Dr. Somdeep Chatterjee Extn: 2028 M-105, NAB: Somdeep@iimcal - Ac.in

DR.
SOMDEEP CHATTERJEE
[email protected]
Extn: 2028
M-105, NAB
0
Sectoral Composition
§ https://www.indiabudget.gov.in/economicsurvey/d
oc/eschapter/echap01.pdf
§ Economic Survey Chapter 1 – Table 2
1
Industrial Sector
2
Growth in Manufacturing
§ Chapter 8 – Figure 5 from Economic Survey
3
Services Sector
4
Agricultural Sector
Economic Survey Chapter 7 – Figures 1, 2 and 3
https://www.indiabudget.gov.in/economicsurvey/doc/eschapter/echap07.pdf
5
Farms and Farmers
§ Agricultural Reforms– Neelkanth Mishra
§ Discusses the historical importance of agriculture
§ Lays down a table discussing potential suggested
reforms and a description of how they may operate
§ 2 interesting op-ed articles by author (recommend
reading)
§ Paradox of Plenty – Indian Express (22 Aug 2016)
§ Beyond the Farm – Indian Express (30 March 2017)
§ Neelkanth Mishra: MD and co-Head of Asia Pacific
Strategy, and the India Economist and Strategist for
Credit Suisse
§ Chapter 7 of BGRS textbook 6
Identifying Basic Problems
§ Too many workers in agri-sector in India earning too little
money
§ Improve agricultural productivity – would lead to higher
farmer incomes
§ Access to irrigation not universal
§ If there is access – majorly depleting water table and
causing environmental crisis (tube wells, water intensive
crops)
§ Farmers get too small a share of the eventual price of
what they produce
§ Access to national/international markets not great for
farmers
§ Farmer incomes stagnating – rural distress 7
Suggested Immediate Reforms
§ Target Monopolies in agricultural supply chain: introduce

policies to control the market power of big players –
hope to increase farmers’ share
§ DBT in fertilizers, soil health cards (already in practice) –

idea is to direct the subsidies better – prevent leakage –
distortions created by subsidies can be addressed
§ PMFBY – crop insurance must be improved!! Lot of lack

in demand – resistance from farmers – state govts
reluctant to adopt
8
Medium and Longer Term Reforms
§ Improve infrastructure – storage, marketplaces etc
§ Research paper: Chatterjee (2018): Storage infrastructure and
agricultural yield: evidence from a capital investment subsidy scheme.
Economics, 12 (2018-65): 1–19.
§ Grameen Bhandaran Yojana – Govt of India
9
10
11
Medium and Longer Term Reforms
§ Improve infrastructure – storage, marketplaces etc
§ Income transfers and CCTs
§ Encourage agri-exports
§ Formalization of tenancy – fragmented land holding –
states have contractual frictions – interests of
landowners and tenant farmers often not aligned –
causing inefficiencies
§ Increase technology adoption – GM crops, organic
farming, bio-pesticides etc
§ Promote agricultural research, education and formal
training
§ Public irrigation system needs improvement - modern
pipeline technology – reduce leakage 12
Solutions Suggested to Problems
§ Open up markets for farmers
§ Break down cartels and monopolies at local wholesale
markets
§ Potentially create a national agri-market and/or a market
for agri-exports
§ Emphasize water management as a long term strategy
§ Encourage water intensive crops in less arid regions and
vice versa (realign cropping incentives)
§ Cash payments and transfers – lumpsum, input
subsidies, bonus for technology adoption etc
§ Clear policy on GM crops and IPR on technological
advancements in agriculture 13
Research on Business Implications
§ McKinsey Report on Indian agriculture

§ Harvesting Golden Opportunities in Indian Agriculture: From Food
Security to Farmers’ Income Security by 2025
§ https://www.mckinsey.com/industries/agriculture/our-
insights/harvesting-golden-opportunities-in-indian-agriculture
§ India’s pursuit of agricultural self-sufficiency - relatively high-growth
agriculture sector.
§ India’s farmers are not faring too well and only a third of all
agriculture companies posted a profit in recent years.
§ Goal of Govt: Doubling farmer incomes
§ There is scope for agriculture companies and the government to
ride emerging trends and successfully be a part of this
transformation.
14
Boosting farmer
incomes in
India
But, HOW??
15
§ To increase farmer incomes, India needs to adopt a higher value mix of
farm output
§capture greater value through better storage and processing
§ make market mechanisms more efficient for farm inputs, financing, and
sale of output.
§ New policies – focussed at micro levels – local mandi reforms to providing

impetus to certain types of farming
§New business models? Leverage agri-incubators?

16
17
Additional food demand
of around 400 million
tons by 2025
20
Scope to improve
yield
23
24
Case Discussion
§ Tears with them, tears without – rising onion prices!
§ The case analyses volatility in onion prices (very relevant
even today in the Indian economy)
§ We will analyze the case from the policy and business
point of view
§ What implications are there for the Indian economy if
prices for such a key commodity rises and how the
government can respond?
§ Discuss the appropriateness of various policy measures
§ Also assess the role of private players and large retailers
in dampening the price volatility
25
Intermediaries and Middlemen
§ Huge gap between retail price (Rs 100) and the price
that the farmer is paid (Rs 4).
§ Are the intermediaries:
§ Market breakers? (rent-seeking behaviour

leading to exploitation)
§ Market makers? (exist naturally because of

loopholes in regulatory framework and
inefficient administration)
26
Regulatory Intervention
§ Commodity markets: ideally neither buyers nor sellers
have market power - competitive
§ (Why) do we need intervention?
§ Can market forces lead us to a desirable

equilibrium?
§ Usually need intervention when market fails :

can you think of such a scenario here?
§ Externalities?
27
Policy Instruments
§ Analyze the effectiveness of select few policy
instruments that may help the regulatory framework
§ Public Distribution System
§ Shelf-life of onions – problematic?
§ Alternatives: food stamps?

§ How will budget line shift? (impact household
budget constraints?)
§ Minimum Support Prices (MSP)
§ Political economy concerns?
§ Contributes to inflation? Higher costs of inputs for other
production?
§ Price-Deficiency payments – further burden on fiscal?
28
Role of Private Players
§ Processors and big retailers?
§ ITC e-choupal? How does it operate?
§ Soybean market
§ Equivalent for onions?
§ Issue with onions (compared to soybean, coconut or
potatoes)?
§ Soybean - oil
§ Potato – PepsiCo
§ Coconut – Marico
§ Lack of cooperatives?
§ Successful for sugarcane, lentils, milk
§ Is there enough value addition for onions?
§ Seasonal – ¾ of the time non functional 29

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DR.

§ Economic Survey Chapter 1 – Table 2

§ Economic Survey Chapter 8 – Table 1

§ Chapter 8 – Figure 5 from Economic Survey

§ Economic Survey Chapter 9 – Table 1

Economic Survey Chapter 7 – Figures 1, 2 and 3

§ Target Monopolies in agricultural supply chain: introduce

§ DBT in fertilizers, soil health cards (already in practice) –

§ PMFBY – crop insurance must be improved!! Lot of lack

§ Grameen Bhandaran Yojana – Govt of India

§ McKinsey Report on Indian agriculture

§capture greater value through better storage and processing

§ New policies – focussed at micro levels – local mandi reforms to providing

§New business models? Leverage agri-incubators?

§ Market breakers? (rent-seeking behaviour

§ Market makers? (exist naturally because of

§ Can market forces lead us to a desirable

§ Usually need intervention when market fails :

§ Alternatives: food stamps?

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