mapping rural economy and market

8/3/2019 Mapping Rural Economy and Market

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Sanjay Kaul

Mapping the Rural Economy and the RuralMapping the Rural Economy and the Rural

MarketMarket

The Context of InnovationThe Context of Innovation


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Structure of presentationStructure of presentation

Rural economy

Emerging opportunities and potential

Concerns Stagnant agriculture; high poverty Unemployment; negligible surpluses Limited impact of Government programmes Widening gaps

The rural economy: A market or production base? Rural India as production base

Households as business partners Importance of non-farm sector


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Structure of presentationStructure of presentation

Augmenting and sustaining rural growth

Context of innovation

Key strategies for Government and private sector

Rural markets

Existing character

Reforming rural markets NCDEX initiative for electronic spot exchanges

Changes required


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Rural economy: Emerging opportunities andRural economy: Emerging opportunities and

potentialpotential

Substantial increase in purchasing power of rural communities

Monthly per capita rural consumption expenditure Rs. 559 (2004-05);

up from Rs. 281 in 1993-94.

Size of rural market

Agri-inputs Rs. 50,000 crore

FMCG Rs. 70,000 crore

Durables Rs. 10,000 crore 2/4 wheelers Rs. 5000 crore

Percentage of rural households

owning TV sets increased to 26%.

purchasing readymade garments increased 75% since 1993-94,

using LPG has increased 6 fold to 11.7 % since 1993-94.


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Concerns: Stagnant agriculture and povertyConcerns: Stagnant agriculture and poverty

Agriculture growth - 1.9 % and growth in agriculture wages - 2 % in 1990s.

Capital formation in agriculture down from 1.92 per cent of GDP in 1990s

to 1.28% in the early 2000s.

Though rural poverty declined from 37 % to 27% from 1993-94 to 2004-05this level unacceptably high.

30% of rural population had per capita expenditure of less than Rs. 12per day.

Child poverty widespread in rural areas. 33 % of 15 year old children in rural households below poverty line

high level of child poverty would undermine their future capabilities.

Public and private investment in rural areas minimal.


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Concerns: Rural unemploymentConcerns: Rural unemployment

Decline in annual rate of employment from 2.7 % per annum in 1983-94 to 1.07% per annum in 1994-2000. (55th

round of NSSO) This rate is practically half the growth rate in the labour force.

Increased capital intensity by use of tractors and combine harvesters has compounded the problem.

Sharp increase in unemployment (from 9.5% in 1993-94 to 15.3% in 2004-05) among agricultural labour

households, which represents the poorest group.

Growing dependence of rural households on casual labour market

Exposes poor to market risks and increases transient poverty, wherebyhouseholds move in and out of poverty due to labour market fluctuations

Share of agricultural labour poor households has increased from 41% of rural poor in 1993-94 to 47% in 1999-00.

Large disguised unemployment In addition to open unemployment, large sections of the agricultural labour force

are disguisedly unemployed, leading to distress migration to urban areas.


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Concerns: Limited impact of employmentConcerns: Limited impact of employment

programmesprogrammes

Employment generated peaked in the mid-1990s to around 1200 million person days annually

has tapered off since then. even the NREG Act has not significantly altered the situation

only 30-40 days of employment generated.

these initiatives grossly inadequate to effectively deal with theunemployment situation, especially in the lean agricultural seasons.

While road connectivity has improved, asset creation has been thinlyspread and quality of assets poor.

Even at locations where useful infrastructure has been created,

much of their usefulness lost due to poor maintenance and lack ofownership by the local community.


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Concerns: Widening gapsConcerns: Widening gaps

Gap between incomes in agriculture and non-agriculture has widened.

Employment growth in urban India approximately double that in ruralIndia.

Spatial map and social base of poverty significantly changed

increasingly concentrated in a few geographical locations and

among SCs/STs.

Poverty share of Bihar, Orissa, MP and UP in rural poor rose from53% in 1993-94 to 61% in 1999.

Share of North-Western States declined from 3.03% to 1.26%

Share of Southern Sates also declined from 15.12% to 11.23%.


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Concerns: Widening gapsConcerns: Widening gaps

Rainfed agro-ecological areas have damaged environment and

affected livelihoods. largely in Central and Eastern India covering 60% of the net

cropped area and supporting about 44% of the population

Trend annual growth rate in rural per capita consumption

decelerated from 1.60% during 1970-89 to 1.20% during 1990-01.

In contrast, the urban annual growth rate accelerated from 1.92 per cent

during same period.

Ratio of urban to rural p/c consumption increased from 1.62 in 1993-94

to 1.91 in 2004-05.


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The rural economy: A market?The rural economy: A market?

The rural market translates into 750 million population The focus of this summit can remain on how to efficiently sell these

households what they need. This would be a limited perspective

The larger perspective is to look at the potential To increase the incomes of these households so that they can

consume more products Market should be viewed in the context of the potential production

base. 140 million households engaged in some production activity.

At the core of the rural community is the rural household. Currently 30% of rural households are outside the market system.

Ensuring that every adult member of the family is empowered togenerate surplus income through gainful activity is the realchallenge.


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Augmenting and sustaining rural incomesAugmenting and sustaining rural incomes

Key strategies for Government for augmenting and sustaining ruralincomes

Much greater investments in irrigation, rural connectivity and electricity Poverty alleviation programmes should go beyond minimal concerns of

providing safety nets. Government must move from welfare schemes such as NREGA to

growth investments. Move away from regulating to freeing rural markets.

The main design challenge for the Government is implementation ofdevelopment plans focusing on the livelihood base of the rural poor

Poor should be equipped with assets and skills for livelihood outside

agriculture.


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Augmenting and sustaining rural incomes: KeyAugmenting and sustaining rural incomes: Key

strategies for the private sectorstrategies for the private sector

Economic reform must enrich the rural poor Otherwise the poor will become hostile to reform.

Existing rural incomes are spent on sustenance. Additional incomes will be spent on goods and services

Huge opportunity in agriculture along the entire value chain. Need to go beyond contract farming into an equity sharing model.

Freeing of rural markets can significantly contribute in enhancingrural incomes.

However, share of agriculture will further decline. Non-farm sectoris an important source of rural incomes

contributes over one third of the total rural household income


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Augmenting and sustaining rural growth: KeyAugmenting and sustaining rural growth: Key


Manufacturing would provide rural India with sustainable growth and

contribute to poverty reduction. Small scale industrial activity in rural areas is widespread but many of

the smallest enterprises have low productivity.

A key pre-requisite for the future expansion of manufacturing activitiesis improvement of the skills of the rural population.

Skilled and educated rural population will find it easy to move fromfarming to more productive areas.

Business models can have contractual relationships between smallrural-based manufacturers and large urban-based entities.

Produce of rural enterprises need to be marketed effectively.


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Augmenting and sustaining rural growth: KeyAugmenting and sustaining rural growth: Key


Private sector could seize the potential of disguisedunemployed

At least 30 million households available for diversifying into non-

farm activities without affecting agriculture production base.

Technology can make a significant difference to the lives of such

rural households.

Also need to empower the rural population through use oftechnology and knowledge.


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Rural markets: Current realityRural markets: Current reality

Exploitation by money lenders and intermediaries 43% of total amount of borrowing

Disconnected and location specific markets

28090 rural markets 7557 regulated

Participation/dominance of regional players in spot markets

Income disparity of farmers Farmers get 30-60% of what consumer pays 8-20% of income of farmer is used for servicing intermediaries Longest chain of intermediaries

Loss of value: wastages during storage, transportation, handling

Disharmony between spot and futures market


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Opaque practices

Asymmetric market & price information

Bundled processes

Price Information Decision to buy/sell

Grading (poor/subjective)

Physical delivery

Realization of value

Servicing by intermediaries

Income disparity of farmers

Farmers get 30-60% of what consumer pays

8-20% of income of farmer is used for servicing intermediaries

Longest chain of intermediaries Loss of value: wastages during storage, transportation,

handling


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Distress sales and suicides by farmers (Maharashtra, Karnataka, A.P,Kerala)

High volatility in spot markets

Concentration of pricing power with few participants

The agricultural marketing system and infrastructure incapable ofprofitably and efficiently marketing even the current output.

APMC Acts of different states have become a stumbling block.

Marketing of farm produce under the Act are controlled by arthiyas, orcommission agents.


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Reforming rural marketsReforming rural markets

Abolition of APMC Act would facilitate free movement of agriculturalproduce among States.

Collection of all additional fees and cesses in the mandis can bewithdrawn alternative sources of revenue can be found.

Though 18 states have approved amendments to APMC Act, in mostStates rules yet to be notified.

States such as MP, Rajasthan and UP have permitted companies suchas ITC Ltd to set up its e-choupal network to procure goods.

Karnataka government has permitted the National Dairy DevelopmentBoard to set up a terminal market at Bangalore for marketing fruits,vegetables and flowers.

Several States reluctant to change laws for fear of loss in revenuecollection and vested interests.


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An innovation model:An innovation model:

Electronic spot exchangesElectronic spot exchanges Model uses technology and power of information to provide value

addition to farmers, traders and end users alike.

Electronic continuous day trading Standardised commodities as in futures trading

Pre-delivery dematerialization

Electronic auctions

Auction for commodities with standard and non-standard specificationsboth possible Various auctions possible (best price/reverse auction etc.)

Use of technology base and country-wide terminals of NCDEX

Facilitates state of art warehousing with grading, assaying facilities

Emphasis on smooth clearing and settlement

Aggregation of framers can be facilitated


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Benefits of electronic spot exchangeBenefits of electronic spot exchange

Transparency

Efficient price discovery

Enlarged market & liquidity

Selective quality assurance

Flexibility

Anonymity

Complement to the Futuresplatform

Value addition

Arbitrage opportunities

Integration of fragmentedmarkets

Can Substitute MSP


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Changes requiredChanges required

Single Model Act with the following provisions Recognition of e-auction/trading through private mandis

Establishment of private mandis with limited infrastructure requirements

Exclusion from the provisions of APMC Act/ mandi bye-laws

Exemptions from licensing requirements for all participants of privatemandis

Enabling direct purchase from farmers

Allowing free movement of mandi tax paid goods across States to givepan-India reach

Simplification of post sale requirements / compliances


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Thank You

mapping rural economy and market

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