Agriculture sector

- The gross value addition (GVA) INR 17.67 Trillion, (274 B USD) over a crop base of 284 Million Tons in 2018
- Growth rate (YOY) – 2%
- Primary occupation for 58% of the occupation
- Indian food and grocery market is sixth largest in the world with retail contributing 70% of the revenue
- Indian food processing industry – 32% of the total food market, contributes 8.8% and 8.4% (GVA) in
manufacturing and agro sector, 13% of India’s export
- India is second largest fruit producer in the world
- Agro exports reached 38.5 B USD in FY19, 16.45% growth FY10-18
- Food and grocery retail market 380B in 2017
- From 2000-2019, Food processing industry has seen FDI inflow of 9B USD
- India was the largest exporter of coffee, tea, mate and spices to China (46.97 per cent share) with value of
$168.42 million.
- India exported 35LT of sugar to china, which was planned in early 2019 to increase to 50LT as Brazil the largest
producer of sugar has decided to push down its production due to higher oil prices. Government also introduced
new subsidies and linked with the old ones for boosting the exports after fulfilling the 50% export quota
- Agro food start-ups received funding of over 1.2 B USD in 2013-17
- Government introduced Pradhan Mantri Samman Nidhi Yojana (PMSNY) under which PM transferred 2021 Cr
(284 M USD) to 10 Million beneficiaries
- Introduction of Transport and Marketing assistance(TMA) to provide transport and marketing facilities to
farmers for boosting agro exports
- The Agriculture export policy of 2018, aims to take agro exports to 60B in 2022 and 100B in coming years
- Electronic National Agriculture Market (eNAM) was launched in 2016, a unified national market for agro
commodities, 9.8 M farmers, 585 Mandis and additional 485 will be linked in 2018-20
- Pradhan Mantri Sampada Matsya Yojana- addresses problems faced by inland and marine fisheries
- FM announced, 10k new Farmer Produce Organizations(FPOs) will be introduced over next 5 years to link more
farmers to market
- SFURTI Scheme- cluster based development, is expected to boost agro rural industries in bamboo, honey, Khadi
clusters

Recommendations:
- Poor investment in agriculture research and innovation (0.3% in 2014 as compared to China’s 0.62%)
- Research required as climatic changes and resource base depletion challenging agro sector
- Rationalization of subsidies particularly of fertilizers
- Zero budget farming method based on practice of no use of chemicals, has become grassroots level peasant
movement in some states
- Challenges to this method- productivity decline, ensuring better prices for organic produce, scientific validation
of zero budget practices in comparison to chemical agriculture
- Sensitizing the farmers about the adverse effects of fertilizers and integrated input management practices are
need of the hour

Banking Industry
- The digital payment system of India has evolved most among the top 25 countries with India’s Immediate
payment system (IMPS) being the only system at level 5 in Faster payments innovative index (FPII)
- India has 27 public sector banks, 21 private sector banks, 56 regional rural banks, 49 foreign banks etc
- Total Lending has increased at the rate of 10.94% and the total deposits have increased at the rate of 11.66%
from FY07-18
- India’s is the fourth largest retail credit market and increased from $181B (2014) to $281B (2017)
- Sept18, government launched India post payment bank and introduced branches across 650 districts
- Pradhan Mantri Jan Dhan Yojana (PMJDY), total number of bank accounts reach 333M by 2018
- Govt. is planning to inject 6B USD in public sector banks till march 2019
- To improve infrastructure in villages, 2L+ POS were setup from the financial inclusion fund by NABARD
- India has launched Rupay card already in UAE, Bahrain, Singapore, Bhutan and now in Saudi Arabia, and Kingdom
of Saudi has already 2.6M Indian workers there
- Rupay card was launched in 2012 to achieve RBI’s vision of domestic, open and multilateral system of payments
- Unified payment interface (UPI) already has 100M users and is expected to reach 500M in next three years
according to the National payment corporation of India
- It is wrong to paint all NBFCs under same brush due to IL&FS failure, it was a liquidity crisis and not an insolvency
crisis, NBFCs are able to reach out and specialize in lending to particular sectors where banks are not able to
- RBI has strengthened the regulatory framework for NBFCs by specifying liquidity coverage ratio for larger NBFCs
which was earlier applicable only to banks
- Regulating 10K NBFCs is a big task, what can be done is to increase the threshold or minimum capital
requirement of NBFC to decrease this number
- Larger NBFCs have diverse funding base, some of them go for Masala bonds, commercial borrowing and global
investors as they don’t have access to retail deposits which are highly stable for their balance sheet
- Covered bonds are held on the balance sheet of the issuer — not in the special purpose vehicle (SPV) — and in
an event of the bankruptcy of the issuer, the covered pool is protected and can be claimed by the investor. They
also receive a higher credit rating, as they are backed by high-rated pool of assets
- Bank crisis list-
- PMC bank agreed to have cooked loan books to avoid recognizing bad loans to one of their major clients, trouble
ridden real estate developer HDIL
- Yes, bank also came under trouble after its exposure to another shadow bank or NBFC, India Bulls Financial Ltd.
- RBL bank’s stock also slumped on concern of its corporate loan book
- Among the G20 nations, bank’s credit contribution to the non-financial sector remains 3 rd highest for India while
the capital adequacy ratio that defines bank’s ability to absorb bad loans remains 3 rd lowest for India
- This credit crisis had all started long ago. Before 2008 crisis the credit boom was there which continued again
shortly after the 2008 crisis, thanks to the loose monetary policy and regulations, it allowed lenders to delay
classification of NPAs as bad loans. But later on RBI intervened and introduced clean act in 2015 and revealed
the crisis in banks and restricted bank’s lending. But it continued in an indirect manner through shadow banking
i.e., they provided loan to NBFCs which were way more undercapitalized and under regulated than the banks
themselves and kept providing loans to risky real estate sector ensuring that the banks were not directly
exposed to such assets. A little risk, and the IL&FS failure exposed the whole story. If 30% of the NBFC exposure
turns into NPA, the total NPA will reach 11.6% in 2021 from 9.3% in fiscal year of 2019
- The opacity around the asset quality has led to rise in premium (the extra yield that the private borrowers need
to pay in bond market as compared to government which borrows at risk free rate), this rise in premium offsets
the steps taken to reduce the repo rate by the RBI i.e. decrease in the risk free rate
- Savings rate in India has fallen in the recent years but still one of the highest at 30.5%
- Technology can’t solve bank crisis as it is systematic- regulation & policy issues
- As per the report, machine-learning models can improve predictive accuracy in identifying the riskiest potential
customers by 35 per cent
- 74% FDI via the automatic route is allowed in the private sector banks
- Recommended changes:
- Firstly, a payment bank system dedicated to facilitating transactions in the economy may be established. The
deposits accepted by a payment bank would be for clearing transaction requests only and would be redeemable
on demand. Such deposits should not be allowed to be used by the payment bank for lending or investment
purposes. Such payment banks should not be permitted to pay any interest on outstanding deposits. The
payment banks may be allowed to compete on the service charges to be paid by depositors on payment
clearances. Paytm is a good example of such a rudimentary ‘payment bank’ taking shape.
- Secondly, mobilisation of savings in the form of interest bearing deposits may be done by a cornucopia of
sectoral banks representing a spectrum of risk-return combinations corresponding to various sectors like
tourism, steel, education, etc. Some of the sectoral banks may specialise in government securities to cater to the
savers who place a very large premium on ‘safe returns’. This will better serve idiosyncratic individual
preferences of specific risk-return combinations as well as sectoral preferences.
- Moreover, managers of sectoral banks can be expected to have specialised knowledge and experience of the
sector to which they are lending. That would reduce the amount of bad debt in future by improving the quality
 of their lending decisions. Further, a low-capital-productivity sector (low marginal product of capital) would
sustain a low sectoral lending rate, which would correspond to a low sectoral deposit rate, which in turn would
lead to lower deposit mobilisation for that sector. Thus, capital allocation to sectors would correspond to their
capital productivity, improving the allocative efficiency of capital through the banking system.
- Furthermore, the central bank, or more appropriately the monetary authority, may engage in open-market
operations with some of the larger sectoral banks by sale/purchase of securities, provision of reserve facility,
discounting of pre-maturity assets, etc, to execute its monetary policy. Currently, the monetary authority aims to
match the aggregate money supply growth with growth in the real economy at the aggregate level. This leads to
sectoral mismatches causing either sectoral inflationary pressures or constriction of sectoral real growth. If the
monetary authority undertakes open-market operations with sectoral banks, it would lead to better calibration
of sectoral real growth with the money (credit) supply to the sector. It would improve inflation targeting by the
monetary authority