Subsidies and Credit Supply
By: Amit Bhushan Date: 17th Oct. 2014
The means adopted for distribution of subsidy, the nature of subsidy as well as release mechanisms have a bearing on receiver’s behaviour. It is therefore the entire gamut of exercise of subsidy needs to be thought through. For Example: giving subsidy as a discount to buy that we apply to fertilizers helps is over use of chemical fertilizers; similarly assurance of price support for certain produce encourages users to bet on production of such crops since there is lower risk and sales is assured at defined prices irrespective of quality. We also observe large variation in cropping patterns whereby water scare state are cropping water intensive crops on the back of energy subsidy to run deep bore-wells while those who are relatively richer in water have lagged primarily because Agri research to support quality output from such areas have suffered as well as a general lack of incentives as well as marketing support in the states.
Lack of initiatives by states as well as awareness of how problems may hit if left unattended is just about to begin to hound the political class, regards how things may play out including patronization of select state/s at the cost of others. At the root of the problem is vast under employment or hidden unemployment especially in rural India that has long been ignored till it has come back to hound the policy makers due to political turn of events or its possibilities. Despite the consequences, we continue to witness a deepening of commitments to further subsidies rather than a scheme to balance the effects. There are absolutely no researches (regards agri-production or agri-economics) which may offer solutions besides a general lack of awareness, if some may be available. Some of the political leaders may have exploited the issues; however some others may now have a chance to latch on to the bandwagon.
Another area which needs to be looked into is the rural production units which have long been groomed to ignore modern techniques with the idea that not using machines and not upgrading to better technologies will support greater employment generation (a weird myth which actually enables entrepreneurs with limited knowledge maintain their fiefdom for a limited period but is regressive for overall society including the entrepreneur over the long run). This has resulted in consumers shifting preference to other goods and such units became sick or completely shut. Those remaining find it hard to get funds for technology intensive ops (provided that they have become aware of issues) because rural bankers seldom like to make such calls (even efficient payment systems may not be available since rural banks may lack the capabilities or their personal may not be groomed to advise right solutions); or for that matter availability of managers and personals with skills to run such operations, advisory support and associated technical/infrastructure support. Besides, the rural entrepreneurs are forced to take up tasks outside of the (core) competency of such units due to lack of supporting ecosystem and are often becoming uncompetitive due to such factors as well (which some times is dubbed as supply chain inefficiencies).
Lack of branding to help capture consumer imagination and ensure demand as well as inefficiencies in capital utilization due to small scale are other areas where void needs to be filled in. The near total lack of focus of banks to lend to units in rural areas as compared with those in city industrial clusters ensures that financial woes of such units are unlikely to be addressed. Poor knowledge levels of entrepreneurs about registrations (and support processes including financial aid structure along side cumbersome bureaucracy ensures that voice of such entrepreneurs is unlikely to be heard. If such entrepreneurs can be identified and supported basis Aadhar so that monitoring of conduct of such entrepreneurs as well as their business units can be supported and track record is available to banks to make further lending decisions then we can have some elements of supports for such units. Deepening of e-commerce and associated enablements hay have a role to play, however for that to happen penetration of telecom infra along with language related issues would have a role to play.
By: Amit Bhushan Date: 17th Oct. 2014
The means adopted for distribution of subsidy, the nature of subsidy as well as release mechanisms have a bearing on receiver’s behaviour. It is therefore the entire gamut of exercise of subsidy needs to be thought through. For Example: giving subsidy as a discount to buy that we apply to fertilizers helps is over use of chemical fertilizers; similarly assurance of price support for certain produce encourages users to bet on production of such crops since there is lower risk and sales is assured at defined prices irrespective of quality. We also observe large variation in cropping patterns whereby water scare state are cropping water intensive crops on the back of energy subsidy to run deep bore-wells while those who are relatively richer in water have lagged primarily because Agri research to support quality output from such areas have suffered as well as a general lack of incentives as well as marketing support in the states.
Lack of initiatives by states as well as awareness of how problems may hit if left unattended is just about to begin to hound the political class, regards how things may play out including patronization of select state/s at the cost of others. At the root of the problem is vast under employment or hidden unemployment especially in rural India that has long been ignored till it has come back to hound the policy makers due to political turn of events or its possibilities. Despite the consequences, we continue to witness a deepening of commitments to further subsidies rather than a scheme to balance the effects. There are absolutely no researches (regards agri-production or agri-economics) which may offer solutions besides a general lack of awareness, if some may be available. Some of the political leaders may have exploited the issues; however some others may now have a chance to latch on to the bandwagon.
Another area which needs to be looked into is the rural production units which have long been groomed to ignore modern techniques with the idea that not using machines and not upgrading to better technologies will support greater employment generation (a weird myth which actually enables entrepreneurs with limited knowledge maintain their fiefdom for a limited period but is regressive for overall society including the entrepreneur over the long run). This has resulted in consumers shifting preference to other goods and such units became sick or completely shut. Those remaining find it hard to get funds for technology intensive ops (provided that they have become aware of issues) because rural bankers seldom like to make such calls (even efficient payment systems may not be available since rural banks may lack the capabilities or their personal may not be groomed to advise right solutions); or for that matter availability of managers and personals with skills to run such operations, advisory support and associated technical/infrastructure support. Besides, the rural entrepreneurs are forced to take up tasks outside of the (core) competency of such units due to lack of supporting ecosystem and are often becoming uncompetitive due to such factors as well (which some times is dubbed as supply chain inefficiencies).
Lack of branding to help capture consumer imagination and ensure demand as well as inefficiencies in capital utilization due to small scale are other areas where void needs to be filled in. The near total lack of focus of banks to lend to units in rural areas as compared with those in city industrial clusters ensures that financial woes of such units are unlikely to be addressed. Poor knowledge levels of entrepreneurs about registrations (and support processes including financial aid structure along side cumbersome bureaucracy ensures that voice of such entrepreneurs is unlikely to be heard. If such entrepreneurs can be identified and supported basis Aadhar so that monitoring of conduct of such entrepreneurs as well as their business units can be supported and track record is available to banks to make further lending decisions then we can have some elements of supports for such units. Deepening of e-commerce and associated enablements hay have a role to play, however for that to happen penetration of telecom infra along with language related issues would have a role to play.