By Priya Saraff
Is there a recovery in India’s rural economy? Mahindra & Mahindra Financial Services Ltd. seems to think so; a company that provides loans for agricultural equipment. It saw the highest growth of its profits in the third quarter of FY2017. The reason? Recovery in non-performing loans, last year’s strong monsoon and the effects of demonetisation finally fading.
The current backstory
Over the last few years, there have been numerous farmer protests across the country. In 2017 alone, there were more than five large protests. In June, farmers in Madhya Pradesh agitated to increase milk and crop prices. In July, protests sprung up due to lack of relief funds for a horrible drought in Tamil Nadu. September saw movements for loan waivers in Rajasthan. In October, farmers protested because the Jaipur Development Authority was acquiring farmland at low prices. In November, over 184 farmer groups gathered in Delhi to protest against low prices and high debt. With the rise in farmer suicides in Maharashtra, another protest followed in December. On March 12, just last week, there was a mass protest of around 40,000 farmers in Mumbai. It is easy to credit droughts and farmer suicides for these agitations – but these are only the outcomes or other stressors to a bunch of underlying problems: High costs of production, unemployment, non-payment of minimum support prices, credit given only to corporations. Obviously, the government has been responding – with an “agrarian” budget this year, the commitment to double farmer income, declaration of farm loan waivers in various states.
Financial services companies
For financial companies, these temporary measures and talks of good monsoon are great news. Loan waivers automatically increase farmers’ demands for equipment, provided by companies like M&M Financial Services. There is another factor in favour of such non-banking financial companies: government banks, usually the primary source of agricultural credit, are struggling with non performing loans of the industries.
A Bloomberg Economics index shows that there has been an increase in expenditure on tractors and two-wheelers and the government has also upped its funding. An indicator of change, National Institute of Advances Studies’ Professor Narendra Pani notes, but not of the condition of the rural economy. Hindustan Unilever Ltd adds on to wait for another six months before declaring this to be a longer-term recovery.
In the long run…
A money control article recognises, in relation to the recent protest in Mumbai, that fulfilling the demands of the farmers, for example, loan waiver, MSP at 150% of input costs, compensation for crops damages due to pests, tribal farmers being allowed to legally own forest land, will indeed give relief. It also recognises that loan waivers and MSP are not enough and doubling of farmer incomes is unlikely to happen. The path forward includes mechanization, distribution of irrigation facilities, good storage facilities, crop insurance and non-agricultural income. So while M&M Financial Services is enjoying profits now, it is going to take larger, more fundamental steps for farmers to actually recover.
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