FDI in Retail: Who is Thinking of Farmers ?

Ever since government came up with the document for discussion on FDI in multi-brand retail trade, most debates in media have veered round business, business players, effect of one business format over another and infrastructures required to make business more profitable. The debate no doubt will continue in days to come. But the farmers, original producers of foods and food products which constitute bulk of retail business, and who should be the focal point of discussions, are sadly missed out.

Though the DIPP document on its part does submit that farmers will be benefited, the argument nonetheless appears too blurred to be convincing. Further, the document is based on the premise that our ‘production (farmers’) system’ is ready to cope up with increased quantitative and qualitative demands of food products which FDI in retails is expected to generate. The fact is – it is not. It will also not be prudent to think that efficient supply chain and increased demand will infuse vigor into an already weak and sagging production system. It would rather be sensible to include farmers and existing farming system in discussions. Strong and efficient farming system is must for the success of mega-retail business in India.

Where do we stand today? According to a NSSO study, 40 percent of farmers have lost interest in agriculture. The household income from agriculture has been reducing. Eighty percent of total 12 crore farm holdings own only 20 percent land. Not only is the average land holding of Indian farmers too small, they are ‘fragmented’ too. Overall per holding agriculture productivity in our country is lower than almost all the countries mentioned in the DIPP’s document. So who all are going to benefit by the efficient back-end operations and improved infrastructure of business? Certainly not the aam Indian farmers! Instead there would be further land consolidation in favor of the already rich and resourceful farmers making room for the expanding gap between the rich and poor farmers to expand further.

It is no secret that when small and marginal farmers change their cropping pattern from cereal or staple food-based crops to high value crops (in which retailers would be interested), the quality of their nutrient intake deteriorates as they become dependent on the market for their staple food.

National Commission on Farmers has reported about the almost stagnant and decline in productivity of our farmlands. In the last ten years credit to agriculture sector has gone up by 200 percent and fertilizer subsidy by 300 percent. Yet, the productivity of rice, wheat, and pulses has almost remained constant. Now when area under cultivation is shrinking because of urbanization and industrial growth, intensive and commercial farming on limited land will have its own toll on the productivity of lands.

All efforts notwithstanding almost 60 percent arable land with no irrigation facility are dependent on rain. Increasing fluctuation in rainfall, depleting ground water level, lower and improper fertilizer usage, are issues of great concern. Rural infrastructure is another area of worry. One cannot drive high speed air-conditioned trucks carrying fresh perishable foods on roads inapt even for bullock-carts. Villages lack dependable power-supply.

“Farming is the riskiest profession” said M. S. Swaminathan, an eminent agriculture scientist. In spite of being an agricultural country our farmers are not insulated from hosts of risks. Existing insurance system is either out of reach for them or too complicated to be relied upon. Arrival of retails in a big way will certainly make farming riskier. Meeting customers’ will make farming more resource intensive farming. We need to learn lessons from the innumerable incidents of suicides by farmers being reported from across the country.

Contract farming, projected as the ‘panacea’ for many of problems the Indian farmers are facing, is yet to pass the test of time as anticipated. Instances are galore of one party blaming the other of dishonoring the contract. Though, theoretically it presents a win-win situation both for the farmers and private players, it’s implementation at the field level has been very tricky and in many cases farmers have been found on the losing side.

It is high time we appreciate ground realities and make farmers focus of our discussions as we have been making big retail waalas like, Wal-mart, Carrefour, Tesco, and unorganized retailers like mom & pop stores. The need of the hour is to first work on the ‘root’ of the business before thinking of strengthening the ‘shoot’ and expecting colorful flowers and fruits to blossom. There are still many loose ends which need to be tightened at the very early stage of the supply chain, i.e., the production stage. A word is enough to the wise. Believing that foreign investments will do all these will be like dwarf’s leap for the moon.

Still waiting for monsoon in Odisha, India ....
 
Niraj
 
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Farewell to Microfinance ???

I found a very interesting article in Economic Times of 12th August with heading “Goodbye, Microfinance”. The article forecasts the end of microfinance. The beginning of the article “ Microfinance is slated to join the ranks of flint stones, the crossbow, gas lamps, the pigeon post, and floppy disk – all excellent in their own time but rendered obsolete by the march of technology” – appears very impressive journalistic piece. The author also tries to explain the reasons for that.

The article is both apt and timely when nation is discussing subjects like, inclusive finance, pro-poor banking, banking with and banking for bottom of pyramid. However, it does reflect how differently people read and understand microfinance.
The comparison of microfinance with crossbows and floppy disk is like comparing potato with humanity when you not only fail to understand commonality but you try to bring a concept parallel to the product of a concept.
There is a difference between microfinance and microfinance institutions. The concept or the practice of microfinance is as old as the development of economic practices in society, and today we are just trying to adopt it in present context. Even during the pre-colonial period microfinance was in practices when kings used to provide supports to their people, postpone, or waive off taxes when it was required.

It is true that in recent past microfinance, in its more formal and adapted form, has gained momentum. However, contrary to the point put by author that reasons (like, non availability of credit, very high rate of interest) which helped in microfinance are losing out. The opposite is true. Not more than 20% of poor who are below poverty line have any access to any formal credit system. And if consider the cases of poor states like, Orissa, Bihar, Jharkhand, Chhattisgarh, UP, etc. this number will further be lower. A simple addition of number of active bank accounts and number of customers different micro-finance institutions claim (in spite of fact that many of the borrowers are served by more than one MFIs in ‘good business’ areas) will give the number who are still in credit dark areas. To expect that government owned institutions will be able to lighten those dark areas even in coming ten years will be like expecting moon to come on the earth.
Although improvements in communication facilities, power situations, telecom and other infrastructures create a conducive conditions for overall development; however, to expect that it will have proportional impact on financial inclusion as well ,will not be correct. Our past experiences have proven that most of the benefits of such developments have been cornered by those who are rich and powerful and by those people are, of course, not the target for the microfinance.
Microfinance goes much beyond the micro-credit and it also includes micro-insurance, micro-enterprise development and strengthening. In one phrase...It is ‘financial capacity of building’ people, which is one of the pre-requisites of overall empowerment of the community. What to talk about rural areas, even in infrastructure rich urban areas our success rate is very low on all the above constituents of microfinance. We need microfinance in urban areas as much as in rural areas.
RBI initiative like, requesting banks to involve banking correspondents (BC) is basically meant to strengthen microfinance and not to replace it.
Frankly, microfinance has mainly to do with the amount, ticket size, number and volume of business, and infrastructure and technological innovations are only facilitative. Even if we have all the infrastructures and technology in place we will need microfinance. Yes, it is possible that its delivery system may get changed and streamlined. Microfinance remains the need of the time and it will continue to grow stronger and stronger.

Keep sharing...
Niraj

If you want to read full article of Economic Times follow the link: http://economictimes.indiatimes.com/opinion/columnists/t-k-arun/Goodbye-microfinance/articleshow/6296631.cms