Nature's curse affects farm sector during 2009

The agriculture sector, which had a record run during the past two years in terms of foodgrain output, failed to match even last year's production level—much less set a new record—as half of the country was hit by drought

India faced the curse of drought and floods in 2009 that saw consumers paying towering prices for vegetables, pulses, sugar and foodgrains, and the shortage of supplies punctured the euphoria over the return of the Congress-led government in May, reports PTI.

The agriculture sector, which had a record run during the past two years in terms of foodgrain output, failed to match even last year's production level—much less set a new record—as half of the country was hit by drought, the worst since 1972, although 1979, 1987 and 2002 were also bad years.

The south-west monsoon skipped its annual visit to as many as 316 districts in 13 states, hitting farm production.

The government swung into action and announced diesel subsidy and additional electricity supply to power groundwater pumps to save standing crops besides rescinding its decision on wheat exports.

The curse is that even 60 years after Independence, 60% of India’s farms depend on rain for crop growth and the country lacks modern warehouses or cold storages.

Just as the government finished one chore, late rains caused floods in four major food-producing states (Andhra Pradesh, Gujarat, Karnataka and Maharashtra). The twin impact of drought and floods resulted in a loss of 21 million tonnes (MT) in kharif (summer) foodgrain production, largely because of an over 15MT drop in rice output, and some impact on economic growth.

Though the Centre maintained that it had sufficient foodgrain stocks to run ration shops for 13 months, food inflation galloped to a more than 10-year high of 19.95% towards the end of the year.

Onions brought tears to the eyes of consumers, potato prices were too hot to be edible and sugar left a bitter after-taste at Rs40 a kg.

The United Progressive Alliance (UPA)-II, which rode back to power on promises like the National Food Security Act to provide every family living below the poverty line with 25kg of rice or wheat per month at Rs3 a kg, came under attack from Opposition parties on many occasions in Parliament for its failure to control rising food prices.

On an annual basis, potato prices zoomed 136% and pulses became costlier by over 40%. Onion prices rose by 15.4%. Other food items that became dearer include wheat (14%), milk (13.6%), rice (12.7%) and fruits (11%). Lentils like tur cost almost Rs100 a kg—the reason being short supply of these items.

The Union government tried to defend its stance by passing the blame to State governments for not acting against black marketeers and hoarders. Besides, the government argued that there was a sharp jump in the minimum support price (MSP) of wheat and rice over the past five years, which is bound to have an impact on retail prices.

Even this year, the paddy MSP was raised by Rs100, including bonus, to Rs1,000 a quintal for common variety.

The government, meanwhile, scrapped import duty on rice and sugar, banned futures trading on sugar and decided to offload rice and sugar in the open market to cool the prices of these commodities.

As a long-term policy measure, the Union government introduced a 'fair and remunerative price' (FRP) for sugarcane farmers that factored in risk and profit elements along with the cost of production. The decision was to encourage farmers to increase sugarcane cultivation area. FRP was fixed at Rs130 a quintal for the 2009-10 season, almost Rs50 more than last year.

As regard to pulses, the government pointed out that pulses output in the country has remained stagnant over the past decade and imports were not happening despite a zero-duty regime, due to limited availability overseas.

However, amid these negativities, the prices of cooking oil remained at reasonable levels as the zero-import duty regime pushed imports of vegetable oils to a record 8.6MT in the 2008-09 season ending October this year.

Besides supplying wheat, rice and sugar through the public distribution system (PDS), the government has started supplying imported edible oils and pulses through ration shops from last year itself leading to a sharp jump in food subsidy, which is expected to cross Rs60,000 crore this fiscal from about Rs19,000 crore in 2004-05.

"Food prices are going up and this is an area of concern. We have to take appropriate measures to see what best could be done by augmenting the supply through imports," finance minister Pranab Mukherjee had said on the day when food inflation almost touched 20%.


Outlook for gold positive in 2010

The World Gold Council said recent moves by India and Sri Lanka to acquire gold suggested that central banks are increasingly looking at the yellow metal to diversify their investment portfolios.

Gold, which has been one of the bigger investment vehicles this year, would remain so as the demand for the metal is underpinned by inflation, economic uncertainty and investors' search for alternative assets, says an official of the World Gold Council (WGC).

Addressing a webinar on gold demand trends, Rozanna Wozniak, investment research manager at the WGC, said the recent moves by India and Sri Lanka to acquire gold suggested that central banks were increasingly looking at gold to diversify their investment portfolios.

Presenting an analysis of gold demand-supply dynamics and trends to investors and traders in the third quarter of 2009, she said it marked the second consecutive quarter-on-quarter improvement for both jewellery and industrial demand. And in the case of industrial demand, it was clear that the turning point for demand had been reached.

Grant Collins, senior managing director, Dubai Commodity Asset Management, said gold investments were gaining favour in markets where exposure to the metal was limited until now.

Uncertain economic conditions and currency fluctuations had encouraged greater allocation to gold in portfolios.

"We expect demand for gold investment to remain strong with investors looking for simpler and secure means to access the gold market," Mr Collins said.

Ms Wozniak said while the outlook for gold investment is healthy in Western economies, "trends in the non-western markets are likely to mirror the jewellery market."

Given the recent rise in the gold price, the outlook for jewellery demand remained uncertain, Ms Wozniak said, adding that Q4 is expected to be a mixed quarter.

While the gold price has repeatedly tested new highs over the last few months and key jewellery markets are looking for opportunities to buy on dips, it is still too early to see where the new levels of key support would emerge now that the gold price has moved into a new trading range, she said.


Prizes announced for ‘Reliance Mutual Fund-Moneylife Big Ideas Essay Contest’

Ms Usha Thorat, Deputy Governor, Reserve Bank of India said, “People are not aware of the right questions to be asked. Financial literacy and education can ensure that people are armed with the right questions. Financial literacy is an essential part of financial inclusion. Unless we are able to understand the requirements of investors, financial literacy cannot achieve its purpose”. She was giving away the prizes for the ‘Big Ideas Essay Contest’ organised by Moneylife in association with Reliance Mutual Fund.

The prize distribution ceremony was preceded by a lively panel discussion on ‘Taking Financial Markets to the Masses’ – the theme of the essay contest. The panel comprised Dr Anil Khandelwal, former Chairman, Bank of Baroda, Mr Jagan Mohan Rao, Chief General Manager, Reserve Bank of India, Amitabh Mohanty, Head, Fixed Income, Reliance Capital Asset Management, Mr Madu Kannan, CEO, Bombay Stock Exchange and Mr Shailesh Haribhakti, Founder Partner, BDO Haribhakti. During the discussion, Mr Khandelwal said, “Financial illiteracy is widely prevalent even among literates. One of the reasons why investors shy away from the markets is because the wrongful conduct of some market participants has not enthused confidence among the masses.” Mr Haribhakti added, “We need to seriously ponder why retail investors are withdrawn from the markets. Our challenge remains to create the right experience by serving the education and awareness needs of the population.” Mr Mohanty rightly stated, “Gone are the days when passive investing was a viable option. It is upto us to ensure people are equipped with the ability to ask the right questions.” Mr Kannan added, “Financial literacy is even more important in the Indian context. We at BSE have given importance to the training aspect for different types of asset classes. But I feel financial literacy is also needed on the institutional side.” Mr Jagan Mohan Rao agreed, “Only trained people should be allowed to advise people on financial products.”

The winners of the keenly contested essay competition are:

First prize - Ms Anshika Malaviya (Narsee Monjee Institute of Management Studies). She gets two return tickets to Dubai from Bahrain Air plus cash prize Rs20,000;

Second prize - Mr Binod Anand (MIT International School of Broadcasting and Journalism). He gets a Mahindra Holidays package for two for two-nights-three days to Goa plus cash prize Rs10,000.

Third prize - Mr Sanket Desai (Mumbai Business School) gets a Blackberry smartphone from Ravi Syam’s organisation – Media Training Worldwide
Most Original Idea prize - Mr Rakesh Sancheti (Symbiosis Institute International business) gets a cash prize of Rs25,000 from Moneylife.

Early Bird prize - Mr Sagar Kulkarni (Welingkar Institute of Management) gets a 4 night-5 days package to Goa from Goa Tourism

The winners were selected by a very eminent jury headed by Dr Anil Khandelwal, former Chairman, Bank of Baroda. Other jury members included Mr Jagan Mohan Rao, Chief General Manager, Reserve Bank of India, Mr Madhu Kela, Head, Equity Investments, Reliance Mutual Fund, Mr Joseph Massey, Managing Director, MCX-SX, Mr SG Kalia, Executive Director, Vijaya Bank, Mr Debashis Basu, Editor & Publisher, Moneylife Magazine.

Earlier, Mr Debashis Basu, announced the formation of the Moneylife Foundation which will undertake financial literacy programmes targeted for different sections of the saving & investing community. Moneylife Foundation is a non-profit organisation dedicated to the cause of financial literacy, investor and consumer education and protection.

The high-profile essay contest was undertaken as a unique initiative of Moneylife magazine to identify outstanding talent among the 70-odd management schools in the Mumbai-Pune region. Students were required to submit a 3,000 word essay on the topic ‘Taking Financial Markets to the Masses’. The response was heartening, with over a hundred submissions received from over 26 institutes. A preliminary screening resulted in 17 essays being short-listed. Each of these 17 finalists was given a certificate of appreciation, a gift, and a six-month subscription to Moneylife magazine.




7 years ago


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