Villages await reforms
UMA SHASHIKANT
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Do away with initiatives that have not worked for the farmer, and instead allow free market to flow in
The sky was overcast. As we sat in the groundnut fields of a re mote village in Karnataka's Haveri, the farmers were har vesting the kharif crops and talking about sowing for the rabi season.One good rain, and the village would sow a second jowar crop. The harvested soya bean and corn lay covered in plastic. The tuvar buds were showing and needed a shower to break into dense flowers. A good winter would ensure a decent yield.The cotton crop failed due to lack of rain.When the farmers asked me to tell them what I knew about finance, I felt a mix of guilt, shame, rage and humility . The high world of finance and the market economy had not yet reached thousands of villages. Which was tragic and shameful.The Jan Dhan Yojana is but one of the many routine sarkari initiatives the villagers hear about. They are chased by banking correspondents, and many have opened bank accounts that remain inactive. They do not have the time to leave their work and queue up in the bank.Their incomes are too seasonal and sparse to worry about bank transactions.Life is simple. It begins at sunrise in the fields, and ends there as the sun sets.Wages are given on Thursday and the village market sells its wares on Friday where grocery and household items are bought. Stable income is not something the villagers know of.
The rains failed them again this year.They are staring at another year of low incomes. It is striking how little protection they have from this failure. When I ask them about crop insurance, they tell me that bank officials have not turned up to collect the premium. It is routine, so that claims are not made. No one believes crop insurance works.
The biggest heartache is the price for produce. There are chilly plants laden with fruit. But prices have crashed so much that the cost of harvesting the chillies is higher than the price it will fetch.They ask me for vegetable prices in Mumbai, and gasp at the numbers. They earn a tiny fraction of the final price we pay . This is fertile ground for NGOs to move in and protest the unfair deal to farmers.However, farmers themselves think the solution will come not from protest and noise but from sensible policy reform.
The market for agricultural produce is dominated by the moneyed middlemen.He incurs the costs of buying, storing, processing and transporting agricultural produce to the markets. But he makes a hefty margin for this role. A margin that villagers are more than willing to pay , because he will buy the entire lot and pay cash immediately . The farmer has no wherewithal to haul his produce to markets, or wait to sell and be paid later. He has his fields to return to.
The middlemen also double up as money lenders charging usurious rates of interest. In the last few years, the one big change has been the shift to crop loans from banks at a lower interest. But farmers are reluctant to take large loans, as they worry about indebtedness. They take annual loans for crops, and repay as soon as they sell, renewing the loan for the next season. They are too scared to take big loans for investing in solar energy , irrigation or even the more profitable long-term plantations.
If one took an enterprise view of the farm, it is a multi-bagger that yields a generous return for the investment it takes to grow a good crop. The process is well established, costs are not too high and the manpower needs not too sophisticated. The market for the produce is steady and growing. But what we have is a broken system where inputs like power and water are in chronic short supply; while seed and fertiliser are subsidised.The low return and the myriad risks means farmers who have given up have migrated to cities to to work as daily wagers. Shortage of farm hands and young new farmers hurts the sector even more.
What could I tell these farmers about money? A farmer's worry is just his produce --its growth, protection, harvest and sale. All these activities are prone to high risk and low return. There is no money to set aside and save. Financial goals are unheard of. Financial inclusion for these farmers is about enabling access to free and fair markets, enabling them to sow and harvest to plan. If confidence about income moves up, their ability to borrow, insure and hedge goes up. Minimum support prices, subsidies, free water and power and low cost loans are all relics of an era when the government behaved like a feudal king. It is time we dismantled what has not worked, and allowed the free market to flow in and benefit the farmer and the consumer.
The rain clouds gathered into a storm and poured. Everyone in the village was gleeful and the dinner conversation was only about the rain. Our dinnertime conversations in the city about the traffic seemed frivolous in comparison. Financial liberalisation of the 1990s has placed a lot of money in the hands of the urban Indian, while the rural India is stuck in a rut where reforms are overdue.
The author is Chairperson, Centre for Investment Education and Learning
Source: The Times of India, 12-10-2015
The rains failed them again this year.They are staring at another year of low incomes. It is striking how little protection they have from this failure. When I ask them about crop insurance, they tell me that bank officials have not turned up to collect the premium. It is routine, so that claims are not made. No one believes crop insurance works.
The biggest heartache is the price for produce. There are chilly plants laden with fruit. But prices have crashed so much that the cost of harvesting the chillies is higher than the price it will fetch.They ask me for vegetable prices in Mumbai, and gasp at the numbers. They earn a tiny fraction of the final price we pay . This is fertile ground for NGOs to move in and protest the unfair deal to farmers.However, farmers themselves think the solution will come not from protest and noise but from sensible policy reform.
The market for agricultural produce is dominated by the moneyed middlemen.He incurs the costs of buying, storing, processing and transporting agricultural produce to the markets. But he makes a hefty margin for this role. A margin that villagers are more than willing to pay , because he will buy the entire lot and pay cash immediately . The farmer has no wherewithal to haul his produce to markets, or wait to sell and be paid later. He has his fields to return to.
The middlemen also double up as money lenders charging usurious rates of interest. In the last few years, the one big change has been the shift to crop loans from banks at a lower interest. But farmers are reluctant to take large loans, as they worry about indebtedness. They take annual loans for crops, and repay as soon as they sell, renewing the loan for the next season. They are too scared to take big loans for investing in solar energy , irrigation or even the more profitable long-term plantations.
If one took an enterprise view of the farm, it is a multi-bagger that yields a generous return for the investment it takes to grow a good crop. The process is well established, costs are not too high and the manpower needs not too sophisticated. The market for the produce is steady and growing. But what we have is a broken system where inputs like power and water are in chronic short supply; while seed and fertiliser are subsidised.The low return and the myriad risks means farmers who have given up have migrated to cities to to work as daily wagers. Shortage of farm hands and young new farmers hurts the sector even more.
What could I tell these farmers about money? A farmer's worry is just his produce --its growth, protection, harvest and sale. All these activities are prone to high risk and low return. There is no money to set aside and save. Financial goals are unheard of. Financial inclusion for these farmers is about enabling access to free and fair markets, enabling them to sow and harvest to plan. If confidence about income moves up, their ability to borrow, insure and hedge goes up. Minimum support prices, subsidies, free water and power and low cost loans are all relics of an era when the government behaved like a feudal king. It is time we dismantled what has not worked, and allowed the free market to flow in and benefit the farmer and the consumer.
The rain clouds gathered into a storm and poured. Everyone in the village was gleeful and the dinner conversation was only about the rain. Our dinnertime conversations in the city about the traffic seemed frivolous in comparison. Financial liberalisation of the 1990s has placed a lot of money in the hands of the urban Indian, while the rural India is stuck in a rut where reforms are overdue.
The author is Chairperson, Centre for Investment Education and Learning
Source: The Times of India, 12-10-2015
