Daily Financial News Analysis – 6th July’20

Table of Contents

Aatmanirbharta of agriculture

We have a population of 1.37 billion.
We have to produce most of our food at home.
Mid-1960s we used to be in a “ship to mouth” situation
There is a political price we have to pay for over-dependence on food aid.
In last 10 years, India has been a net exporter of agri-produce.
2013-14 was a golden year for agri-trade: exports peaked at $43.6 billion while imports were $18.9 billion, giving a net trade surplus of $24.7 billion.

Agri-exports have been sluggish and sliding
2014-2019: agri-exports were just $36 billion, and the net agri-trade surplus at $11.2 billion.
Judging by the above given figures, it looks like doubling agri-exports by 2022 is almost impossible.
We need to keep in mind the principle of “comparative advantage”.

Agri-export basket of 2019-20

Marine products $6.7 billion
Rice $6.4 billion
Spices $3.6 billion
Buffalo Meat $3.2 billion
Sugar $2.0 billion
Tea-Coffee $1.5 billion
Fruit-Veg $1.4 billion
Cotton $1.0 billion

Rice and sugar are subsidised through free power and fertilisers.
Per hectar basis, total 10-15% of the value of rice and sugar produced, is subsidised.
Virtual export of water
1. One kg of rice requires 3,500-5,000 litres of water
2. One kg of sugar consumes about 2,000 litres of water
Almost 75% of the nitrogen in urea is not absorbed by plants.
Why don’t we offer similar incentives for exports of high-value agri-produce?
Agri-imports front, the biggest item is edible oils worth about $10 billion.
This is where there is a need to create “aatma nirbharta”.
Create competitive advantage
Augmenting productivity and increasing the recovery ratio of oil from oilseeds.
While mustard, sunflower, groundnuts, and cottonseed have a potential to increase oil output to some extent, the maximum potential lies in oil palm.
OIL PALM is the only plant that can give about four tonnes of oil on a per hectare basis.
India has about 2 million hectares that are suitable for oil palm cultivation — this can yield 8 mt of palm oil.
But it needs a long term vision and strategy.

14 INDICATORS

Economic Affairs Secretary Tarun Bajaj: “We are monitoring 14 parameters on a weekly basis to see the change”
Contraction has come down.
E-way bills, GST collections and exports were on the rebound
Government is looking to road and railway projects, which can have a spin-off effect, to play a key role in revival.
NHAI plans to attract Rs 50k crore via SPV.
Railway privatisation (trains) and station redevelopment.
Govt. has already cleared 70 projects worth ₹8,000 crore under SWAMIH (Special Window for Affordable and Mid-Income Housing).
SWAMIH will provide last-mile funds for stalled housing projects.
The government will exit non-strategic sectors.
Credit bguarantee scheme for MSMEs
Reforms in sale of farm produce

‘Governance in commercial banks in India’

The recent RBI discussion paper.
It seeks to bring about path-breaking reform in private sector, nationalised and regional banks.
It proposed board-led oversight and evaluation structures for compliance, risk-taking, internal audit and vigilance, so as to proactively boost governance standards in Indian banking.
The balance of power between the board and the chief executive officer (CEO) will shift in favour of the former.
Selection of board members and their compensation.
Board of directors of a bank comprise not less than six directors and not more than 15, with independent director accounting for a majority.
Chief risk officer and chief compliance office report to the risk management committee of the board.
Head of internal audit and the chief of internal vigilance would perform under supervision of the audit committee of the board.
And both the risk committee and the audit committee of the board would consist of only non-executive directors (NEDs).
Further, a nomination and remuneration committee of the board is also proposed, and which again would be made up of only NEDs.
And the performance of the NEDs would be evaluated by the entire board, minus the concerned NED.
Surely, there’s a solid case for an outside agency to monitor board performance as well.
The regulation of bank bonuses by RBI seems to be a work in progress.
Discussion of bank governance reform would be incomplete without discussion of banking supervision reform, on which there is little clarity.