A banker's eye view of rural India

Recently, I had the opportunity to meet my rural cousins after a long gap. What was immediately apparent was that most had not managed to improve their lot in the interim years. Rainfall had been sparse, resulting in poor harvests for three consecutive years. With the rural poor migrating to big cities or to more prosperous states for work, both the availability and cost of labour had turned into major issues, they told me. These encounters left me with the question: Is it their own fecklessness that is to blame or are conditions in villages simply too difficult to surmount? It was with these questions at the back of my mind that I began reading Sujit Sahgal’s recently published book. 

First, a little about its genesis. Rural India accounts for about half of all consumption. This makes it imperative for companies wishing to establish a foothold in this market to understand the dynamics of the rural economy. By extension, the equity analysts who cover these companies must do the same. To get an insight into the opportunities and problems of rural India, the author, currently the head of institutional equities at HSBC, began organising village trips for foreign investors. Over eight years, he organised dozens of trips and interviewed more than 300 people across nearly a hundred villages, mostly in north, west and south India. This book is the result of confabulations held during those trips.

One point that becomes abundantly clear as one goes through the book is that the farmer’s fate depends on far too many factors that are beyond his control. Take his dependence on the monsoon, for instance. Not only must rainfall be ample, it must be evenly distributed across the country, and it must also be timely. In any given year, the odds of all these three preconditions being met, as you can imagine, are low indeed. Only about 36 per cent of cultivated land receives irrigation water. 

Government policies, while well-intentioned, can prove short-sighted. During its tenure, the United Progressive Alliance (UPA) government raised minimum support prices (MSP) at generous rates year after year. While this policy gave farmers a taste of prosperity for some time, it had several adverse fallouts. The choice of crop was no longer dictated by soil and weather conditions. Farmers gravitated to those on which MSP was available — mainly rice and wheat. They shied away from cultivating fruit and vegetables, where their profits could have been higher, but where the safety net of a price guarantee was not available. High MSP increases also led to food inflation. 

A Wall Street View of Rural India: A Banker’s Diary of a Decade of Road Trips 

Author: Sujit Sahgal

Publisher: Olympia Publishers

Pages: 172

Price: $9.99

 

The absence of a cold chain in most parts of rural India is another reason why farmers are unwilling to cultivate fruit and vegetables. When the harvest is good, there is a supply glut and prices nosedive. To earn a decent remuneration, the farmer must keep his perishable produce in cold storage and sell it gradually during the year. This option is not available to most. 

According to the author, instead of offering palliatives such as MSP and guaranteed employment schemes, governments need to focus on permanent solutions —how to aggregate fragmented land parcels, bring modern methods to Indian agriculture, create greater awareness about crop insurance, and so on. 

The book also focuses heavily on high and widespread rural indebtedness. When MSP increases and commodity (land and gold) prices were soaring high, farmers got accustomed to a certain lifestyle which they were loath to give up even after the cycle turned and the wealth effect evaporated. Companies catering to rural markets and financial services players continued to report robust growth. 
 

In the author’s opinion, this wave of consumption was being financed by borrowings. Repeated loan waivers, he says, have spoiled rural India’s credit culture. Nowadays, armed with his Kisan Credit Card (essentially a Rupay card), a farmer can walk up to an ATM and withdraw cash. This card was meant to provide working capital loans but is now widely misused to fund consumption expenditure.
 

Amid all the grimness, there are a few bright spots. Rural women are gradually gathering the reins of power in their own hands, instead of just being figureheads in village panchayats. The keenness of rural parents to plough their meagre surpluses into imparting a sound education to their children also 

augurs well.

The book has been written in an endearingly simple style. Mr Sahgal has done a good job of documenting the challenges that the rural population faces. Any city slicker who is inclined to adopt a contemptuous attitude towards his country cousins should read this book to learn about the odds that rural folk battle against every day. It will also serve well anyone looking for a quick and easy introduction to India’s rural economy and society.