In the last budget, the Finance Minister had announced a significantly sized loan waiver for farmers. While this had economists starting to talk and the pro-farmer lobby to celebrate, I was keen to know how this plan was implemented and what is its real impact on the people concerned.

After some searching, I found that Mint has been running a sort of constant coverage of events related to the loan waiver.

There are some interesting things happening out there, cut-off from our inflation glazed spectacles:

1. On Day 6 of the Yavatmal, Maharashtra coverage, the report states that there is a new class of farmers who are agitated and disappointed. Reason? The Government had promised that waivers will be given to farmers holding lands upto 5 acres in size. Now, in the Yavatmal region, the measurement system adopted is a traditional one where 2.2 hectares make up 5 acres. According to the Government and the new measurement system, 2 hectares make up 5 acres. Therefore, many farmers who hold 5 acres according to the traditional measurement system will lose out on the waiver. In fact, this makes one question the idea of a size limit. What the article states is that in areas like Vidharbha, the productivity is low and hence farmers need to have larger holdings of land in order to earn on par with farmers in other areas.

2. In Mandya district of Karnataka, a farmer M. Maraiah has a loan of Rs. 10,000 against him. This loan has been waived off. Reason for Maraiah to celebrate right? Wrong. He had already sold off that land since he was unable to pay back that loan ages ago. So the waiver didn’t really make any difference to him. His current profession: Daily wage labourer. Agriculture is just not viable, he says.

3. In the village of Sampla, Haryana, the farmers don’t care about this whole waiver stuff. Real estate prices are so high here that almost every farmer is a potential millionaire. No debates happening here.

4. In Bharatpur, Rajasthan, less than 4 out of 10 farmers default in their loans. Quite naturally, majority of the people are highly discontent on this waiver scheme. An excerpt:

A farmer from Talimpur village, who took a Rs2 lakh loan for sinking a borewell on his farm, was also all set to start paying off his dues. “I could not start paying back last year because the crop failed,” said the farmer, who identified himself only as Ashok. “This year, with early rains, I was thinking of paying off but now I am expecting to qualify for the loan waiver.”

Check out Mint’s complete coverage here. There are views of bankers too, which convey a different picture from what the politicians say. I found the insights very interesting. Economics isn’t really just about demand and supply, is it?

A couple of days ago there was a panel discussion held on the future of world stock exchanges and capital markets.

The panel comprised of representatives from the New York Stock Exchange (NYSE), the National Stock Exchange (NSE), the International Monetary Fund (IMF), the National Commodity & Derivatives Exchange (NCDEX) and a graduate college in the US.

Apart from the usual talks on future mergers of capital markets, their impact on the world, the possibility of competition between regulatory authorities etc., what interested me the most was the kind of work that the NCDEX has quietly achieved within a short period of time.

The NCDEX was incorporated in 2003 as an online commodity exchange. Farmers now prefer to trade on this exchange rather than sell their produce to the government. The selling rate of wheat at the exchange was around Rs. 1100. Contrast this with the Minimum Support Price (MSP)of Rs. 650 set by the GoI and you get a fair idea about the gains that a farmer achieves.

Infact, last year, the government was unable to meet its target amount of wheat procurement primarily because most of the wheat was traded at this exchange! Currently in India, only about 25% of the price paid by the end-consumer is passed on to the farmer. A staggering 75% is consumed by the distribution channel. In the US, the share of the farmer stands at 60%. Coming back home, Amul has been able to provide its producers with a share of 90% of the consumer’s expenses!

A challenge that NCDEX faces is that the insurance companies are not very willing to provide financial cover to the crops. The reason cited by these companies is that they are not equipped with sufficient data on the weather conditions. The Indian Meteorological Department has weather stations spread district-wise. Now, usually a district is quite large and hence there persist weather differences within a district itself.
To overcome this problem and to rope-in the insurance companies, NCDEX is planning to set-up weather stations at most of the villages where the traded crops are grown.

NCDEX also plans to move into the spot exchange market – However, one problem they could face here is that in India the derivatives market is regulated by the Central Government whereas the spot market is regulated by the state governments.

In addition to setting up weather stations, NCDEX has started setting up warehouses at the transaction sites. This will ensure that the farmer gets to stow his produce while the transactions are completed and also gets cash upfront, unlike the dismal state in the current mandis where farmers have to wait for days before selling their crop at low rates.

It was interesting to know that a commodity exchange was bringing about such impactful changes and helping the Indian farmer get his due rewards.

Website of NCDEX: http://www.ncdex.com