Monday, January 15, 2007

Topic - 'farm loans...." - Complete Analysis

I am deeply disappointed. I am sure that the group made very good points but did not take your arguments ‘forward’. Rise above the shallow waters and swim deeper. You are competing for the top B-Schools and you are the cream of the country.

I want to believe that it was the weekend lethargy since Aparna came fresh on Monday evening and made some straight forward simple arguments to clinch the crown. Her slogging in the last overs has saved the group some embarrassment. Go through the analysis at the end. Though there were some economic fundas that wud add to your knowledge base, most of the ideas would come just from Thinking.

Consolidation (There was lot to do in commenting). Unusually, My start/points have been intertwined

1. Famer Suicide and a need to avoid such situation by active intervention
2. Active participation of the Government in partnership with organization to educate farmers better
3. Farmer cess like education cess to support famer subsidies and lower interest loans
4. It can encourage ‘entrepreneurship’ among farmers
--- Good point

5. Rather than trying to do the whole good work itself the Government should engage the help of other organizations
6. The farmer may engross himself in more debt and hence the whole idea could have an adverse effect
--- Good perspective

7. The scheme may create a burden on the economy
8. Government should think of improvising ways to minimise the impact of erratic rainfall
--– very good point. But should have concluded with a better solution. May I suggest farm insurance for instance

9. Have a plan to phase out the subsidies over a period of time
--- Good point. But subsidies are not what we were talking about :)

10. Government should try and prune the middlemen
---– Guys, middlemen also are effective market forces and most of the time a necessity. Don’t demonize them. There are middlemen everywhere – real estate, job market and even in flesh business. Their duty is to make the customer meet the producer and they get paid for it. Some do get benefited more, but don’t hang them for it. Btw, e-choupal is a kind of middleman.

11. Access to good credit is important for farmers to free them from the shackles of zamindars & local lenders. Lower interest rates will make it possible for them to repay & make a profit on their investment
---– Why couldn't anybody else think of this. Should such an obvious point win a trophy?

12. India needs progress at grass root levels. Unless the farmers & rural people , who make up 1/2 of India's population, rise above their current living standards, we cannot call our nation developing in the true sense
---– Can I see Aparna sweeping the GD with some basic common sense arguments here. Kudos Aparna.
----- Re-phrase the point thus and this cud have been a wonderful START. "Prosperity of a nation does not just happen by wealth generation, but also by an equitable wealth distribution. Farm loans at a lower rate is one attempt at uplifting the sector on which more than 70% of the nation is directly dependant and from where more than 50% of the nation's GDP comes from. The important thing is 'Is it effective', and is so 'Is it effective by itself' and 'If it is effective, how to implement it better'"

13. Vote bank may be a motive behind this move, but we can make it a productive process by introducing accountability
---– ‘Accountability’, A brownie point for that

14. It is a right thought that it is the tax payers money going into a political move, but unless we help our rural compatriots, India shining shall remain the elusive aim ever.

15. In addition to low interest rates, a measure in tandem that could improve a farmer's credit, would be letting the price of a crop be decided by market forces rather than set by the government. Pegging of prices at artificial lows or highs causes a lot of losses both ways.etc – The crown goes to the lady.

Parting shots and some economic fundaes (Oh so many of them !!)
1. Please understand the subtle difference between the subsidy and low interest loan. From an economic perspective, subsidy is a clear-cut Government “expense” to support farmers while a low-interest loan is a Government “investment” for the upliftment of the farmers. In a loan, there is a collateral (land, future crop etc) and the farmer has taken it specifically to invest in something (land or crop) and thus expects a return out of the investment which he shall use to repay the debt.
--- Simple economic funda - Investments are better than expenses

2. Giving low interest loans is akin to tax-free regime for software companies and SEZs. It is a deliberate market anomaly brought in not as an SOS but as an encouragement for development. Don’t treat the farmers as taking away Government money. Remember, many other industries are not happy with Government giving tax free regimes to software companies, but thats the way it is.

3. Remember, interest on house loans are also lower than industrial loans. Because of the collateral and the encouragement of the Government. It may have distorted the real estate market a little bit with inflation, but that is an ‘understood’ side-effect and is not so bad.

4. Farm loans are not sympathy instruments. They are instruments of encouragement to the agriculture sector. Support to Vidharba farmers (remember there is a drought situation there) is akin to flood/tsunami relief. Low-interest loans cannot solve that. ‘Loan waivers’ may. And there is a difference between low-interest loans and loan waivers.

5. There has been lot of points on educating the farmers. Very elitist thinking. Please understand that the farmer knows about the issues with crops better than the Government or the NGOs. They just may not be in a position to resolve those issues. So it is fine that the point is made once, but not fine being repeated because that means that the group is not thinking further. Remember, the Britishers wanted to teach Indians ‘democracy’ once upon a time :)

6. Burden on the economy argument – it is an investment by the Government like that on defense, roads, industry tax waivers etc. It is the duty of the Government to take that burden.

7. The very reason 'tax' exists is for better distribution of wealth. And what better than for it to go to improve the bread-earners who are to be uplifted. There is nothing else that the Govt is doing for them anyway unlike its support for so many industries.

8. Statistically, rural loans have lesser bad debts as compared to urban ones.

I am sure I have missed on some points that I could have added and I have also taken a very strong pro stand. I would not have taken such a strong pro-stand if the group had been a little more pro :)

Understand that you can take the best value out of my guidance if you can cover all the points and make me work hard to give additional points. So it is in your hands how much you take out of me.
In the end, do not get disappointed with the extra bitter critique. It was intended to shake up your dust. Let us see people fighting back with some good points for the next topics. Can I already hear a ‘Har har mahadev’ battlecry ?? :)

Click here for analysis of the previous topic
Click here for analysis of next topic



Anonymous Anonymous said...

Wide variety of comments. There is little scope for me to add. But I come from an argument of bringing down rates by removing inefficiencies in loan disbursement system.

1. Usage of farm-loans for non-productive purposes. The money thus loaned is sometimes spent on marriages, death ceremonies etc. Before disbursing low-rate loans, measures needs to be in place to ensure it is used for agricultural purpose only.

2. The economic burden arises from the fact that such loans are high risk loans. The risks are natural as well as of non-agriculture related bad-debts. The latter can be reduced by credibility linked rates and loan limits. This way farmers can be incentivised to pay regularly, while reducing overall risk.


11:29 PM, January 15, 2007  
Blogger Gyan-ee said...

Hey Nee,

That were good points. Good to see some 'good' counter points. I am sure the group had the potential to come up with these and much better arguments much before.

4:18 AM, January 16, 2007  

Post a Comment

<< Home