Union Budget 2014-15: Preparing the Ground for a Socio-economic Churning in Rural Areas?

The budget has mostly received flak for what is has not done or one that is too little. The story that seems to have largely been missed is the one related to Rural areas.  One article says that there is no shift away from the past. Another details various measures including a price stabilisation fund, establish a national market for farm produce, irrigation schemes, agricultural universities, warehouses and rural internet connectivity, measures for providing credit to tenant farmers and providing long-term credit. The criticism that these measures may be mere 'tokenism' is to an extent valid. However, it is important to understand that not everything needs to be taken up by announcing it in the budget or the parliament. In the area of Rural Development, a number of important measures in this budget are more likely to be remembered over the next few decades for their social and political impact rather than only for their economic impact. These changes, if used adroitly have the potential to rework the caste/class relations in the rural areas – much like the manner in which some policy interventions were used in the 1970s and 1980s. Good examples of such changes are those related to cooperatives and poverty alleviation programmes. In other words, the BJP can do what the INC did to its power base. Interestingly, the possible long-term consequences that the budget could possibly trigger (subject to implementation of policy) have largely been missed. This is not to claim that the changes are likely to play out immediately. The budget is probably indicative of the direction in which various attempts to rework socio-economic changes are likely to be experimented in the next few years. To cut a long-story short, the Union Budget could probably be only a dress rehearsal to the story that may unfold in the next 3-4 years. .

The Budget has promised many investments in agriculture and Rural Development. The impact of these steps will vary and will depend on the ability to implement projects/programme – always government’s Achilles heel. A large part the analysis/views on are based on field experiences over the past few years. They may or may not be applicable to the country as a whole. These important announcements though do not have much funding considering the size of the country or the task, may be the beginning of the trend. The important measures that caught my attention in the budget include:

• More funding for various programmes related to agriculture, rural housing, water and roads;
• Enhancing Warehousing infrastructure by providing Rs.5000 crores assistance
•  Improve post-harvest lending to farmers which also calls for reinvigorating the framework of Warehouse Development and Regulatory Authority (Point 127 of Budget Speech). 
•  Long-term credit and increased funding to NABARD. 
•  Broadband connectivity to villages under Digital India Initiative and National Rural Internet and Technology Mission. (Point 62& 63 in Budget Speech) 
•  Establish 100 Mobile soil testing centres. 
•  NABARD to encourage 5,00,000 Joint Farming Groups to help tenant farmers (Point 80 in Budget Speech) 
•  Producers’ Organisation Development Fund (Rs.200 crores) to build 2000 producers organisations (Point 90 of Budget Speech). 
•  Expanding Financial Inclusion through a Financial Inclusion Mission (Point 130 of Budget Speech);

It is quite surprising that the most important business newspapers have not covered at all or have simply not bothered to understand the ramifications of some of these measures especially those related to Producers and broadband connectivity to the villages. Of course, the reason to explain overlooking the broadband connectivity measure is not difficult: pushing technology often turns out to possess a tinge of elitism to it, especially by the time the policy decision is transmitted from policy level to implementation level. Inexplicably, missing the part about Producers Organisations is inexplicable. Probably not many expect these to succeed. Interestingly, an overwhelming number of cooperatives that have succeeded have mostly been in the sphere of credit or petty commodity production. However, I believe that even a partial success of these programmes will provide extraordinary political benefits to BJP. Infact, their success may be more in the realm of the political and social sphere in the rural areas rather than the economic sphere.

Among the many measures in the budget at least five of them are likely to have large scale ramifications in the long-term – even if there are problems related to faulty and uneven implementation. These include:

1. 1Improving agricultural storage facilities. 
2. Financial Inclusion Mission 
3. Digital India Initiative and National Rural Internet & Technology Mission 
4.  Joint Farming Groups 
5.  Producers Organisation Development Fund

The first of the above measures has widespread ramifications for consumer interests while the other four have extraordinary potential to unleash social and economic changes in the rural areas. These changes are likely to put in place a new classes and castes firmly in control of rural areas. Some of them are dealt with below:

1.      Improving Agricultural Storage and expanding the scope of the commodity market has obvious advantages but the measures proposed in the budget can work both ways. Depending on government policy and oversight they are likely to become a double edged sword.The advantages are well known and have been discussed over the past many months. However, there is a need for abundant caution since the measures have the potential to create a massive information asymmetry which, if combined with trading in the commodity markets has the potential to be detrimental to consumer interests. However, if used with abundant safeguards it can provide substantial succour to the consumers by enhancing storage facilities.

A hypothetical case of the worst case scenario is explained: Assume that a few large players or a syndicate of medium/large players who own/operate warehouses work in coordination and share information about the volume of food-stocks they hold on their own or on behalf of their clients – in other words, form and operate as a cartel. Assume that they control stocks through their merchant/social or peer networks to the tune of approximately 10% of the total warehouse storage capacity (easily possible). In case of a delayed monsoon or failed monsoon (as in the present year), these players will be the only ones with the price sensitive information. Assume that these players work in tandem with one or more of the largest food companies in the country and share the information. The result: these companies will have sufficient power to move prices in the direction that is profitable to them but, detrimental to the larger consumer interests. The moot question is it possible for such a scenario to play out in real life. I think the probability is very high. Example: the case of Cement Industry in India, which routinely indulges in “Production management” – basically price fixing.

The private sector will find the Warehouse trading receipts extremely profitable, especially when they can be traded in a calibrated manner in the commodity markets provided the user has the right information and trading access at their disposal. In my years in the field and an observer of various markets, I have constantly pointed out that the most important and price sensitive information is always very expensive and is accessible only to a few. A general, but horribly wrong perception is that internet has made information more easily accessible and democratised it availability. Unfortunately, that is not the case. The information that is available free or at a low cost usually has no relevance in the market place.

A logical and obvious question that arises is if it possible to avoid such tactics? The short answer is that it is not difficult. The government can compulsorily requires a mandatory filings by all warehouses to declare the stocks moving in and out of each and every warehouse, preferably on a real time basis (or at least hourly basis) along with figures of the net stock available in each warehouse at any given point of time. Even better, if the owner of the stock is declared (just as participants have disclose their identity in case of block deals to purchase or sell equities) This information should be placed on the government website and distributed free of cost.

2.      Financial Inclusion Mission Combined with Digital India: Frankly, I did not expect the present government to push this programme. The fact that it did probably indicates the realisation of the importance of the banking sector in general and Financial Inclusion (FI) in particular. Mission mode execution is likely to bring with it a sense of urgency. Opening bank accounts is not, in itself a big deal. There are already millions of non-operational/unused accounts. The importance of the programme lies in the opening accounts with an inbuilt credit mechanism (if press reports are to be believed and if the FM’s speech is an indicator). Reports point out that these account will be given an overdraft  (reported at Rs.5000 in the press but not stated by the FM). Assuming that the banks are able to open 50 million new accounts and provides credit to another 50 million account holders already possessing a bank account. Assuming that the credit provided is as little as Rs.5000 per account, it translates into 100 million multiplied by 5000. It provides a huge push to the rural economy. Interestingly, I find that a large number of people have borrowings in the range of Rs.500 to Rs.10,000 from pawnbrokers in rural areas. This means a household can balance their very short-term cash flow requirements by a judicious use of the bank accounts.

Expansion of FI can have huge long-term ramifications. I have found in Kolhapur district that the establishment of a Business Correspondent outlet and the disbursal of a bank loan have increased incomes of small businesses by 30-40% (based on interactions – no data gathered. The benefits accrued by way of amount saved as interest rate differential (saved by borrowing from the formal sector), time and money saved making the weekly trip to the bank, advantage of paying online to suppliers and so on. The catch lies in completing financial literacy classes. The banks do not have the infrastructure to take up such a large scale financial literacy drive. Often financial literacy training is a programme that the banks take up only due to regulatory compliance. The second question is who will meet the costs related to financial literacy training.

It is in the above context that we have approach the broadband push. Ideally, the broadband push should start with villages or regions that presently do not have any connectivity. In my experience that means about 20% of the villages. Assuming that this happens then the change can be quite substantial.

There are three critical pre-requisites for the success of these two measures: (a) Convince the banks to offer credit, (b) role of corporate entities serving as Business correspondent and, (c) who controls the broadband/information highway?

The first, convincing the banks, is easy: the government can offer a counter-guarantee or a loan insurance wherein the premium is paid by the government for two loan cycles on the over-draft facility offered on each account. In order to make the banks more interested in expanding the business and to collect the loans, the insurance itself can be offered on the basis of a larger loss sharing in the first loan cycle (say 90:10) and a lower loss sharing in the second loan cycle (say 50:50). Since the loan second loan cycle will not be needed in case of a default, the banks need not worry about the second loan cycle. In case the default occurs during the second loan cycle, they get only 50%. 

Second issue is a problematic one due to ideological reasons. In my experience of visiting nearly 150 BC outlets, 90% of the Corporate BCs are a failure (I have come across only one corporate entity that does excellent work – the rest do not work). Therefore, they should not be allowed to use the programme to gain a foot in the door and bring the programme to a halt.

The third issue is who will control the broadband digital highway? Due to its long-term business and other ramifications, the government should build it and then lease it out or allow any business or other agencies to use it for a small fee that allows it to meet costs and future investment needs. Public Private Partnership (PPP) should be strictly avoided.

If FI Mission or Digital India plan has to succeed, there is a need for the Finance Ministries, RBI and TRAI to work in tandem.

3.Joint Farming Groups for Tenant Farmers: This is another unexpected programme, especially when seen in the context of the policies of previous NDA governments (1996-2004). This is a good measure but, if the experience of pre-bifurcation Andhra Pradesh is indicative, it is going to be a difficult programme to succeed. Pre-bifurcation AP Government Socio-economic survey points out that by the end of 2012-13, a total 5,76,147 tenancy cards (eligible for a loan) were issued. Media reports cited in the context of the loan wavier related news items claimed that there were 28 lakh tenant farmers in Residuary Andhra Pradesh. In other words, less than 25% of the total tenant farmers possessed a tenancy card.

The difficulties arise due two reasons: (a) officially acceptable written recognition of tenancy is possible only with an agreement between the land owner and the tenant. This is likely to make it difficult to organise the groups and documenting/identifying the tenant farmers and the fields in which they work, (b) how to incentivise the banks to lend when there is little or no security and more importantly, when recovery can go down to near zero in case of recalcitrant and/or borrowers unwilling to repay the loans?

The first reason is difficult to deal with consider the rising cost of land that combines with circuitous or a lack of a quick arbitration mechanism. The inordinate delays in the judicial system only make it unlikely that the owner of the land will offer the documentary evidence attesting a tenant farmer’s status due to fear of litigation. The case of Krishna District is illustrative of some of the problems. In that region, the land prices vary from Rs.10 lakhs to Rs.5 crores. In contrast, the lease earned by renting land is less than Rs.20,000- lower than the returns on a savings bank account deposit. Fear of litigation, real or perceived,  by the tenant means that land owners are unwilling to risk leasing the land. The possible manner in which a landowner will agree to accepting formal tenancy agreement is the laws forbid litigation or to create a judicial framework that disposes off such cases in less than a year – both of which are unlikely. Such a risk may in the end leave the programme wide open to building Joint Farming Groups that are in essence patronage groups of the powers that be. Essentially, it means that it offers the ruling party a vehicle and reach to expand into the villages at a hitherto unknown speed. If the Elections results in 2014 are an indication, for the first time in the history of independent India, the BJP has the possibility of creating a non-congress, non-left support group right down to the village level.

The second issue, incentivising the banks to lend, will be problematic but given the political advantages, the government owned banks can be subtly forced/convinced to lend either through refinance or loan insurance (as cited above).

4.      Starting Producers Organisations: I find this measure the most interesting part of the Union Budget. It has the potential to completely rework the socio-economic and political structures – if it works. On the positive side, the Producers’ Organisation can be used to organise, channelise agricultural inputs and market produce thereby leading to a huge jump in the bargaining power of the producers, especially the small and medium producers– exactly on the same grounds as a cooperative. Capacity building can encourage and even drastically transform the present agriculture. It has the potential to encourage investments that reduce, if not remove information asymmetry. Among the other positive effects, it could push intensive farming based on a high degree of mechanisation. In short, it could be the farmers’ equivalent of the Self help Group movement for the poor. As an organised collective, it could mean the emergence of a new, well organised, powerful force in the country side that have substantial clout – probably for the first time after independence.

But, the advantages go far beyond the realm of agriculture. Organising the producers has the potential to create a powerful group of supporters right down to the village level for the ruling party. Since any party that controls the Central Government controls the banks and all the organisations that can fund such Producers’ Organisations, the political benefits are substantial: exactly like what the cooperative did for the Indian National Congress in the 1970s and 1980s. Since the producers will be landed interests, for the first time, landed interests can be given a coherent right-wing orientation and push –something that the first NDA simply did not have.

Add to these other changes that we already witnessing in the form of internal migration and massive mechanisation of parts of the agricultural sector. Probably, we are at the cusp of huge but, scary set of socio-economic changes – the most important in nearly half a century. If socio-economic change span out as I think they will as question that I keep crossing my mind is:  where all this will leave the established left-wing parties and the INC?

Biggest Boom in the History of Indian Real Estate Sector?

Post Election Results in India, there is one sector in one area that has witnessed a phenomenal boom irrespective of the economic conditions in the country. The area that is a subject of this post are the two districts of Krishna and Guntur in the residuary State of Andhra Pradesh. The sector that is an object of this post is the real estate sector. Post bifurcation of Andhra Pradesh into two states (AP and Telengana) and the General Election results, real estate has exploded.

The nature of the boom in the sector was covered about a month ago in an article. At that time, the priciest piece of real estate was around Rs.5 crores per acre (nearly US$ 830,000). Fast forward to the present, the explosion in prices continues - much akin to reliving the Tulip Mania. The priciest land is now varies from Rs.12-16 crores ($US 2-2.6 million). The buyers are mostly from the former capital of the United State - Hyderabad. Land transactions are taking place in full swing. Knowledgable sources point out that the number of registrations have increased by 400% since May 2014 (when the results were announced).

This is striking because till the end of March 2014, the Department of Stamps and Registration was find it difficult to meet its targets. Interestingly, the benefits that accrue to the government are limited because there is no increase in the official valuation of the land (on which the Stamp duty have to be paid). 

The interesting aspect of this price move is that over the past two years, prices of land have shot up by more than 10 fold.

Probably the biggest boom in the history of Indian Real Estate Sector!

Commodity Pricing: New Dawn or Bubble About to Burst

Since the start of this blog, we have attempted to draw attention to increased financialisation of various markets and its impact on the way we live and work. The 2008 crisis was an important game changer in this process of financialisation. The subsequent measures to stablise the world economy only helped this process. Invariably, an important segment which witnessed volatility due to this financialisation were the commodity markets. A very interesting recent news item carried by Bloomberg News website carried seems to have largely gone largely unnoticed.

A reading and re-reading of the news item leads me to conclude that right or wrong, the views in the article will have two major consequences, dependening on whether the views are right or wrong.

First, if the article is wrong, then it indicates that we are close to a major top for most of the asset markets. If the past is any guide, a cursory glance at the CBOE Volatility Index (VIX) or for that matter the Volatility Index in any market/country indicates that market volatility is at the lowest level and complacency is at its highest levels. Interestingly, it is at levels close to those in early 2007. The lowest reading for the CBOE VIX in 2007 was 9.70. Currently (closing on 3rd July 2014), it reads at 10.32. Of course, it could go much lower but, that is not the point here. The point is that each time there is high complacency we have some of these fancy theories - the last time we had a roaring bull run there were people who declared that the business cycle was dead. Hence, such thinking that the commodity prices are now less correlated to currencies or are not likely to be correlated to currencies may just turn out to be typical of exuberance before the bursting of a bubble.

Second, a more important consequence of the views expressed in the article are likely to mean a major change that may lead to lesser financialisation of the commodity markets going forward. This is important because it may mean a change in trend after nearly two decades - if it happens. Personally, I do not think the process of financialisation will end any time soon. On the contrary, the process is likely to gather steam. However, if correlations between commodities and currencies are likely to end, we are likely to witness lower volatility and with it probably more predictable commodity prices. That would have a significant impact on the lives of consumers.

Attempt to Understand Why Congress Lost badly

Unlike in the past, the comprehensive loss in a national election (this time that of the Indian National Congress or INC) has not received as much attention it probably should have received. Instead, the debate centres around the failure of a few leaders.

Undoubtedly, there is no doubt that being in power for 10 years arrogates a party and persons in power. However, critics of the Gandhi's miss one critical thing: the fundamental nature of INC. Congress has always been (since the Indian National Movement) a kind of sum parts make up the whole sort of party. It is quite loosely knit unlike other parties like say TDP, YSRCP, TRS, BSP, etc. This is not to claim that Sonia and Rahul are like Mahatma Gandhi or any of the leaders before the 1970s. 

1. Wrong Central Representatives 

All the wrong leaders from Delhi controlled the levers of power in the States. 

Avoiding names and without giving too many examples, it is clear that the Delhi bosses' were a disaster not because they were bad for the party leaders but because the voters found their statements repulsive. Central observers are a boon when they can build bridges with the local factional leaders. A salient characteristic of an election is that they are won or lost because of the voting behaviour of independent undecided voters - most of them make up with their mind in the last 15 days in the run up to the elections. Moreover, research in psychology proves that the most recent experiences are the most important in the behaviour of a person. A middle class voter was invariably put off by their statements and flip flop on a number of issues. Basically, the statements of these leaders in the last 15 days were shocking for their lack of political finesse. 

2. Congress has indeed lost the communication channel - not only with the Voters but with its own grass root organisation. The disconnect was remarkable. In the past, there was this two way channel that communicated the thinking at the grass root level to the leaders and vice-versa. This was one of the reasons for its success in 2004, at least in AP (an important state that helped them come to power and stay in power: in 2014 out of 42 states they managed to get 2 seats). Reviving this is probably going to be their only chance for recovery. I saw this problem clearly in AP and read about this even in VIP constituencies. 

3. Congress has to bury its paranoia of the YSR (their AP leader who helped it win two elections) phenomenon: The rise of YSR and the revolt of his son (Jagan) seems to be the greatest fear that continues to haunt Jagan. YSR's rise was accompanied by a systematic decimation of local level leaders of the party- expect those who were loyal to YSR. Before his rise, each district had a number of strong congress leaders - each one acting as a check on the other.Often there were many more than two: example Krishna and Guntur had more than four. Each leader would win his seat and the seat of at least another two or three seats in the district or they would have no chance of even a berth in the ministry. There is a need for congress to go back to such a state. It is because of such a large base of leaders that INC could survive the onslaught of TDP. The rise of TDP posed a formidable challenge because it was able to rework the socio-economic and political relations right down to the village level. 

Fast forward to 2012-14: Congress has at best one or two leaders in each state. I doubt if there are any strong congress leaders in the districts. So lack of alternatives mean that people who dislike a congress leader have no option but to move to another party. Moreover, one state level leader means that there is no incentive for people to think about the local issues in an elections. It becomes a referendum on policies on which local level leaders have no control. A 'good' local level leader has a good chance of convincing people in his/her segment that a vote for them will mean accessibility over larger issues. 

4. Congress has lost the fighting ability to go for a all or none kind of battle: Ten years in power has arrogated a lot of local leaders. So much so that they thought that they can buy votes. They forgot the simple logic: people take money but end up voting for whomever they like. Once inside the polling booth there is no control over the voting process - unless the booth itself is captured. That is why the rigging specialists in the 1990s were so successful. In contrast and in the past, leaders like YSR had it - clearly visible in the manner in which he decimated the major opposition in the state. Fast Forward to 2014: look at the candidates put up by INC in Telengana against TRS chief and other strong TRS leaders - they stood no chance of even getting their deposit. Tragically, some congress leaders seem to forget this is part of the problem - that is why one of them actually says that because INC did not have tie up with TRS they lost. The first question that the persons who offer such solutions should be asked is: Why should INC cede space (especially after granting statehood)? Strategically, ceding space by an alliance should be the last option - not the first. The party seems to have inverted the logic of an alliance. Unfortunately, for INC, unless they regain such an ability they don't stand a chance - Modi seem to have certain similar qualities like YSR like going full throttle after opponents. 

5. Congress' old habit of creating formidable opponent in the hope that it can align with the opponent is an old habit AND combine that with the fact that INC does not seem to understand that an alliance should only be a temporary phenomenon that should given them breathing space that can be used to recovery: In every state where they have gone into an alliance, the congress has gradually given up space and has gone into a decline. 

6. INC was in a hurry to claim that it had changed with the times. So its answer was to bring in bureaucrats and technocrats into the ministry and the party. Running a party is different from running the government administration/apparatus, especially the Congress party. Take the case of UIDAI and its head. It under scores an important historical reality in India: Business leaders, however successful. rarely make good politicians and vice versa. In this particular case, the ethos of a software company is the exact opposite of a party like INC. Then, there is the case of Aadhaar (dealt later in this post). I am sure INC lost more votes than it gained due to that scheme. I think Aadhaar number will be of great use for the banks and other businesses but, will not go down well with the voters. 

7. Importantly, INC lost simply because they did not understand the socio-economic change that they unleashed. Hence, they did not know how to deal with the consequences. Fundamentally, i think there is a major change. In the past, rising economic hardship would mean the rise of the left parties; 2014 seems to indicate that it could have inaugurated the process of the rise of the right wing parties. I wonder why? 

I doubt if any other government will ever or can ever give so many subsidies to its citizens. Yet INC lost! Why? One reason ascribed and, partly correct, is that while giving individual benefits they did not look at other important aspects like Infrastructure. I think there is some merit, especially when it comes to water and related issues. 

Entitlements also mean that there will demand for other things - a consequence of policy. Examples abound:

 

a) Case of education. It put millions of kids into school. But, in 10 years as they grow older the party did not have an answer to the demand for jobs or quality higher education. 

(b) Related aspect putting millions into schools also changed the composition of labour force: it could not answer critics who said that NREGA rather than migration or education affected the labour force. 

(c) There is a process of informalisation that is taking place in a number of areas: The party had no solution for this other than financial inclusion. Financial Inclusion is a good policy intervention but it went on at a snail's pace. 

(d) Take the case of the SHG movement. The SHG movement started in the TDP regime but it was during the 10 years that INC ruled that it exploded. The party gave huge benefits to its members. I doubt if anybody can give more benefits. Yet, the party could not take advantage. I wonder if the party is asking why it could not do so?

(e) The whole emphasis on Aadhaar was completely misplaced. Aadhaar is a good idea but bad politics - especially the way the enrollment was carried out and the manner in which the Oil companies tried to implement it. Unfortunately, LPG is not the preserve of the middle classes and the rich. In places, like AP, thanks to politics of the last 15 years a lot of people have a gas connection, at least officially. Literally, lakhs of people had a problem with transfers, etc. Each person who had to visit the gas agency more than once is unlikely to have voted for the INC. 

Another dozen such issues including indebtedness, destruction of rural industries, lethargic way in which government structures functioned, etc can be blamed for the loss. 

To cut a long story short, the comprehensive loss can be explained by adding up at least some of the above and other reasons. The last reason is the role of media. Media issue could have been dealt with them if INC had the mechanism to collect feedback - something that it had in the past and disappeared after 2010.

Time for the party to ask relevant questions, if it has to remain in the reckoning in 2019. Five years is a long time in politics so no point speculating about the future. Better option for the party will be to seriously look at why it lost the elections and if it can objectively answer the questions. This is essential because, unlike during the period 1999-2004, their opponent is more formidable. 

We also travel on the Highways

People have a knack of improvisation when it comes to livelihoods, more so in a poor country like India.

The Picture below is from a National Highway in Andhra Pradesh. Dramatic climate change means that farmers dread unseasonal rains - like hail at the onset of summer! A village thought that the Highways can also be used to dry their grains before weighing and sold to the trader.

Struggle for Livelihood: Where are the benefits?

There are so many government welfare programmes for the Girl Child. Yet, in most rural areas the struggle for livelihoods means that families are dependent on the age-old traditional means (as in the photo below from a village in Mahabubnagar Village of Andhra Pradesh). 

One wonders if there are fundamental problems in the manner in which the welfare programmes are structured. Or, is simply a case of problems that arise when there is an attempt to push schemes with a 'one-size-fits-all' top-down approach? Everybody other than the beneficiaries seems to know what exactly should be given to them. In other words, does it simply indicate that we have lost our way due to excessive dictation from above. 

Over the past 10 years, continuously rising agricultural commodity prices and high internal migration and, with it rising agricultural wages has largely ironed the cracks in rural society. Imagine, the consequences once agricultural commodity prices start to decline. A falling agricultural commodity prices will invariably lead to a decline in rural wages. High levels of indebtedness means that it almost certain to create a disaster. 

One wonder what may trigger such changes? Or, is it better that there is no collapse in agricultural commodity prices?

Weekly Village Fairs - Fast Vanishing Breed

Pictures from a Village fair in Mahabubnagar District of Andhra Pradesh, India. This is one of the largest such village fair in South India and is held on Saturday. It has been held every week since 1983. 

Changing socio-economic nature of rural India and consumer behaviour seems to be indicate that such fairs are increasingly fading into the twilight.

There are three sections: Buffaloes and Oxen, Goats & Sheep and other items (including food grains, vegetables and household section).

The Section of the fair that enables exchange in household items and food grains.

Education and Indebtedness: The Case of Andhra Pradesh

India is an excellent example where past investments in education have yielded handsome tangible benefits. Resultantly, it is now considered as the single most important tool for social and economic advancement for almost all social groups. The problem of low skills acquired through education is well known. A more pertinent problem that is over looked is the unintended consequences of indebtedness that increased investment in education are creating amongst the poor. Unlike in the past few decades, the causes for indebtedness, especially among the poor, are markedly different. While the decades-old causes for indebtedness have remained (like repaying old loans, and daily needs), new causes that require ever larger amounts of credit (like education, health and housing) have been added.

Investments in education from individuals and the government have increased over the past few decades. Increased expenditure on education is indicated by growth in enrolment of students and the expansion of educational institutions in India. The number of schools (primary, upper primary, secondary/senior secondary level) increased from 230,700 in 1950-51 to 1.389 million in 2009-10. This growth was in all segments: the number of primary schools increased from 209,000 to 823,000 while upper primary schools increased from 13,600 to 367,700 and secondary/senior secondary schools increased from 7400 to 189,900 . Enrolment in school education increased from 2.38 million to 243.2 million. In the case Higher Education, the number of universities in India increased from 30 in 1950-51 to 634 in 2010-11 while the number of colleges increased from 695 in 1950-51 to 33,023 in 2010-11. The total enrolment of students increased from 397,000 in 1950-51 to 16.9 millions in 2010-11. UP, Maharashtra and Andhra Pradesh have the highest student enrolment.

The expansion of the government machinery till 1991 and the growth of the private sector after 1991 helped increase the employment opportunities. The high paying jobs in the information technology (IT) and Information Technology Enabled Services (ITES) sectors reinforced the belief that education facilitates economic and social growth and advancement. The consequence of this awareness is magnified in the rural areas since it helped the rise of new elite in a very short span of time: in the last few decades educated found employment, and used the surplus to buy land. As values of land rose and the rise of this elite, mostly from humble origins only helped expand the importance of education in popular perception. It was in this context that the impact of government policy of encouraging education and its consequences needs to be understood. The increase in number of educational institutions from 2000-2010 varies from 60 percent to more than 100 percent across the different segments and more pronounced in secondary, higher and professional education spheres. However, the above developments are not alarming by themselves.

Over the past decade, poor have been convinced due to a combination of factors that include changes mentioned above and rising wages (which leave larger amount of disposable incomes) that the best possible manner in which their children will have a better future is through education – even if it means assuming ever larger quantities of debt. The dysfunctional nature of government schools increases the attraction for the more expansive private schools. An example best illustrates this increased scale of attraction of the more expensive private education: the only private school in Palasamudram Mandal of Chittoor district (Andhra Pradesh) with a population of about 11,000 boasts of strength that exceeds 400. Professional higher education, always more expensive, is deemed imperative for an attractive job.

Since rising cost of private education has moved concurrent to increased expenditure on health and other living expenses, a large number of people end up borrowing money to meet the higher education needs of their children. Invariably, the inaccessibility of low cost institutional loans for large numbers of poor forces them to borrow at high interest rates driving them deeper into debt. A study (2011) on the MFI crisis in AP pointed out that 234 of the 1069 respondents had borrowed money for education from MFIs. These loans varied from Rs.25,000 to Rs.120,000 and were used for various purposes including education.

The inability of the education system to sufficiently impart requisite skills including those like basic communication skills means that students are unable to find jobs that enable improvement in economic well-being or to provide sufficient surplus beyond immediate living expenses to service their debts. This aspect of indebtedness is often overlooked. Our studies indicate that on an average a family assumes new debt of Rs 5,000 to Rs.50,000 annually accrued due to investments on education. According to The National Employability Report – Engineering Graduates 2014 ranks AP among the bottom 25 percentile of States as far as employability of engineering students for IT jobs. Interestingly, the state ranks along with Tamil Nadu and Kerala.

This is part of a largely phenomena that is playing out on a larger scale in different parts of India.  A study found that nearly 47% of 2013 graduates were found unemployable in any sector. Only 2.59 per cent of them was found employable in functional roles such as accounting, while 15.88 per cent was suitable for employment in sales related roles and 21.37 per cent for roles in the business process outsourcing sector.

Thus, it is imperative to understand the precarious nature of the present investments in education that is driven by assuming high-cost debts. This leveraged investment in education should be seen in the context of another leveraged investment that is common among the poor – investment in housing. The gestation period for return on such investments is often decades into the future, while debts have to be serviced in the immediate present. As an owner of a private school chain in AP pointed out that education business has been aided by a change in the mind set of the people at all levels: a change from considering education as expenditure in their personal balance sheets to an investment in their balance sheet. It is also the only segment of the education value chain that is completely unregulated. Investment in education has the ability to improve the social and economic well-being of the poor provided it facilitates gainful employment. Far from creating an ‘aristocracy of culture’ (to borrow a term from Pierre Bourdieu), the incomes generated from such leveraged investments are insufficient to service the debts, thereby driving the poor deeper into the quagmire of debt from which they have little possibility of exiting in the foreseeable future. History shows us that the result of hundreds of thousands individuals borrowing short-term and investing long-term is a perfect recipe for disaster. The catch is that it takes decades for this to play out.

Nothing left to Cut?

A drive through certain parts of the rural areas clearly shows the extent that we have caused to the environment - like in the picture.

Too Little, Too Late?

Mechanisation of Agriculture: Photo Update

A trend to watch in 2014 is the rapid pace of farm mechansiation. However, there is little information about the consequences of this process on the local community and the labour markets. 

Harvesting in Progress: Photo from Kurnool District