The citation said that this blog offered a window to the global economy through the Indian economy. Throughout my twenty-four years analysing global economies, I spent a lot more analysing, thinking about and writing on the rest of the world than on India. That has shaped the content of this blog too. But, clearly, the proportion has shifted more towards India. Still, the RoW and global financial markets compete for and succeed in grabbing my attention. It is time to write a bit on India.
This BloombergQuint piece says that animal spirits in India are not reviving. It has come out with a graphic that shows the animal spirits at 3. Max is 7 and Min is 1. So, there you go.
But, the bright spot is agricultural and rural economy. Monsoon has been good so far. Been almost a month and I am yet to visit the IMD website even once this year. Timely arrival of monsoon and record sowing in its wake (30% more acreage) are helping rural employment. What the increased sowing means for food prices and for rural incomes via record produce is something we may have to worry about later. Also, the record sowing means water consumption too will be higher. But, for now, we will take the jump in rural employment as a blessing, no doubt.
That the Union government has empowered farmers to sidestep Mandis and sell inside and outside the State is a good thing. It will help to dispose off the surplus food production that is likely to follow in the wake of the record sowing.
Mr. Subhash Garg, Former Secretary (Economic Affairs), has a detailed blog post on the recent agricultural reforms of the government. He had to leave his post last year and is now more of a critic of the Union government than its defender. His blog posts are an important read for the wealth of information and knowledge they convey. They are not blog posts but papers actually. For example, his recent post on agriculture reforms runs into more than 10700 words and is almost 69,000 characters-long, including spaces. The virtual dismantling of the Agricultural Produce Marketing Committees through the promulgation of ‘The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020’ is ‘revolutionary’ and ‘truly disruptive’ in his own words. The full blog post is here.
Harish Damodaran too notes the contrasting government response to ‘Note Bandhi’ (demonetisation carried out in November 2016) and ‘Ghar bandhi’ (Covid induced lockdown). Post-demonetisation which affected the rural economy and the informal sector more, the government’s reaction to food prices was to bring in imports, curb exports and invoke Essential Commodities Act. It is interesting that Harish Damodaran links it to India’s adoption of ‘inflation targeting’ framework for monetary policy.
Incidentally, Mr. Garg thinks that Essential Commodities Act (ECA), 1955 can be scrapped. India is a surplus country in food. ECA ceased to be applicable for industrial commodities long ago. It is time the remaining agricultural commodities too are removed and the Act scrapped. He is right. But, back to Harish Damodaran.
In contrast to the government response in 2017 and in 2018, this time around, the government, Harish notes, has scrapped the APMC act, allowed farmers to sell anywhere and everywhere and has diluted the provisions of ECA. It has procured record amount of foodgrains, disbursed loans, made direct transfer to farmers’ accounts, transferred the first instalment payment under the PM Kisan Samman Nidhi Scheme and increased allocations to MGNREGA. Harish notes that the amount the Government of India had spent on the rural economy amounts to Rs.1.5 lakh crores and that too in a space of three months. Annualised, it works to almost 3% of GDP! Impressive stuff, indeed.
Much has been done but ,as Subhash Garg notes, much remains to be done. The Essential Commodities (Amendment) Ordinance 2020 promulgated on 15th June is only a start. It still allows the Union government to retain power under extraordinary circumstances that are undefined to invoke the provisions of ECA. Stock limit imposition is still possible to tackle ‘extraordinary price rises’ that have been defined.
Contract farming has really not been enabled for which States have to enable land leasing. Karnataka has taken the lead in some aspects, especially with respect to conversion and sale of agricultural land for non-agricultural end-uses. Shruti Rajagopalan covers it partially in this column for Mint. The Karnataka State Cabinet has approved it. The changes have to be legislated and then gazetted.
Not sure if land leasing is going to be facilitated. Land leasing is a pre-requisite to contract farming and much land leasing that happens in the country is informal although it is pervasive. Most State laws prohibit it. So, much work remains to be done, still.
But, the impression one gets is that the farm sector may at last be encountering real and essential reforms from both the Union and State governments. That is good news indeed.