The share of small loans of Rs 25,000 and below reduced to13.3% from 49.5% in 1996, where as the share of big loans has more than doubled, from 25% to 55% during the same period.
(iv) In the Report on “Conditions of work and promotion of livelihoods in Un Organised Sector” Submitted to the Prime Minister in August 2007,by the National Commission for Enterprises in the Un Organised Sectors, (Chairman,Arjun Sengupta), the Commission’s observation on changes in credit policies adversely affecting availability of credit to small people is worth mentioning here: ‘A close look at RBI guide lines/directives to banks, reveal that apathy either deliberately or by mistake also exists at the top and policy planning level…as the credit system operating under the existing guidelines of RBI. It emerges that small borrowers are competing with large and strong borrowers. The coverage under priority sector lending (which includes lendings to weaker sections) has increasingly been diluted, enabling big borrower loans at the direct expense of small borrower loans.
As part of the so-called process of” aligning bank credit to the changing needs of the society”, the scope and definition of the priority sector, once dominated by small farm related loans ,were fine-tuned by including new items and enhancing credit limits of constituent sub-sectors to more than Rs.40 lakh. Over the years particularly after the mid-nineties, relatively high credit worthy activities like housing, education, transportation and loans to professionals have been included in the priority sector.
This has affected unfavourably the credit flow to the needy sector.
(v) In order to increase credit flow to weaker sections, the ‘Report on Conditions of Work and Promotion of Livelihoods in the Un-organised Sector’ (Chairman: Dr. Arjun K. Sengupta), has made some definite recommendations. The Internal Working Group of the RBI to Review the Recommendations of the NCEUS Report on Conditions of Work and Promotion of Livelihoods in the Un-organised Sector made,in May 2008, certain recommendations on the recommendations of the Arjun Sengupta commission.
A summary of the recommendations and action points emerging out of the Internal Working Group is presented below along with our suggestions.
1) Revision in the weaker sections Targets:
(a) NCEUS has stated that, of the18.0 per cent credit earmarked for agricultural sector, 10.0 per cent may be exclusively set aside for small and marginal farmers. It has also suggested shifting the small and marginal farmers from the present weaker sections category to agriculture sector. Currently, small and marginal farmers are covered under the weaker sections. The weaker section quota for small and marginal farmers may then be released for other socio economically weaker segments. It advocates allocation of 12.0 per cent to socio-economically weaker sections for purposes of housing, education, etc., with a loan ceiling of Rs. 0.5 million. This would amount to an increase of 2.0 per cent additional quota in priority sector lending for weaker sections from current level of 10.0 per cent.
(b) The IWG suggests that RBI may consider measures to evolve a system of disincentive to banks for failure to reach the sub target of 10.0 per cent for weaker sections.
Policy change
(c) In the Annual Policy for the year 2008-09, it has been announced that the shortfall in lending to weaker sections also to be reckoned for the purpose of allocating amounts for contribution to RIDF, with effect from April 2009.
(d)ADVERSE IMPACT: This allowance enables banks to avoid lending to weaker sections by conveniently transferring the required amount to RIDF which will not directly benefit weaker sections by any stretch of imagination. This leads to avoiding purposive duty to finance weaker sections and this easy facility of transfer to RIDF should not be allowed.
This will reduce total finance to weaker sections and still facilitate showing that the target of lending is achieved.The concession in no way increase production and investment finance to weaker sections. Therefore this is incorrect and weaker section’s unfriendly. Only direct finance extended to weaker sections for production purpose should be reckoned for the purpose of achieving the target. On the other hand, If the target credit to weaker sections is increased from 10% to 12%, additional credit availability will increase by Rs 1 lakh crore more, ie, from outstanding level of Rs1 lakh crore as on March 2007, to Rs 2 lakh crore, by March 2009.
2. Explicit Target for Small and Micro Enterprises:
(a)The Commission recommends that an explicit target of 10 per cent be set for lending to small and micro Enterprises. Furthermore, within the 10.0 per cent quota set for the small and micro enterprises, the Commission has recommended the following.
A 4 per cent target be set with respect to micro enterprises with capital investment (other than land and building) up to Rs.0.5 million, which is to be gradually enhanced to 8 per cent of the net bank Credit-to be achieved in a phased manner in 5Years.
(b)The IWG is broadly in agreement with the intent of this recommendation. Within the aggregate loans to small and micro enterprises sector, banks are required to allocate 40.0 per cent to micro enterprises with investments in plant and machinery up to Rs 5 lakh under the present policy.
3. Monitoring of Credit Flow:
(a)The NCEUS recommends that: the Reserve Bank should separately monitor the credit flow to marginal and small farmers and to the micro-enterprise sector, with capital investment up to Rs.0.5 million and between Rs.0.5 to 2.5 million. .
(b) The IWG agrees with the NCEUS and recommends that RBI should make available in timely fashion detailed information on the flow of credit to weaker sections.
4.Setting up of Credit Guarantee Fund in NABARD:
(a)In order to reduce the perceived risk of default of the larger segment of marginal and small farmers, due to which the banks do not approach them actively, the Commission has recommended that the Government may set up a Credit Guarantee Fund in NABARD, on the lines of the CGF set up by the Ministry of Micro, Small and Medium Enterprises, which provides guarantee cover on loans to small units.
(b) An alternative proposal has been mooted by RBI to offer a credit guarantee scheme through the DICGC to distressed farmers.
(vi)CIFA proposals
It is unfortunates that the RBI continues to dilute the norms for achieving direct finance to weaker sections even after Sengupta commission pointed out such dilutions in the past and cautioned against moves to water down the spirit of extending credit to disadvantaged and unorganized groups. CIFA strongly demands that policy dilutions made by the RBI as detailed above in paragraph 1 should be withdrawn and only direct credit to weaker sections for the purposes of generating incomes should be reckoned toward weaker sections finance target. The target should be increased to 12% as recommended by the commission. CIFA further urges the RBI and the Government to implement the recommendations of the Arjun Sengupta Committee (detailed in paragraphs 2 to 4) and also recommended by the IWG of the RBI, to accelerate credit flow to weaker sections. The IWG suggestion that RBI may consider measures to penalize banks for failure to reach the sub target set for weaker sections should be made operative forthwith.
Loans to weaker sections should be given on composite basis covering credit needs for purchase of machinery, equipment etc, working capital and consumption needs for one year repayable from out of net income generated over period of 10 years. D.I.R scheme of interest rate at 4% should be charged for loans given to weaker sections up to Rs 2 lakhs.
(B)Enhancing skills acquisition & capabilities
(i) Provision of credit for a small/micro enterprise, is a necessary condition but not a sufficient condition for the enterprise to generate income. The person should be equipped with the necessary skills and capabilities. By equipping a person with the skills and capabilities, he can chose either to start an enterprise on his own by availing bank loans and government assistance or chose to be gainfully wage employed. Many studies have shown that net income derived from small land holdings is not sufficient for family expenses. One study (2003) puts the monthly income of a small farmer at Rs1578 which is woefully inadequate It is therefore essential that their income is augmented by their simultaneously engaging in activities allied to agriculture like dairying, mini poultry, bee keeping vegetable, fruits and flower growing etc; In order to ease pressure on land and to prevent further fragmentation it should be the objective of Rural Planning that at least one member from each small land holder family comes out and engages in non-farming rural activities. Composite loans covering all these activities should be provided by banks repayable from net income, over a period of 10 years at DIR interest rate of 4%.
(ii) Establishing mini rural agro processing and rural service centres for selected clusters of villages, with provision of infrastructural facilities like, roads, water, power sheds and godowns and marketing linkages is the ideal solution for providing non farm employment in rural areas. Big industrial units, banks, insurance agencies and philanthropic institutions can adopt these rural processing and service centres and provide man power, material and monetary resources. A system of reservation of items manufactured in rural centres should be evolved to ensure assured market for the products. Mega agro processing centres are capital intensive and can provide employment for only a few hundreds, where as for the same investment, rural mini agro processing and rural service enterprises with simple machines can engage many thousands of semi skilled people.
(iii) Young rural people should be provided vocational training in various manufacturing processes and crafts for which there are raw materials available locally and this vocational training can start immediately after a person completes VII standard. At the end of vocational training, they should also be imparted training in entrepreneurial capabilities the absence of which is resulting in failure of many self employed enterprises in the un-organized sector. After these kinds of trainings, they should be encouraged to be taken as apprentices in established processing and service units. Meritorious students should be provided opportunities for higher learning. There can be a system of reservations up to say, 25% for these rural meritorious candidates in higher learning centres. Thus trained and equipped, they are ready either to start their own unit or be gainfully employed. The need of the hour is to train lakhs of rural people by enhancing and equipping thousands of rural ITIs than pour thousands of crores of rupees in establishing a few IITs/ IIMs which train only a few thousands. The priority should be changed towards training rural youth for employment than pour thousand of crores of money to benefit already highly qualified people who go abroad anyway and get employed and the investment in IITs/IIMs is a loss to the nation. Training rural youth is a gain to the nation.
(iv)Providing grading facilities and godowns for storage as well as marketing arrangements and linkages with retail chains are the neglected areas so far and to make any rural employment to be successful, these arrangements are essential and the government and Producers’ organizations have an important role to play in making these arrangements.
(v)Rural youth have the same potential as urban youth. If necessary facilities and opportunities are provided they will prove equal to their urban bred and urban educated cousins. What is required is change in the mind set of the Governments, Planning Bodies with focus on employment and income generation than on mere Macro GDP numbers. So our Planning Mandarins should change their mind set and have as objective, providing opportunities for employment and income generation, and not macro level increase in GDP which benefits only a few who already have wealth and higher education anyway. Top down planning should be replaced by bottom up planning.
If focus is changed from mere GDP growth to employment growth and growth in incomes of the lower half of the populace, then we can see a SHINING INDIA where most of the people are smiling, than the present India where 25% are smiling and 75% are weeping.
(vi) We conclude this paper with the heart felt and soulful observations of Prof. M.S. Swaminathan in his Report of National Commission on Farmers-2006.
“Economic growth which bypasses a large population is joyless growth and not sustainable in the long run. What then is the future for India’s rural population numbering over 700 million? We cannot be silent onlookers to a situation where 30% of India is shining and 70% is weeping. Equity considerations can not be ignored for too long. Faster growth in agriculture with improvement in welfare of the rural population is important. The need is not only to register increase in agriculture (rural) production in million tons but actual improvement in rural incomes” (which will benefit millions of weaker sections)
REAL INDIA LIVES IN VILLAGES - OUR AIM IS GRAM SWARAJ
*A note on Advances to priority Sectors and Weaker Sections: Genesis and subsequent changes
At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial banks should increase their involvement in financing the priority sectors, viz., agriculture and SSIs. The
description of the priority sectors was later formalised in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the priority sectors constituted by the Reserve Bank in May 1971. Although initially, there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by March 1979. Subsequently, on the basis of the recommendations of the Group on the Modalities of Implementation of Priority Sector Lending Policy and the Twenty Point Economic Programme, all commercial banks were advised to achieve the target of priority sector lending of 40.0 per cent of aggregate bank advances by 1985. Broad sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector. Since then, there have been several reviews and changes in the scope of priority sector lending and the targets and sub-targets applicable to various bank groups. that priority sector advances constitute 40.0 per cent of Adjusted Net Bank Credit8 (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Advances to weaker sections: 10.0 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
30/08/08
Elusive Inclusive Growth
Gap in Per Capita income ratios between Agricultural and non-agri workers going to increase further during XI Plan period which aims at inclusive growth!
The Central Government has taken credit for growth in Agricultural GDP at 4.5% during 2007-08.One swallow does not make a summer. If we take long term growth trend as revealed by the data provided by the RBI in their Annual Report 2007-08, the position that emerges is different. Average Agri GDP growth rate during the decade of 1990-91 to 1999-2000 was 3.2%; growth rates for Industrial and Service sectors were 5.7% and 7.1% respectively. During the eight year period ending 2007-08 Agri GDP growth is only 2.9%. During the same period, growth rates of Industry and Services sectors were 7.1% and 9% respectively. Agri GDP growth during X Plan period (2002-03 to 2006-07) was only 2.5%, where as the growth rates of Industrial and Service sectors were 8.0% and 9.7% respectively. The forecast made by the PMEAC for 2008-09 is a growth of only 2%.
These trends clearly show that growth in Agri GDP is stagnating and continuously lagging behind GDPs of Industrial and service sectors. But the population dependant on Agriculture at 60% is almost the same. Planning commission, in their study revealed that the gap in per -capita income ratios between agri and non-agri sector workers have widened from to 1:2.8 in the period 1978-79 to 1983-84 to a whopping 1:5.2 in 1998-99 to 2003-04.
The per capita availability of cereals and pulses has also declined. The per capita consumption of cereals declined from a peak of 468 grams per day in 1990-91 to 412 grams per day in 2005-06, while that of pulses declined from 42 grams per day to 33 grams per day during the same period. Between 1996 and 2004 there was almost zero growth in food grains.There has been stagnation in yields of cereals and pulses. Stagnation in yield emanated from limited release of new variety seeds, decline in agricultural investment and almost non-existent extension services. Furthermore, as noted by the Steering Committee on Agriculture for the Eleventh Five Year Plan, a number of factors such as land degradation, scarcity of water and slow progress in public and private investment in rural infrastructure (including irrigation) have also contributed to stagnation in the agriculture, especially since the 1990s, which coincides with starting of economic reforms. While much of agricultural growth has originated from the expansion of irrigation and increased productivity of irrigated land, rain-fed agricultural productivity has been more or less stagnant. Moreover, as noted by a recent research study conducted by the R B I, the slower growth in public expenditure in agriculture inhibited the development of adequate research and extension system for supporting farming. Productivity increase in agriculture is dependant on enhanced capital formation both from the public and private sectors. Investment in agriculture as a proportion of overall GDP remained stagnant in recent years. It is stagnating around 2% since 1990s.
All these trends and factors firmly confirm the projections made by the Centre for Development Economics that, “whereas agricultural sectoral GDP stood at nearly Rs.3,000 billion in 2002-03, it will rise to no more than a whisker under Rs.4,000 billion a decade later in 2011-12 at the agricultural growth rate forecast for the Eleventh Plan. Meanwhile, the combined manufacturing and services sectors would have soared from Rs. 9,000 billion to around Rs. 20,000 billion, widening the gap between the relatively stagnant sectors of the economy and the boom sectors from Rs.6,000 billion to Rs.16,000 billion”, are going to be a certainty. This means that the gap is going to be further widened to an intolerable extent and the objective of inclusive growth is not going to be realized during XI Five Year Plan. Now a doubt arises, WHAT FOR ARE THESE PLANS MADE AT HUGE COSTS BY THE PLANNING COMMISSION MANDARINS? Will it not be better to do away with the Planning Commission and have bottom up plans starting from the districts and the centre funding these development programmes in the ratio of population in the rural and urban areas?
Gap in Per Capita income ratios between Agricultural and non-agri workers going to increase further during XI Plan period which aims at inclusive growth!
The Central Government has taken credit for growth in Agricultural GDP at 4.5% during 2007-08.One swallow does not make a summer. If we take long term growth trend as revealed by the data provided by the RBI in their Annual Report 2007-08, the position that emerges is different. Average Agri GDP growth rate during the decade of 1990-91 to 1999-2000 was 3.2%; growth rates for Industrial and Service sectors were 5.7% and 7.1% respectively. During the eight year period ending 2007-08 Agri GDP growth is only 2.9%. During the same period, growth rates of Industry and Services sectors were 7.1% and 9% respectively. Agri GDP growth during X Plan period (2002-03 to 2006-07) was only 2.5%, where as the growth rates of Industrial and Service sectors were 8.0% and 9.7% respectively. The forecast made by the PMEAC for 2008-09 is a growth of only 2%.
These trends clearly show that growth in Agri GDP is stagnating and continuously lagging behind GDPs of Industrial and service sectors. But the population dependant on Agriculture at 60% is almost the same. Planning commission, in their study revealed that the gap in per -capita income ratios between agri and non-agri sector workers have widened from to 1:2.8 in the period 1978-79 to 1983-84 to a whopping 1:5.2 in 1998-99 to 2003-04.
The per capita availability of cereals and pulses has also declined. The per capita consumption of cereals declined from a peak of 468 grams per day in 1990-91 to 412 grams per day in 2005-06, while that of pulses declined from 42 grams per day to 33 grams per day during the same period. Between 1996 and 2004 there was almost zero growth in food grains.There has been stagnation in yields of cereals and pulses. Stagnation in yield emanated from limited release of new variety seeds, decline in agricultural investment and almost non-existent extension services. Furthermore, as noted by the Steering Committee on Agriculture for the Eleventh Five Year Plan, a number of factors such as land degradation, scarcity of water and slow progress in public and private investment in rural infrastructure (including irrigation) have also contributed to stagnation in the agriculture, especially since the 1990s, which coincides with starting of economic reforms. While much of agricultural growth has originated from the expansion of irrigation and increased productivity of irrigated land, rain-fed agricultural productivity has been more or less stagnant. Moreover, as noted by a recent research study conducted by the R B I, the slower growth in public expenditure in agriculture inhibited the development of adequate research and extension system for supporting farming. Productivity increase in agriculture is dependant on enhanced capital formation both from the public and private sectors. Investment in agriculture as a proportion of overall GDP remained stagnant in recent years. It is stagnating around 2% since 1990s.
All these trends and factors firmly confirm the projections made by the Centre for Development Economics that, “whereas agricultural sectoral GDP stood at nearly Rs.3,000 billion in 2002-03, it will rise to no more than a whisker under Rs.4,000 billion a decade later in 2011-12 at the agricultural growth rate forecast for the Eleventh Plan. Meanwhile, the combined manufacturing and services sectors would have soared from Rs. 9,000 billion to around Rs. 20,000 billion, widening the gap between the relatively stagnant sectors of the economy and the boom sectors from Rs.6,000 billion to Rs.16,000 billion”, are going to be a certainty. This means that the gap is going to be further widened to an intolerable extent and the objective of inclusive growth is not going to be realized during XI Five Year Plan. Now a doubt arises, WHAT FOR ARE THESE PLANS MADE AT HUGE COSTS BY THE PLANNING COMMISSION MANDARINS? Will it not be better to do away with the Planning Commission and have bottom up plans starting from the districts and the centre funding these development programmes in the ratio of population in the rural and urban areas?
29/08/08
Continued neglect of farm credit during 2007-08 also
The RBI has today released its Annual Report for the year 2007-08.From the data provided therein, it is observed that additional credit extended to agriculture during 2007-08 ,declined to Rs43,260crore compared to a growth of Rs56,426crore during the previous year. The agricultural sector was given only 11 per cent of the incremental non-food bank credit expansion as compared with 14 per cent in the previous year where as a whopping 43 per
Cent of incremental non-food credit (y-o-y) was given to industry as compared with 37 per cent in the previous year. Credit was obviously directed to industrial sector diverting from agricultural sector. It is unfortunate that credit to essential sector like farm sector is continuously decreasing and no effective measures are taken by the RBI and the Government to ensure that banks extend credit to the mandated extent of 18% of net bank credit. The figure is hovering around 12% to 15% for more than a decade; and continues to be below 18% even after the government declared in 2004 that Agriculture credit is their priority. Lending to agriculture by banks, both in the public and private sectors, continued to fall short of the stipulated target of 18 per cent. Had credit been extended up to the stipulated norm of 18%, farm credit would have been Rs 50,000 crore more than the actual increase of only Rs43,260 crore and additional loaning would have been Rs 93,260 crore , by March 2008. If the trend of rural credit deposit ratio in rural areas is the same as last year i.e.; 56%, then large amount of deposits collected from rural areas would have continued to be diverted to metro areas thus depriving of benefit required credit to rural areas.
It is another matter that a major portion increase in agri loans is on account of disproportionate increase in indirect loans and big loans of Rs one crore and above. Referring to the growth rate in agricultural credit in the last few years (after 2000) Prof.M.S.Swaminathan recently said at Chennai on the 26th Aug that "it originated primarily from a growth in indirect finance to agriculture i.e. credit given to institutions and organisations that contribute to agriculture but not the credit given directly to agriculturists.""Between 2001 and 2006, direct finance to agriculture grew at 17.4 per cent but indirect finance grew by 33 per cent, he said. Even in the case of direct finance, the major rise in direct advances happened where the credit limit was more than Rs 1 crore."
He underscored the critical importance of agriculture, stating “we can’t live happily as islands in a sea of misery”. Calling farmers the guardians of national food security, he said that it was their efforts that had enabled the country to have a buffer of about 25 million tonnes of wheat and 30 million tonnes of rice. He also reiterated that "the minimum support price offered by the Government to farmers must cover their costs and offer at least 50 per cent more as against the current levels of 15 per cent above cost price"We urge upon the RBI and the Government to ensure that credit is extended to essential farm sector to the extent of 18% of total credit and Agri prices are fixed as recommended by the NCF headed by Prof.M.S.Swaminathan.Continued neglect of credit and underpricing of agri produce is not in the interests of the nation's food security and the farmers.
The RBI has today released its Annual Report for the year 2007-08.From the data provided therein, it is observed that additional credit extended to agriculture during 2007-08 ,declined to Rs43,260crore compared to a growth of Rs56,426crore during the previous year. The agricultural sector was given only 11 per cent of the incremental non-food bank credit expansion as compared with 14 per cent in the previous year where as a whopping 43 per
Cent of incremental non-food credit (y-o-y) was given to industry as compared with 37 per cent in the previous year. Credit was obviously directed to industrial sector diverting from agricultural sector. It is unfortunate that credit to essential sector like farm sector is continuously decreasing and no effective measures are taken by the RBI and the Government to ensure that banks extend credit to the mandated extent of 18% of net bank credit. The figure is hovering around 12% to 15% for more than a decade; and continues to be below 18% even after the government declared in 2004 that Agriculture credit is their priority. Lending to agriculture by banks, both in the public and private sectors, continued to fall short of the stipulated target of 18 per cent. Had credit been extended up to the stipulated norm of 18%, farm credit would have been Rs 50,000 crore more than the actual increase of only Rs43,260 crore and additional loaning would have been Rs 93,260 crore , by March 2008. If the trend of rural credit deposit ratio in rural areas is the same as last year i.e.; 56%, then large amount of deposits collected from rural areas would have continued to be diverted to metro areas thus depriving of benefit required credit to rural areas.
It is another matter that a major portion increase in agri loans is on account of disproportionate increase in indirect loans and big loans of Rs one crore and above. Referring to the growth rate in agricultural credit in the last few years (after 2000) Prof.M.S.Swaminathan recently said at Chennai on the 26th Aug that "it originated primarily from a growth in indirect finance to agriculture i.e. credit given to institutions and organisations that contribute to agriculture but not the credit given directly to agriculturists.""Between 2001 and 2006, direct finance to agriculture grew at 17.4 per cent but indirect finance grew by 33 per cent, he said. Even in the case of direct finance, the major rise in direct advances happened where the credit limit was more than Rs 1 crore."
He underscored the critical importance of agriculture, stating “we can’t live happily as islands in a sea of misery”. Calling farmers the guardians of national food security, he said that it was their efforts that had enabled the country to have a buffer of about 25 million tonnes of wheat and 30 million tonnes of rice. He also reiterated that "the minimum support price offered by the Government to farmers must cover their costs and offer at least 50 per cent more as against the current levels of 15 per cent above cost price"We urge upon the RBI and the Government to ensure that credit is extended to essential farm sector to the extent of 18% of total credit and Agri prices are fixed as recommended by the NCF headed by Prof.M.S.Swaminathan.Continued neglect of credit and underpricing of agri produce is not in the interests of the nation's food security and the farmers.
Continued neglect of farm credit during 2007-08 also. The RBI has today released its Annual Report for the year 2007-08.From the data provided therein,it is observed that additional credit extended to agriculture during 2007-08 ,declined to Rs43,260crore compared to a growth of Rs56,426crore during the previous year.The growth in agri credit is less than even personal loans which are mainly for non-production purpose.It is unfortunate that credit to essential sector like farm sector is continuously decreasing and no effective measures are taken by the RBI and the Government to ensure that banks extend credit to the mandated extent of 18% of net bank credit.The figure is hovering around 15% since 2000,even after the government declared that Agriculture is their prime concern.It is another matter that a major portion increase in agri loans is on account of disproportionate increase in indirect loans and big loans of Rs one crore and above.Referring to the growth rate in agricultural credit in the last few years (after 2000) Prof.M.S.Swaminathan recently said at Chennai on the 26th Aug that "it originated primarily from a growth in indirect finance to agriculture i.e. credit given to institutions and organisations that contribute to agriculture but not the credit given directly to agriculturists.""Between 2001 and 2006, direct finance to agriculture grew at 17.4 per cent but indirect finance grew by 33 per cent, he said. Even in the case of direct finance, the major rise in direct advances happened where the credit limit was more than Rs 1 crore." He underscored the critical importance of agriculture, stating “we can’t live happily as islands in a sea of misery”. Calling farmers the guardians of national food security, he said that it was their efforts that had enabled the country to have a buffer of about 25 million tonnes of wheat and 30 million tonnes of rice.He also reiterated that "the minimum support price offered by the Government to farmers must cover their costs and offer at least 50 per cent more as against the current levels of 15 per cent above cost price"We urge upon the RBI and the Government to ensure that credit is extended to essential farm sector to the extent of 18% of total credit and Agri prices are fixed as recommended by the NCF headed by Prof.M.S.Swaminathan.Continued neglect of credit and underpricing of agri produce is not in the interests of the nation's food security.
Labels: Continued neglect of farm credit even during 2007-08
Neglect of Farm Credit during 2006-07
Posted by K.Ramasubbaredy
As per data published by the RBI, as on March 2007, Credit given out of deposits collected from rural and semi-Urban areas continues to be less than the percentage of credit deployed in metro areas, indicating continued diversion of deposits from rural and semi-urban areas for giving credit in Metro areas. Had credit been extended to the same extent as in Metros, instead of 56% of deposits received from people in rural and semi-urban areas, additional credit over Rs 1,00,000 crore could have been given in rural and semi-urban areas benefiting mostly farmers and artisans and tiny industries thereby increasing production and income of rural and semi urban people considerably. This benefit was diverted to metro people at the cost of rural and semi urban people. The C/D ratio of NE, Eastern, and Central states is low at 40%, resulting in flow of funds from these regions to western and southern regions. The share of agricultural credit, a productive purpose and essential food supply activity, continues to be low, where as the share of personal loans, consumption based non-productive activity, is twice that of agri credit. Agriculture segment would have got more credit to the extent of Rs 21,000 crore in addition to Rs56,426 crore disbursed, had 18% credit was extended to this segment. Thus lower credit deprived agriculture much needed production and investment loans to which would have helped in augmenting agricultural production.
Posted by K.Ramasubbaredy
As per data published by the RBI, as on March 2007, Credit given out of deposits collected from rural and semi-Urban areas continues to be less than the percentage of credit deployed in metro areas, indicating continued diversion of deposits from rural and semi-urban areas for giving credit in Metro areas. Had credit been extended to the same extent as in Metros, instead of 56% of deposits received from people in rural and semi-urban areas, additional credit over Rs 1,00,000 crore could have been given in rural and semi-urban areas benefiting mostly farmers and artisans and tiny industries thereby increasing production and income of rural and semi urban people considerably. This benefit was diverted to metro people at the cost of rural and semi urban people. The C/D ratio of NE, Eastern, and Central states is low at 40%, resulting in flow of funds from these regions to western and southern regions. The share of agricultural credit, a productive purpose and essential food supply activity, continues to be low, where as the share of personal loans, consumption based non-productive activity, is twice that of agri credit. Agriculture segment would have got more credit to the extent of Rs 21,000 crore in addition to Rs56,426 crore disbursed, had 18% credit was extended to this segment. Thus lower credit deprived agriculture much needed production and investment loans to which would have helped in augmenting agricultural production.
Paddy needs higer MSP
Paddy MSP is fixated at Rs 850 a quintal by the Govrnment, CACP recommended Rs 1000 per quintal taking into account increase in the cost of production. Even after commencement of Khariff season, MSPs as recommended by the CACP were unnecessarily referred to the members of EAC, who are no experts in determining agri prices. And the EAC came out with an astounding recommendation that Paddy does not require MSP of Rs1000 per quintal as the acreage under paddy has increased during this khariff season. Their recommendation has no reference to cost of production and risks involved in paddy cultivation. Hence sticking to MSP of Rs 850 is unreasonable and unfair to farmers as it does not even cover cost of cultivation.
28/08/08
Bengal C M is right in opposing bandhs
Bengal C.MBudhadeb has taken a bold decision opposing bandhs which subject ordinary people to untold sufferings.No party has a right to bandhs and the Supreme ccourt also ruled similarly.All of us should support Budhadeb for opposing bandhs and congratulate him on the bold stand taken much to the chagrin of his party men.
First thoughts
I wish to share my thoughts with other like minded people on current events pertaining to India mostly in the field of economic developments and discuss with others on other subjects too.
Subscribe to:
Posts (Atom)
