Pensioners of SBI need redress

 

Government patronage and Institutional apathy for the Senior Citizens run parallelly

B. Yerram Raju*

I am 80 years old and retired from the country’s biggest Bank, State Bank of India as a Regional Manager in 1994. I read with great interest the story put out by the Economic Times today from the horse’s mouth – the Minister.

The synopsis of the story in Economic Times of 11^th June 2022 attracted me most. India has 8.6 percent of the globally aged and such population is likely to move to 19 percent by the end of 2050.

Despite Article 38(1), 39 (e), 41 and 46 making it incumbent on the states to provide public assistance at the old age, mysteriously, lot many cases are hibernating in different Courts of justice, with Supreme Court, no exception.

Nearly ten thousand senior citizens who retired between 1991 and 1997 from the SBI, that include the Chief General Managers to Assistant General Managers, draw a measly pension of around Rs.28,000 per month, including Dearness allowance. With inflation now, their savings are getting negative returns. A few facts need public attention.

1.      Government appointed a Committee with Murmur as Chairman, and its report is still not implemented. Murmur Committee had recommended that the basic pension of Rs.4250/- has to be converted to Rs.7120/-. The eighth Bipartite retirees were paid pension on pay scale of eighth Bipartite from 01.05.2005; that is, those who retired between 01.11.2002 to 30.04.2005 were paid pension on old scale of Rs.4250/- whereas earlier seventh Bipartite Retirees were already paid pension of Rs.7120/-. This anomaly arose because of the policy of discrimination followed by the SBI and IBA while settling the issue of pensioners of earlier era.

2.      D.A. Formula – In the old Scheme D.A. on Pension was paid on Structured basis. With eighth Bipartite Salary Structure the System of 100% neutralization was introduced. Only 5th, 6th & 7th Bipartite Retirees are paid Structured D.A. The Federation submitted that when 100% neutralization has been accepted and introduced why deprive old Pensioners from this benefit? A small number of such retirees have survived, and it is not going to cost huge expenditure to the Bank.

3.      Commutation factor in SBI: The SBI retirees suffer double loss. The factor which is available in other Banks at the age of 70 is offered to SBI Retirees at the age of 60. As it is all the official get 40% pension. They, therefore, suffer double loss. We emphasized that Ministry should issue directives to provide commutation as per Industry Level norms to SBI Retirees.

Every effort made by the Federation of SBI Pensioners’ Association and even some individuals could not resolve the issue of the rise of basic pension from Rs.4,250 per month to the level obtaining in 2005 even after a wide range of discussions with the Indian Banks’ Association, SBI, and Department of Financial Services, Government of India. SBI has huge pension fund balances. Resources are not the issue for resolution.

Two questions become prominent here: 1. Despite SBI, a statutory institution set up under the SBI Act, having enough resources to raise the pension to such group, why should the bank look to the approval of DFS, GoI? 2. Why the DFS could not take the route of arbitration and conciliation instead of procrastinating the issue in the name and style of ‘matter is sub-judice’ when they were requested for approval, on the ground that a few individuals, seeing no easy solution raised the case with the Courts?

We not merely look forward to a peaceful and healthy life but also a life of dignity and honour. Government of India should bring in the issues of old age and pensions of statutory institutions under the ambit of the Department of Administrative Reforms, Pensions, and Pensioners’ Welfare to direct the institutions concerned to settle such matters through its arbitration not withstanding the cases in the Courts. Courts, to my knowledge and understanding, will be too happy if the parties come to a compromise and withdraw the cases.

National Policy for Older Persons (NP0P) should encompass all the older persons irrespective of the affiliation to a PSU and Atul Vayo Abhudaya Yojana that acts as umbrella for all government-aided schemes for the elderly, and SAGE would be meaningful instruments when their applicability is universal.

Department of Financial Services, GoI should confront a problem head-on and should have timelines for resolving the cases relating to pensions in PSBs and SBI lest many aspirants of justice get resolution only when they reach the grave. Let these hapless old age citizens – in the age group of 75-90 years, get relief sooner than later.

The views are personal.

https://timesofindia.indiatimes.com/blogs/fincop/government-patronage-and-institutional-apathy-for-senior-citizens-run-parallelly/

Published on 11.6.2022

 

Is risk management cost or revenue function?

 

Is Risk management a cost function or revenue function?

B. Yerram Raju*

Ever since enterprises and firms as well as banks and financial institutions got a hang on risk management function, two things happened. One, most viewed it as a regulatory imperative and felt that compliance is firm’s major responsibility. Two, when the enterprises started practicing risk management, it became more its risk culture than a regulatory function. Broadly, all the enterprises, banks and financial institutions realized that we continue to live in a complex and uncertain world despite improvements in technology and data collection. However, not many institutions realize that costs incurred on setting up good risk management practices would enhance their revenues even in the short term. How? Certainly not through mere data collection, and modelling.

The current year and the years ahead seem to pose as many challenges as opportunities and there will be many more border level institutions like the non-government organizations (NGOs) coming to interplay with the rest of the enterprise sector. It is difficult to predict or control with a degree of certainty the future, climate change, environment and social governance would bring together private players and NGOs.

For example, during the pandemic, health of individuals in organizations, migration of individuals from the enterprises to their homesteads out of fear of the outbreak of Covid-19, resettlement of people, work from home and its tracking exposed new risks and there are no models built for tackling such risks. But the enterprises developed common sense based approaches initially to combat them. Governments stepped in with fiscal, financial, and non-fiscal support measures and the whole world evolved coping mechanisms.

Many nations came to conclusion that it is better to learn to live with those risks and cope with them than running away from them. Supposing that it is a cost function, can these risks be managed without incurring them? If they are not incurred, sustainability of firms would be in grave danger. The profit curve dented but loss is minimized. and many firms could bounce back to normalcy in a few nations like India. China, continuing its lockdown as a higher risk mitigation suffered the risks of sustenance and growth.

Pandemic, more than the recession, taught risk managers the lesson that risk management is a revenue function. Further, it also taught us that such risks in the short term will also turn out as opportunities. India became the vaccine producer for the world. Pharmaceuticals, packaging and packing industry and goods transportation have seized the opportunity for growth on a sustainable basis.

E-commerce firms of various hues, that started as small ventures, became big. Food delivery firms like Zomato and Swiggy showed that it is yet another business opportunity in the waiting for many. Several cafes closed only to give space for several households to become food producers to deliver through e-commerce firms. A sea-change occurred in the firms’ growth path.

Cristian deRitis in an optimistic discourse on GARP, says: ‘How much effort we exert to avoid a negative outcome depends on how highly we discount the future. The higher the discount rate, the lower the value to us of avoiding a loss in the future.’

A unified theory of risk management would enable cohesive and integrated risk management function. Persons good at credit and operational risk would realize that they should enhance their knowledge into all other forms of risk to enhance the value of the firm. Such unified theory of risk management provides for better risk identification and assessment capabilities across the geographical spaces and the spaces between the credit, operational, market, reputational, and sovereign risks.

Enterprise Risk Management (ERM) of firms have to develop, train, and cultivate risk management techniques easily understandable to each of the staff and other stakeholders to enable risk culture to thrive and flourish in the organisation not just confining to the cabins of risk managers and chief risk managers. A realisation has to come that risk management enables growth of profit. It is an investment and not cost. The net result would be effective risk culture and governance.

*The author is an economist and risk management specialist and the views are personal.

https://timesofindia.indiatimes.com/blogs/fincop/is-risk-management-a-cost-function-or-revenue-function/

 

 

Bright Future for Indian Agriculture But Reforms Imminent

 

Future is bright for Indian Agriculture – But Reforms Imminent.

B. Yerram Raju*

Agriculture is one sector that takes all the four factors of production – land, labour, capital, and organisation/management - in full measure, and consumes the scarcest resource water additionally. Several limitations surround the future of agriculture. Land is limited and there are several claims from dwellers to industrialists. So is water and capital. Management depends on the absorption of the latest technologies.

India has only 4 percent of world’s wate resources. Its present population of around 1.39bn is likely to escalate to 1.69bn according to population experts. Improving (a) water resources’ optimization, (b) productivity of the small holdings that constitute 50 percent of the arable land, (c) technologies unique to the production systems of India, (d) integrating all types of agricultural activities and (e) resilience to climate change, is imperative.

India’s agricultural growth (1950-2020) can be seen in many areas: the second largest horticultural production in the world; the highest milk production in the world, witnessing twelve-fold growth; the second largest fish production in the world. It is now a net exporter and its agricultural production is 44 percent higher than that of the US. According to Praveen Rao, Vice Chancellor, PJTS Agricultural University, Hyderabad, India’s agricultural GDP rose from US$ 15bn in 1960 to US$101bn in 2000. During the next sixteen years, the growth was 350 percent more than that registered during the preceding thirty years.    

A.K. Singh, Director, Indian Agricultural Research Institute of ICAR, in his most recent J. Raghotham Reddy memorial lecture at Hyderabad, highlighted that despite 32.7 percent increase in the area during 1951-2021, the production increased by almost six times, and productivity increased by 4.5 times during the same period, maintaining the food security. The period did not saw pestilence and famines in the country. Market-assisted Selection (MAS) is now an integral part of the cultivar development programmes at the ICAR institutions and several agricultural universities, developing 74 crop cultivars in seven different crops -rice, wheat, pearl millet, chickpea, soybean, groundnut, and maize. This still leaves the challenge of India producing 333mt of food grains to feed its projected 1.64bn population by 2050.

As per the NSSO (2014), about 232 million persons are employed still in agriculture (49 per cent of the workforce), contributing about 17 per cent of the GDP. The number seems to have come down to about 219 million in 2015, which is still a very significant number (Kapoor, 2017). A NITI Aayog study estimated the agricultural labour productivity is one-third of the non-agricultural sectors. There is severe shortage of farm labour either to cut the sugarcane crop or cotton picking – the two largest labour-absorbing crops.

Telangana State is the first state to commence growing single-pick cotton from this year, thanks to the intense research by the PJTSAU under the specific directive of the farmer-Chief Minister, K. Chandrasekhar Rao. Farmers are eagerly looking for assured yields of this variety to save the labour costs.

Farming has been the focus and not the farmer of all the research that no doubt yielded excellent results. Doubling of farmers’ income by 2025 is still a dream, because reforms in agriculture sector were just ignored for the last three decades. Small farmer and tenant farmers realised that they have to turn as entrepreneurs for sustainable growth. Several start-ups in farm field have lately come up. Still, aggregators at the farm gate, marketing reforms and easy access to credit beg attention of the policy maker, more so, when we look at the technological innovations that A. K. Singh spoke off:  1. Molecular breeding, 2. Crop biofortification, 3. Microbial technologies, 4. Climate change and mitigation strategies, 5. Satellite remote-sensing technology, 6. Precision agriculture, and 7. Improving irrigation efficiency.

In addition to speed breeding, genome breeding, and use of remote sensing techniques, drone technology for smart agriculture is making deep inroads. A. Drone Sensing for mapping and discrimination of crops, monitoring crop stress – biotic and abiotic, yield damage assessment, soil fertility, and for agri-input applications are some of the drone-based technologies.

While it is true that a century beyond will see the disruptive technologies shaping agriculture growth, the way forward would be in investing in human resources and infrastructure for disruptive innovations (at least 1.4 percent of GDP in agriculture), like Internet of technologies (IoT), AI, ML, Block Chain leading climate, smart, regenerative and remunerative agriculture, adoption of management practices integrating small farm holdings, and mainstreaming the biofortified crops and nutrition literacy.

Investment should come either from the farmer’s equity or his ability to raise the debt. Debt markets in India are deeply suspicious of the farmer and small entrepreneur. Therefore, there is need for a cultural shift in lending to the farm sector. Second, all the above technologies still carry the risk of adverse weather and climate. They are also subject to the cyclones, tsunamis, floods, and holocausts. While crop related technologies are of short term nature, rest are all medium to long term capital investments. Agri-entrepreneurs should look to investments from angel funds, patient capital investors and social capital entrepreneurs. Green House Gas reduction from the climate-resilient agricultural practices have the potential to earn carbon credits (CC) up to 5CC/ha and 1 carbon credit is equal to US$37. 15000 hectares have this potential, according to A. K. Singh.

Further, integrated farming on small farm holdings – crop, horticulture, household dairy, backyard poultry, small pond-culture, and home-grown ducks – will cross-hold risks and pave the way for farmer doubling his income erelong. Sustainability of agricultural growth is assured thus through heavy capital investments in climate resistant technologies, cashing in carbon credits sooner than later, change in the mind-set of lenders and farmers to accelerate lending, and appropriate insurance mechanisms that are farmer-friendly.

*This article is based largely on a couple of lectures: 1. V. Praveen Rao, at the Fifth International Agronomy Congress and A.K. Singh, at the Farm and Rural Science Foundation’s J. Raghotham Reddy Memorial Lecture. The views expressed are mine.

Future is bright for Indian Agriculture – But Reforms Imminent.

B. Yerram Raju*

Agriculture is one sector that takes all the four factors of production – land, labour, capital, and organisation/management - in full measure, and consumes the scarcest resource water additionally. Several limitations surround the future of agriculture. Land is limited and there are several claims from dwellers to industrialists. So is water and capital. Management depends on the absorption of the latest technologies.

India has only 4 percent of world’s wate resources. Its present population of around 1.39bn is likely to escalate to 1.69bn according to population experts. Improving (a) water resources’ optimization, (b) productivity of the small holdings that constitute 50 percent of the arable land, (c) technologies unique to the production systems of India, (d) integrating all types of agricultural activities and (e) resilience to climate change, is imperative.

India’s agricultural growth (1950-2020) can be seen in many areas: the second largest horticultural production in the world; the highest milk production in the world, witnessing twelve-fold growth; the second largest fish production in the world. It is now a net exporter and its agricultural production is 44 percent higher than that of the US. According to Praveen Rao, Vice Chancellor, PJTS Agricultural University, Hyderabad, India’s agricultural GDP rose from US$ 15bn in 1960 to US$101bn in 2000. During the next sixteen years, the growth was 350 percent more than that registered during the preceding thirty years.    

A.K. Singh, Director, Indian Agricultural Research Institute of ICAR, in his most recent J. Raghotham Reddy memorial lecture at Hyderabad, highlighted that despite 32.7 percent increase in the area during 1951-2021, the production increased by almost six times, and productivity increased by 4.5 times during the same period, maintaining the food security. The period did not saw pestilence and famines in the country. Market-assisted Selection (MAS) is now an integral part of the cultivar development programmes at the ICAR institutions and several agricultural universities, developing 74 crop cultivars in seven different crops -rice, wheat, pearl millet, chickpea, soybean, groundnut, and maize. This still leaves the challenge of India producing 333mt of food grains to feed its projected 1.64bn population by 2050.

As per the NSSO (2014), about 232 million persons are employed still in agriculture (49 per cent of the workforce), contributing about 17 per cent of the GDP. The number seems to have come down to about 219 million in 2015, which is still a very significant number (Kapoor, 2017). A NITI Aayog study estimated the agricultural labour productivity is one-third of the non-agricultural sectors. There is severe shortage of farm labour either to cut the sugarcane crop or cotton picking – the two largest labour-absorbing crops.

Telangana State is the first state to commence growing single-pick cotton from this year, thanks to the intense research by the PJTSAU under the specific directive of the farmer-Chief Minister, K. Chandrasekhar Rao. Farmers are eagerly looking for assured yields of this variety to save the labour costs.

Farming has been the focus and not the farmer of all the research that no doubt yielded excellent results. Doubling of farmers’ income by 2025 is still a dream, because reforms in agriculture sector were just ignored for the last three decades. Small farmer and tenant farmers realised that they have to turn as entrepreneurs for sustainable growth. Several start-ups in farm field have lately come up. Still, aggregators at the farm gate, marketing reforms and easy access to credit beg attention of the policy maker, more so, when we look at the technological innovations that A. K. Singh spoke off:  1. Molecular breeding, 2. Crop biofortification, 3. Microbial technologies, 4. Climate change and mitigation strategies, 5. Satellite remote-sensing technology, 6. Precision agriculture, and 7. Improving irrigation efficiency.

In addition to speed breeding, genome breeding, and use of remote sensing techniques, drone technology for smart agriculture is making deep inroads. A. Drone Sensing for mapping and discrimination of crops, monitoring crop stress – biotic and abiotic, yield damage assessment, soil fertility, and for agri-input applications are some of the drone-based technologies.

While it is true that a century beyond will see the disruptive technologies shaping agriculture growth, the way forward would be in investing in human resources and infrastructure for disruptive innovations (at least 1.4 percent of GDP in agriculture), like Internet of technologies (IoT), AI, ML, Block Chain leading climate, smart, regenerative and remunerative agriculture, adoption of management practices integrating small farm holdings, and mainstreaming the biofortified crops and nutrition literacy.

Investment should come either from the farmer’s equity or his ability to raise the debt. Debt markets in India are deeply suspicious of the farmer and small entrepreneur. Therefore, there is need for a cultural shift in lending to the farm sector. Second, all the above technologies still carry the risk of adverse weather and climate. They are also subject to the cyclones, tsunamis, floods, and holocausts. While crop related technologies are of short term nature, rest are all medium to long term capital investments. Agri-entrepreneurs should look to investments from angel funds, patient capital investors and social capital entrepreneurs. Green House Gas reduction from the climate-resilient agricultural practices have the potential to earn carbon credits (CC) up to 5CC/ha and 1 carbon credit is equal to US$37. 15000 hectares have this potential, according to A. K. Singh.

Further, integrated farming on small farm holdings – crop, horticulture, household dairy, backyard poultry, small pond-culture, and home-grown ducks – will cross-hold risks and pave the way for farmer doubling his income erelong. Sustainability of agricultural growth is assured thus through heavy capital investments in climate resistant technologies, cashing in carbon credits sooner than later, change in the mind-set of lenders and farmers to accelerate lending, and appropriate insurance mechanisms that are farmer-friendly.

*This article is based largely on a couple of lectures: 1. V. Praveen Rao, at the Fifth International Agronomy Congress and A.K. Singh, at the Farm and Rural Science Foundation’s J. Raghotham Reddy Memorial Lecture. The views expressed are mine.

 

 Future is bright for Indian Agriculture – But Reforms Imminent.

B. Yerram Raju*

Agriculture is one sector that takes all the four factors of production – land, labour, capital, and organisation/management - in full measure, and consumes the scarcest resource water additionally. Several limitations surround the future of agriculture. Land is limited and there are several claims from dwellers to industrialists. So is water and capital. Management depends on the absorption of the latest technologies.

India has only 4 percent of world’s wate resources. Its present population of around 1.39bn is likely to escalate to 1.69bn according to population experts. Improving (a) water resources’ optimization, (b) productivity of the small holdings that constitute 50 percent of the arable land, (c) technologies unique to the production systems of India, (d) integrating all types of agricultural activities and (e) resilience to climate change, is imperative.

India’s agricultural growth (1950-2020) can be seen in many areas: the second largest horticultural production in the world; the highest milk production in the world, witnessing twelve-fold growth; the second largest fish production in the world. It is now a net exporter and its agricultural production is 44 percent higher than that of the US. According to Praveen Rao, Vice Chancellor, PJTS Agricultural University, Hyderabad, India’s agricultural GDP rose from US$ 15bn in 1960 to US$101bn in 2000. During the next sixteen years, the growth was 350 percent more than that registered during the preceding thirty years.    

A.K. Singh, Director, Indian Agricultural Research Institute of ICAR, in his most recent J. Raghotham Reddy memorial lecture at Hyderabad, highlighted that despite 32.7 percent increase in the area during 1951-2021, the production increased by almost six times, and productivity increased by 4.5 times during the same period, maintaining the food security. The period did not saw pestilence and famines in the country. Market-assisted Selection (MAS) is now an integral part of the cultivar development programmes at the ICAR institutions and several agricultural universities, developing 74 crop cultivars in seven different crops -rice, wheat, pearl millet, chickpea, soybean, groundnut, and maize. This still leaves the challenge of India producing 333mt of food grains to feed its projected 1.64bn population by 2050.

As per the NSSO (2014), about 232 million persons are employed still in agriculture (49 per cent of the workforce), contributing about 17 per cent of the GDP. The number seems to have come down to about 219 million in 2015, which is still a very significant number (Kapoor, 2017). A NITI Aayog study estimated the agricultural labour productivity is one-third of the non-agricultural sectors. There is severe shortage of farm labour either to cut the sugarcane crop or cotton picking – the two largest labour-absorbing crops.

Telangana State is the first state to commence growing single-pick cotton from this year, thanks to the intense research by the PJTSAU under the specific directive of the farmer-Chief Minister, K. Chandrasekhar Rao. Farmers are eagerly looking for assured yields of this variety to save the labour costs.

Farming has been the focus and not the farmer of all the research that no doubt yielded excellent results. Doubling of farmers’ income by 2025 is still a dream, because reforms in agriculture sector were just ignored for the last three decades. Small farmer and tenant farmers realised that they have to turn as entrepreneurs for sustainable growth. Several start-ups in farm field have lately come up. Still, aggregators at the farm gate, marketing reforms and easy access to credit beg attention of the policy maker, more so, when we look at the technological innovations that A. K. Singh spoke off:  1. Molecular breeding, 2. Crop biofortification, 3. Microbial technologies, 4. Climate change and mitigation strategies, 5. Satellite remote-sensing technology, 6. Precision agriculture, and 7. Improving irrigation efficiency.

In addition to speed breeding, genome breeding, and use of remote sensing techniques, drone technology for smart agriculture is making deep inroads. A. Drone Sensing for mapping and discrimination of crops, monitoring crop stress – biotic and abiotic, yield damage assessment, soil fertility, and for agri-input applications are some of the drone-based technologies.

While it is true that a century beyond will see the disruptive technologies shaping agriculture growth, the way forward would be in investing in human resources and infrastructure for disruptive innovations (at least 1.4 percent of GDP in agriculture), like Internet of technologies (IoT), AI, ML, Block Chain leading climate, smart, regenerative and remunerative agriculture, adoption of management practices integrating small farm holdings, and mainstreaming the biofortified crops and nutrition literacy.

Investment should come either from the farmer’s equity or his ability to raise the debt. Debt markets in India are deeply suspicious of the farmer and small entrepreneur. Therefore, there is need for a cultural shift in lending to the farm sector. Second, all the above technologies still carry the risk of adverse weather and climate. They are also subject to the cyclones, tsunamis, floods, and holocausts. While crop related technologies are of short term nature, rest are all medium to long term capital investments. Agri-entrepreneurs should look to investments from angel funds, patient capital investors and social capital entrepreneurs. Green House Gas reduction from the climate-resilient agricultural practices have the potential to earn carbon credits (CC) up to 5CC/ha and 1 carbon credit is equal to US$37. 15000 hectares have this potential, according to A. K. Singh.

Further, integrated farming on small farm holdings – crop, horticulture, household dairy, backyard poultry, small pond-culture, and home-grown ducks – will cross-hold risks and pave the way for farmer doubling his income erelong. Sustainability of agricultural growth is assured thus through heavy capital investments in climate resistant technologies, cashing in carbon credits sooner than later, change in the mind-set of lenders and farmers to accelerate lending, and appropriate insurance mechanisms that are farmer-friendly.

*This article is based largely on a couple of lectures: 1. V. Praveen Rao, at the Fifth International Agronomy Congress and A.K. Singh, at the Farm and Rural Science Foundation’s J. Raghotham Reddy Memorial Lecture. The views expressed are mine.

https://timesofindia.indiatimes.com/blogs/fincorp/future-is-bright-for-indian-agriculture-but-reforms-imminent/

 

 

 

 

Farm Loan Waiver - No longer, the need.

 

                                  Courtesy: The Hindu

Farm Loan Waivers – No longer the need

B. Yerram Raju                                                                                   

From corporates to the individuals, irrespective of activity, want their loans to be waived. Who wants to live in debt? But can the economy giving such waivers live without debt? Simply put, a firm ‘No’. The rising public debt of the sovereign puts not just the present but the future citizen in debt for it is the next generation that has the responsibility to repay. Farm sector is not just exception, but the future is not just generation away but only a crop season away. This should clear the way for the argument against the loan waivers of any kind save very serious exceptions.

Politicians and farmers are good friends close to the elections and bad enemies to farm economics. Rahul Gandhi stirred the hornet’s nest at Warangal on the 6^th May while announcing that if Congress is elected to power in Telangana, it would waive off Rs.2lakhs for each farmer from his debt portfolio. Such slogans pre-elections are not new to the farmers, ever since V.P. Singh/Charan Singh duo indulged in crop loan write-off in 1990s. The scheme received the ire of Comptroller and Auditor General for its bad implementation. RBI repeatedly advised the political parties not to indulge in this luxury as the states do not have that much resource apart from encouraging bad borrower behaviour. But do all farmers look for such write-off? What exactly they need?

Doubling farm income remained a far-cry leading scores of farmers to double-up to Delhi to fight against what they considered as bad farm laws. The much-needed farm reforms that were bypassed during the first phase of reforms in the 1990s could have been triggered had there been political sagacity and cooperative federalism. Be that as it may, it has become difficult for governments to do what the farmers want, save the exception of government of Telangana, that I would explain latter. There are good number of farmers who took to mixed farming, organic farming, natural farming, and use of technologies intensely.

Farmer is generally short of cash at the beginning of the crop season. This leads him/her to go to the money lender who is wont to give credit on his own terms. The revenue from his previous crop would not be to hand at that moment as it would have been up for sale but not sold. If he had no dairy or poultry or allied activity to come to his rescue, even family would be on the brink of starvation despite his four or five acres of land!

Government of Telangana is the first government to think of giving Rs.10000 at the beginning of the season in cash. It also arranged for insurance against untoward calamity in the family while working on the farm -  may be a snakebite or an accident or loss in family up to Rs.5lakhs. Both these schemes are monitored by the Chief Minister to ensure that there is no slip up in the releases. The result is that farmer does not have to wait at the banker’s gate for a loan! On top, all the 789  Primary Agricultural Cooperative Societies in Telangana have been digitized and linked to core banking solutions of  around 298 DCCB -branches and State Cooperative Bank. This opened a reliable credit window for the farmers when credit is needed. Marketing paddy, the principal crop of the state is engaged in a street fight between the union and state. The result, however, is good as the farmers realized that they should go more for alternate crops that have better markets and yield better price. When asuras and devas churned the ocean, both milk and poison emerged and the churning is still on.

Illustratively, Saritha, a commerce postgraduate from Rapakapalle village in Hanumakonda district took to zero budget natural farming on her four-acre land. She collected rainwater to farm a fishpond; honeybee-keeping, polyhouse for vegetable cultivation and an acre of paddy cultivation. She established two retail outlets for her farm produce and multiplied her farm income. She is proud to say that she could hedge the risks of farming through mixed farming as one or the other agricultural activity gets her sustainable income year-long. She also influenced two thousand farmers in and around her village. There are many more of her ilk in Telangana.

Credit for farming is a necessary but not sufficient condition for sustainability because farmer’s liquidity is always locked up either in soil or silo. As long as farmer’s credit requirement is viewed in exclusion for production purposes alone, the empty valet of farmer stares at the banker. In spite of nearly five decades of engagement of banks with farmers, bankers have no trust in them. Similarly, farmers also lack confidence in banks that they would meet their genuine requirements in time. It will be interesting to see from the RBI data that the banks lent to farming mostly in irrigated tracts – nearly 83% of lending took place in just twelve states. National Bank for Agriculture and Rural Development (NABARD) took up watershed programme on a mission mode that helped many water-starved tracts could get crop-relevant water using latest technologies. Kisan Credit Card has become a fancy instrument that did not give credit comfort to the farmer. Revisiting this instrument and modifying its delivery mechanism is more imminent now than ever.

The banks’ concerns are equity and discipline while the farmers’ concerns are adequacy, timeliness, and multipurpose credit – production, consumption, and marketing. Farming unlike any other activity is prone to risks arising from natural calamities and each calamity is different in nature and dimension.

Chanakya in his magnum opus Artha Sastra clearly mentions that if a natural calamity like cyclone, holocaust, continuous drought for over two years, repeated floods, tsunami etc., it is the responsibility of the state to bail out the farmers by relieving him from all the debt and give cash to him for sustenance. He never advocated loan write-off as it would debilitate the farmer of his own capacities and creates trust-deficit with his lender. Strengthen the insurance mechanism for farming sector. Make available lending to farmer at no more than four percent per annum. Announce the produce price well ahead of the season. Interest reimbursement is a budget game and put an end to it.

It has become a fashion for all the political parties to announce loan write-off from the state exchequer. It is difficult to imagine that they are ignorant of the consequences. But they indulge in this political ploy. A responsible democracy like ours shall refrain from such sloganeering and Election Commission should impose a ban on such announcements.

The views are author’s own.

https://timesofindia.indiatimes.com/blogs/fincorp/farm-loan-waivers-no-longer-the-need/

 

 

 

Recession - Far and yet Near.

 Opinion: On edge with recession fears https://telanganatoday.com/opinion-on-edge-with-recession-fears

Recession? Near and yet Far.

B. Yerram Raju

Several economists, in the wake of Russia-Ukraine war and the rise of global inflation index, have been talking of recession. It is important to understand the meaning of recession. It occurs when there is contraction of demand for goods and services consecutively for two quarters; employment falls precipitously; consumption declines; both exports and imports fall; credit markets shrink and finally, the GDP declines. This means that all the macro-economic indicators show an alarming trend.

In layman’s language, when your neighbour loses his job, it is recession, while depression is, when you lose your job. Before going into the macro-economic indicators that prompted such prediction, the discussion is timely because price stability is viewed as necessary precondition for growth by the authors of the Currency and Finance Report (RBI), 2021-22. This is the wake up call to the Monetary Policy Committee meeting on May 2 and 4 calling for a rate hike close to the rate hike in Fed-US.

Impact of global recession is seen in the backdrop of Covid-19 variants making aggressive re-entry unnerving many economies. Externalities like Russia-Ukraine war, collapse of Sri Lanka in our immediate neighbourhood, strained global value chains added fuel to fire. Fuel prices are not likely to relent in the short term and edible oil prices are touching the roof.

A bit of History

Unprecedented banking crises in the past triggered recession both in advanced economies and emerging economies. Advanced economies: Herstatt crisis in Germany, Japan in 90s, Norway in 1988-92, Spain in 1985, Sweden in 1985, UK in 1995, USA in 1980s to early 90s, and emerging economies: Brazil 1994, East Asian Crisis in 1997 hitting Korea, Thailand, Malaysia, Vietnam, and the subprime crisis of 2006 hitting the whole world are examples of recession if we leave 1930 recession way behind. The Economist, London in its special report of May 16,2009 said: ‘the dirty secret of the golden age of finance was that it was obscenely easy to make money.” Interest rates rose and housing prices fell.

Rate Hike:

Latest hike in the basic rates announced by Governor Shaktikant in a huddle on May 5,2022 shocked the stock markets. Lenders, rating agencies, and investors commented that this hike is just the beginning in the wake of unrelenting inflation for the past three quarters in a row.

Gross Domestic Product:

The most important macroeconomic factor is decline in GDP {[C+I+G+(x-m)], where C= consumption; I=investment; G=Government spending; x= exports and m=imports} . Total goods and services produced in the economy declines. Currency and Finance Report (CFR 21-22), mentioned that economic growth slowed down since the second half of 2016, taking the average of GDP growth between 2017-20 fiscal to 5.7 percent. There is understandable decline post 2020 due to Covid-19 that saw irrecoverable loans in all segments, rents prohibited for more than a year in several states in 2020-21, unoccupied hotels and unmoved airbuses hitting tourism and aviation industry, several drivers losing their jobs and cabs parked in sheds with a steep fall in fuel consumption.

Inflation:

One must begin with inflation. Data released four days after the MPC's April 8 decision showed Consumer Price Index (CPI) inflation saw a seventeen-month high of 6.95 percent in March. Wholesale inflation index rose to a four-month high of 14.55 percent the same month.  This data was in the RBI’s pages even three weeks before. Should it be behind the curve in announcing the rate hike for so long? A question that would have few answers from the powers that be. Money Control, a financial blog, vents its disappointment over the RBI Governor’s statement:” CPI inflation has been above the medium-term target of 4 percent for exactly two-and-half years. In these 30 months, CPI inflation has been above 5 percent 27 times and above the 6 percent upper bound of the RBI's flexible inflation target 16 times. So, to state now — after not saying anything in the last two years — that inflation expectations could get unanchored is a tad disconcerting.”

Unemployment:

CMIE data released almost simultaneously reveals that urban unemployment rate was 9.22 percent, and rural unemployment rate was at 7.18 percent.

International Trade

Trade balances were hit badly all over the world. Thanks to seizing the right opportunities, India’s trade balances moved to $400bn in April 2022. Several measures taken under Atma Nirbhar Bharat Abhiyan (self-reliant India) started yielding results. Startups swelled to encouraging levels. Thanks to agriculture and pharmaceutical sectors, the economy looked up during the covid time. There were no deaths due to hunger. More than 4.58crore population had been vaccinated – first, second, and precautionary and child vaccines together. To keep the export markets diversified, PM Modi is on Europe tour. This may also signal export markets that India is keen to see that the war between Russia and Ukraine ends sooner than later.

India’s consumption, growing at 12 percent pre-pandemic, nose-dived during the pandemic. But it recovered fast and is at 17 percent with a likely 10 percent annual growth in the next decade, according to Managing Partner, Boston Consulting Group. E-commerce is on the rise. It is likely to reach US $130bn by 2026.

For recession to set in there are certain conditions: Foreign capital should flee; people’s confidence should evaporate; stock markets should take a deep dive continuously; melt-down of global markets; tumbling currencies; flight of assets to safety; financial institutions blowing cold on credit; increasing government interventions in every sphere; federal politics on hostile note; and trust deficit in the governments. Banks will be on the nervous hook. Banks have always been on a weak wicket because of their inherent mismatch between the assets and liabilities. After digitalization, the risks went beyond their normal reach and added to that are the crypto currencies and cybercrimes.

Government asserts that and the RBI reinforces its argument in that growth is here to stay as banks, corporate enterprises and agriculture are all looking up. Credit from institutions for the second month in a row saw a rising trend. But unlike in 2006 crisis, Indian financial system is not a closeted financial system but exposed to global value chains.

Globally, forex markets nose-dived. Commodity markets are on continuous decline. Industrial production everywhere wears a disappointing look due to the war and continuing Covid-19 variants making economies nervous. Volatility exists in all the stock markets. Several FIIs are keen to pull back their investments.

It is this backdrop that still makes economists nervous to feel that recession is very likely.  India is far and yet near. It’s export thrust in the wake of volatile forex markets is enough cause for worry. Further, the freebies, rising public debt, indiscrete valuations of public assets put to sale, large official haircuts in official IBC resolutions need rethinking if India would escape recession. Next two months in a row, we may witness rate hikes to contain the galloping inflation.

The views expressed are author’s own.

 

Inflation - the hydra

 

Inflation – the hydra

B. Yerram Raju

Times of India Blogpost dated 29.04.2022.

Sweltering heat makes us look to June’s first monsoon showers as much as the monetary policy of the RBI looking at taming the inflation as its uppermost task. When Bloomberg mentions that the world is experiencing a synchronised inflation outbreak that previously seemed related to the US and Europe, and that producer prices are rising in Japan, South Korea, India, and all economies are feeling the heat of fuel and food prices, it has to be viewed seriously.

I tried to look at it from what is happening in the working class both in urban and rural areas in our country. Several state governments are indulging in competitive populism, notwithstanding the ever-rising fuel prices.

My house cleaner has a couple of acres of land in Mahbubnagar district of Telangana. She gets her minimum wages when she abstains from the work in our house, at least four days a month and seven days at least once in a quarter. Her logic: Every office has one Sunday and two second Saturdays as holidays. Why should I not get the same? She works as house cleaner for ten houses with an average income of Rs.2000 per month per household. She gets free ration; free medical treatment in the government hospital if she or her family members have illness or accident. Her husband is a fruit-seller on bicycle. His net income is Rs.15000 a month and recently he got a loan of Rs.10000 under the street vendors’ scheme that helped him buy a cooler to the house. She has put both her sons in a social welfare residential school. She is also not bothered about income tax though her family income exceeds the taxable income. She has Aadhar card and felt needless to have PAN card! She is least bothered about inflation.

In a chat with her, I and my wife realized that most house cleaners are in the same boat as her and they only have to pay rent. Some of them are also expecting to move to their own two-bedroom flat promised by the government. I went to a village on the way to a temple in Sangareddy district. That was a shandy day. Hence most villagers are in shandy either as buyers or sellers. I got down from the car, a little uncared for the anger of my wife. She knows that when I get down on such errand, I would take at least thirty to forty-five minutes to be back.

I enquired from around twenty persons regarding the price-rise. They mentioned only two things: one, Fuel price and two, Oil price. No others mattered to them. At least one person in every house has a motorcycle. Every family has a piece of land either owned or leased. They are bothered about the wages for the farm labour. They sky-rocketed. They are planning to go for farm machinery either in groups or go for hiring it to reduce farming costs. They are bothered more about increasing unrest in villages due to family feuds.

Inflation therefore has not figured much in the conversation. Rise in wages is an issue but related to inflation. Not that the rising inflation indices – consumer price indices crossing the RBI headline boundaries – is not a worry. The fact is that there are several factors that do not get into inflation accounting. The rents in urban areas are on the rise despite a boom in real estate and housing and cheap housing loans.

If interest rates rise, the cause will not be so much the inflation as the non-performing loans in the retail sector, protracted corporate loan recoveries after severe haircuts, under the most permissive route of Indian Bankruptcy Code proceedings.

Union government has a responsibility to look at the fuel prices beyond the revenues that are earned out of them. Most of the states have genuine concerns over the cess and it is time to be transparent and remove all the cess as the purpose for which cess is levied and spent are never coordinated. For example, look at the similar rise in fuel prices globally in 2014 and 2015 and the domestic prices. Can we get back to the comparable barrel prices and retail prices of fuel and gas?

Once the interest rates rise, the scope for real interest rates to pare up and comfort the savers exists and the hapless senior citizens will have a sigh of relief. Real interest rates are currently negative and hopefully the June monetary policy of the RBI will bend the hydra.

*Author is an economist and risk management specialist and the views are his own.

https://timesofindia.indiatimes.com/blogs/fincorp/inflation-the-hydra/

 

 

 Cumbersome Guarantees and Insurances for MSEs Need Redress

This Blog was published in the Times of India ( see the link below)

Micro, Small, and Medium Enterprises (MSMEs) are extolled as the engines of employment, growth, and key to the supply chain management of medium and large corporate enterprises, leading exporters, manufacture over 6000 products. They have been redefined during the first Covid-19 disruptions to the economy in terms of investment and turnover, replacing the earlier definition restricted to investment in plants and machinery. This sector is next to agriculture which employs the largest number of persons. 98% of enterprises are micro, mostly owned by proprietors or partners. Even partnerships are to a large extent family partners.

Access to credit for the sector is the Achilles Heel. To provide easy and better access the GoI and SIDBI have set up Credit Guarantee Trust for Micro and Small Enterprises in 2000 (CGTMSE). Even during the pandemic, GoI introduced Emergency Credit Linked Guarantee Scheme under Atma Nirbhar Bharat Abhiyan with CGTMSE holding the baby.

But did the sector gain much from the insurances and guarantees in their existing shape? This needs a probe.

Insurance:

When the small-scale industries of Yester decades used to take out insurance cover for the plant and machinery against fire, riot, and risks, through the liability jointly owned by both the credit institution and the borrowing enterprise. After universal banking was ushered in, several banks took to Bank Assurance. A transparent joint insurance policy gave place to a policy that just lists the names of the borrowing MSME firms with the amount insured. The firms are ignorant of their liability under such policy and its renewal terms annually.

There is no evidence of any insurance claim of such bank insurance of enterprise machinery as a primary asset response. On the other hand, as several MSMEs noted that banks have over-booked insurance premium amount upfront with every loan sanction – whether term loan or working capital. Never did such insurance pay off for the MSE in trouble.

Both the MSMEs and the Banks have debated their mutual deficiencies in several media discussions, and they are plagued by mutual distrust.

While the redefinition helped many scale up their enterprises and move to exports quickly, there were lakhs that shut their doors during the pandemic. The impact of redefining has been such that a negative 1.8% MSE outstanding loan in FY20 has moved to 4.8% year-on-year by the third quarter as the existing.

Guarantees:

The 'strength' of a guarantee that allows credit to the enterprises without collateral or third party, is context-dependent: it depends on its nature, the legal environments that are relevant, current practices, and the context when the lender exercises his right. Yet, for twenty years, institutional credit to the sector leaves a gaping hole of Rs.279 trillion according to the International Financial Corporation (2015) study.

RBI mandated Banks to extend credit to micro-enterprises under CGTMSE up to Rs.10lakhs per enterprise. While the CGTMSE can extend guarantees to MSEs up to Rs.2crore, the covers range from 75 to 85 percent of the loans. During the last three years (2018-21), even retail loans and the service sector are being covered with guarantees while the extent of such guarantees is limited to 50% of retail loans. One hundred Member-Lending institutions (MLIs) that include 23 NBFCs are availing of the facility and yet several of them express serious reservations over such ailment.

Annual Report of CGTMSE for Fy2021 reveals that 47 percent of guarantees pertained to loan amounts of less than Rs.10lakhs (mandated by the RBI to extend without any collateral); 18% are in the range of loan amount of Rs.10lakhs-25lakhs; 14% are in the range of Rs.25lakhs-50lakhs; 12% are in the range of Rs.50lakhs-100lakhs, and 9% are in the range of Rs.100lakhs-200lakhs. Rs.45,851crore have been provided guarantee cover during the year 2020-21.

MLI concerns:

The guarantee portfolio increased after the retail, hybrid-collateral, and NBFCs joined, as these three constituted 49% of the guarantees extended during FY 21. It is the 1.18crore of the 6.3crore MSMEs that need a guarantee more than the rest. MLIs opine that the guarantee premium of 1-1.25 percent involved a lot of paperwork, follow-up for receiving the claim amount that too, after declaring the asset as NPA.

Banks have to prove that they have taken all the measures that include issuing legal notices, follow-up on recovery, provisioning for the loans, and proceeding against the borrowers under SARFAESI Act where the assets are partially guaranteed. These factors lead to a lack of trust by the CGTMSE both the MSEs and Banks.

The Way Forward

MSEs in manufacturing that forms an important component of sustainable supply chain management of Industry 4.0 need different forms of credit acceleration and insurance mechanism.

While the Banks should evaluate the credit risks of such enterprises on transparent parameters and extend credit to MSEs along with counseling, mentoring, and follow-up, the enterprises should digitize their operations and derive benefits from a large number of schemes recently floated by the Ministry of MSME, GoI.

Since fourteen states take 88 percent of MSE outstanding credit, and these MSEs reported less NPAs than their elder brothers in the corporate sector, each enterprise can be insured for various risks that include, fire, riot risks, natural calamities, the pandemic-like situations, plant and machinery, storage, other supply-chain disruptions, and cash flows on a graded scale. Once the enterprise pays the premium based on the risk it chooses to cover, and such risks are well-measured, insurance will ensure that the enterprise will be a going concern, and banks can extend the needed help duly assessing their risk cover as well. It is time for a change the guarantee is looked at and replaced it with Insurance, for which purpose, the GoI may appoint a High-powered Committee.

The policy should be transparent and discussed with the stakeholders in at least ten of the fourteen MSME-dominant states before introduction.

https://timesofindia.indiatimes.com/blogs/fincorp/cumbersome-guarantees-and-insurances-for-mses-need-redress/

 

 

Future Agenda for Cooperatives

FUTURE CO-OPERATIVE AGENDA

B. Yerram Raju*

 

The Home Minister and Union Minister for Cooperation, Amit Shah held a meeting of state ministers to reformulate and revise the National Co-operative Policy, 2022 in the aftermath of the resistance of the states to the  97^th Constitutional Amendment 2012 and the consequential changed milieu in the Co-operative movement of the Country.

 

The widely spread Co-operatives from brooms to looms; from fertilizer to food; from production to consumption; from milk to silk and from labour to power have their roots lie in the setting up of Primary Agricultural Co-operative Credit Societies (PACS) in 1904. Entire cooperative legislation has been catering more to the credit cooperative structure al bait several imbalances and irregularities and faulty accounting practices. Urban Cooperative Banks (UCBs), like the community banks in the US, has been serving the limited requirements of the interested cooperators and have become symbols of mismanagement and poor governance, requiring continual intervention and regulatory architecture from the RBI to protect the interests of the depositors who invested in those banks.

‘Cooperatives are operatives in misappropriation’, bemoaned some famous cooperators like L.C. Jain and eminent bankers like Burra Venkatappapaiah, in the yesteryears. After the Third Five-Year Plan, the Five-Year Plan (FYP) documents removed the chapter on Cooperation. After NABARD assumed charge of supervision of the rural cooperative credit structure, their size and contribution to agriculture and rural development significantly declined giving more space to the less-interested commercial banks. There has been a strategy retreat from ‘Farmers’ Service Societies’ (multi-purpose cooperatives) financed earlier by the commercial banks

Context, Rationale, and the problems

The lofty ideal of Gram Swaraj embedded in Panchayats and Cooperatives came to occupy secondary status despite the 73rd and 74th Amendments to the Constitution of India, mired in confusing objectives and corrupt practices. Cooperatives originally started with the laudable socio-economic goal of helping the unreached and as effective instruments of financial inclusion, are today under the seizure of the political elite and became in fact the seedbeds of political power. The elected representatives like the Presidents, Vice Presidents, and Board of Directors appointed secretaries would do the things they want and not what the members legitimately expected of them.

Cooperative Federalism demands that the states have to be taken on board over any new policy changes as the subject of cooperation falls in the domain of the states and not the union government.

Martin Luther King Jr, once stated, “Almost always, it is the creative dedicated minority that has made the world better.” The largest food brand in India – AMUL proved that cooperatives are the best bet for survival. “If you want to be incrementally better, be competitive. If you want to be exponentially better, be cooperative,” a Canadian Lesson Book on Cooperatives quoted.

Recommendation:

            The Government should reformulate its Future Co-operative Agenda to professionalize and democratize the Co-operatives and also to facilitate the development of the Co-operatives as Self-reliant and economically sustainable organizations in order to provide an environment for the members to have improved access, economies of scale, insuring them against unforeseen risks, safeguarding them against market imperfections and bestowing the advantages of Co-operative Collective Action, based on International Co-operative Principles.

Policy on Future Co-operative Agenda:

 

Definition of cooperatives should avoid their classification that gives a long arm to the regulator.

 

* While upholding the values and principles of Cooperation, the Policy recognizes the Cooperatives as an autonomous association of persons, united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

 

This Policy addresses the hitherto unaddressed or neglected issues of management, governance, audit, and member-run democratic structure of the cooperatives in the country through legal, accounting, technological and structural changes and therefore would prove its supremacy over other economic instruments in the interest of inclusive growth, a goal not to be missed by any democratic government.

 

Registrar of Cooperatives – role shall not be so much of intervention as registration, maintaining membership data and arbitration over the issues that arise among the co-operators and cooperatives.

 

Key Risk Areas:

1. The political will to implement such policy throughout the length and breadth of the country.
2. Speed of action
3. Resources for implementing change – Budgetary provisions; Endorsement of Niti Aayog – the think tank of the present government and
4. Approvals from RBI and SEBI, where required.

 

Strategies To Achieve The Objectives:

          Technology offers a level playing field and therefore, there must be a plan for technology infusion. Co-operatives being financially weak enterprises owing to their excessive obligations enjoined upon by the state governments, funds for technology management should come from the State Government as a one-time grant/support with conformance to certain discipline by the leadership in Co-operatives from the primary to the apex levels in all the spheres.

          The Investment in technology can come as a grant or soft loan assistance from either the government or an international organization. Co-operatives that have adequate collaterals to offer can be enabled to do so with the approval of their respective General Body. The tenor of assistance can be mutually agreed upon between the giver and taker.

Monitoring and Implementation

There shall be a Policy Review Committee, meeting at half-yearly intervals, at the State and Union Government levels with the concerned Secretary-in-charge to chair the deliberations at quarterly intervals. The concerned Minister shall present to the Parliament’s first session of the year, a review of the efficacy of the delivery instruments under the Cooperative Act.

 

Conclusion

The vision for the twenty-first century should withstand the challenges of a competitive business environment where excellence, efficiency, and high productivity parameters will be the priority. Emphasis will continue to be laid on an improvement with co-operative governance through the process of restructuring and rejuvenation.