Saturday, 1 April 2017

Irrigation/Agriculture Masala Bonds

As my normal routine I hit the gym in the morning. After the workout sitting on the coffee table with others normal conversation started. 

" So what does your son plan to do when he passes out of school after couple of years" asked someone. Before I answered others said " Admission in good university in India is a dream" Then it went on to reservation and other flaws in education system.

Then started the gossips." You know that family is sending their son after 10th to London for further studies" said a lady

" But how is it possible? They are sitting on bank defaults on more than 200 crores" replied the other

"Really! But her son drives Porsche to school everyday" said the first one. How will they justify the fees to London school?"

"Oh don't worry. They have accounts outside. They even planning to buy house there" replied the first one.

Then the discussion went on to cars. Which car has better status symbol. Should one invest in Bitcoin. Which is latest bike being launched.......Seemed these were biggest tensions in their life.

As I reached home I saw my maid as usual was cleaning the house smiling. I asked her what time you wake up. " 3.30AM in the morning" She replied. The water only for one hour and she needs to wake up to fill the same. 

Entire day theses thoughts crossed my mind. Here are few having accounts outside and sitting on Bank NPA but enjoying all in life yet living in fear. And We have the others trying to make their ends meet. Then I came across how farmers in South India are distressed. Why is India still so much dependent on monsoons after 6 decades of independence?

Agriculture sector in India contributes to 18% of  GDP. With almost 50% of the population depending on it. 
 Except the Ganga plains and the narrow Brahmaputra plains of Assam which  comprise 40% of total area of India all the other areas are drained by seasonal rivers. i.e almost 60% of area is rainfed. And monsoons are the only source of rainfall for India . South west monsoon (90% of total rainfall) and North East ( remaining 10%).  So 60% of agriculture is dependent on monsoons
Big mistake, the economic survey of India predicts  1% rise or fall in agriculture sector will make .5% rise or fall in manufacturing sector viz. 

So, when we are eyeing for 9% growth when our agriculture sector falls it drags our manufacturing sector with it. Hence our economy is indeed the gamble of monsoons.
The current distress also underlines the disturbing reality that nearly 53% of crop area in India is unirrigated and that rain gods continue to decide the fate of nearly three quarters of the Indian population.

One may think its just 18% of total activity how does it alter economy much. 

Recognizing this structural gap, the Union budget presented  put in more funds for irrigation schemes  towards the flagship Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) and more funds towards a long-term irrigation fund.
But whether India will be able to drought-proof agriculture in the coming years will depend as much on how states prioritize irrigation.
And then suddenly this thought struck me like lightening. Money slashed abroad and people buying properties, Using grey markets and various routes to escape future disclosures. Swiss and other authorities on other hand changing their stance every few days on sharing of information.
On the other hand irrigation and agriculture infrastructure in India needs a major shakeup. How much government can allocate is also a tricky situation. It cannot afford to cross fiscal deficit figures so spending is limited. 

Is there a way out. "yes said my heart" I might sound stupid but suddenly this idea started to cross my mind. " WHAT IF GOVERNMENT ISSUES IRRIGATION OR AGRICULTURE BONDS FOR MONEY ABROD"  There might be argument why these black money hoarders be left like this?
But look at the brighter side. No interest payment on issuance of these bonds. Money paid back after maturity in India after 30% tax deducted post tenure of bonds. 
Now comes the other argument. Indian INR already appreciating and broke levels of 65 against dollar on Friday. Such huge inflow of dollar if this scheme implemented shall further strengthen INR and big setback for exports. So now where is the solution.
Why can't government issue Masala agriculture bonds outside India in dollar? Now this can be game changer. The money collected through theses bonds shall have zero coupon bonds and paid back to accounts of those who came out with disclosure after tenure of bonds. And without doubt with 20% or 30% taxation.
Now government can pay the dollars collected to pay world leaders in irrigation projects outside India to lay out projects in our villages. Netafim a world leader in drip irrigation,Doron and many more. 

The idea might sound very sketchy and may be novice but do give it a thought. Rather than money in accounts outside being of no economic value and most of account holders in panic state unable to figure out what is way forward, and banks also not helping much. It might make some sense to collect this money in dollars and use the same for our poor farmers.
This shall take them faster ahead, when they no longer will worry of drought and contribute immensely to our GDP. High time we give this peace of mind to those who grow our food when we are sitting in five stars enjoying our meals.
I hope our respected PM Mr Narendra Modi and FM Mr Arun Jaitley might give it a thought.
This idea may have flaws as I am an ordinary person. But I am sure the team of economists with Ministry of Finance can refine it. I apologise if there is some fundamental flaw in my idea which I could not think of.
And who knows with world class irrigation and other infrastructure our farmer friends are sitting across gym table worrying weather to buy Range Rover or Mercedes   

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