{"id":889,"date":"2012-09-12T09:29:45","date_gmt":"2012-09-12T09:29:45","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=889"},"modified":"2012-09-12T09:29:45","modified_gmt":"2012-09-12T09:29:45","slug":"adi-godrejs-marie-antoinette-moment-indian-farmer-should-invest-in-stocks","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2012\/09\/12\/adi-godrejs-marie-antoinette-moment-indian-farmer-should-invest-in-stocks\/","title":{"rendered":"Adi Godrej\u2019s Marie Antoinette moment: Indian farmer should invest in stocks"},"content":{"rendered":"

\"\"<\/a>
\nVivek Kaul
\n<\/strong>
\n“Qu’ils mangent de la brioche” is a French phrase which means \u201clet them eat cake\u201d in English. It is often attributed to the French Queen Marie Antoinette<\/em>. She had apparently said this to peasants when she came to know that they had no bread to eat.
\nThere is no record that the Marie Antoinette, wife of Louis XVI ever uttered these words. But the myth has held even after all these years. And the story does make a broader point about the rich often having no idea about the state of the poor in their country.
\nA good example of this is Adi Godrej, the current president of the Confederation of Indian Industry (CII), who recently had his Marie Antoinette moment. In a recent interview to the Tehelka magazine Godrej suggested that the Indian farmers should sell their land and invest the money they get in stocks and mutual funds.
\n\u201cIf India has to become a developed country, you cannot have the livelihood of hundreds of millions of people depending on agriculture. They have to move on. They have to move into industry, into services. That\u2019s how you develop a country. That has happened in every country<\/em>,\u201d Godrej said.
\nHe further went onto add that the money that the farmers get by selling their land should be invested in stocks, so that it does not run out soon. \u201cWhy should it run out soon? It can be invested. It can be made into a much bigger value than land. Land has the lowest appreciation of all assets. The best investments are in stocks. Somebody should advise them to invest it in mutual funds so their wealth will rise faster,<\/em>\u201d Godrej said.
\nLet\u2019s try and examine these statements in a little more detail. Agriculture contributes around 14% of India\u2019s gross domestic product (GDP). This has fallen dramatically since 2004-2005, when it used to contribute around 19% of India\u2019s GDP. At the same time it employs around 58.4% of India\u2019s population. (Source: http:\/\/www.india.gov.in\/sectors\/agriculture\/index.php).
\nSo 58.4% of India\u2019s population contributes around 14% of India\u2019s GDP. It need not be said that this is a terribly inefficient way of working. Ruchir Sharma of Morgan Stanley calls this \u201ca disturbing tendency of the farmer to stay on the farm<\/em>\u201d in his book Breakout Nations<\/em>.
\nThe contribution of agriculture to the overall GDP is expected to continue falling in the years to come. A calculation carried out by the Planning Commission shows that the contribution of agriculture to the total GDP would fall to as low as 7% by 2025-2026. This calculation assumes a fairly optimistic growth of 4% per year in agriculture GDP. At a growth rate of 2%, agriculture\u2019s contribution to overall GDP by 2025-2026 is expected to be at 5.2%.
\nIn making these calculations the Planning Commission assumes that the overall GDP will keep increasing by 8% every year, which is a very optimistic assumption to make given the current state of affairs. (You can see the calculations here<\/a>).
\nBut even assuming a 4% growth rate for agriculture and just 6% for overall GDP, the contribution of agriculture to the overall GDP can be expected to fall to around 9.8% (This is my calculation and not of the Planning Commission),from the current 14%.
\nSo theoretically the contribution of agriculture to GDP will fall in the coming years. This can be said with utmost certainty. This means that other sectors of the economy like services and industry will grow at a much faster rate. Hence, it makes sense for farmers to sell their land, move on from farming and move onto other sectors of the economy.
\nAnd that\u2019s what Godrej suggested in his interview to Tehelka. But even after that if the Indian farmer is unwilling to sell his land there must be some reason to it.
\nAkhilesh Tilotia of Kotak Institutional Equities has done some interesting analysis on this. As he points out in a recent report \u201ca farmer makes about Rs30,000 per acre a year (assuming two crops a year) if he grows staples like wheat or paddy. One can argue that the price at which a farmer should be happy to sell the land would be at Rs 2-3 lakh an acre (or seven to ten times his annual income from the land)<\/em>.\u201d
\nBut then money is not the only issue at hand. As Tilotia writes \u201cHowever, there is an element of sustainability and certainty for the farmer from agriculture and he suffers from a lack of skill to get him or his family employed elsewhere (either in the plant coming up or in the urban services industry): All this means the farmer is looking at farming as a means of livelihood and not from a pure \u2018return on capital\u2019 perspective<\/em>.\u201d
\nThe average farmer does not want to sell out because he is not skilled enough to do anything else. A lot of them are still uneducated given that the effective literacy rate in India is around 74%.
\nAlso the average land holding of an Indian farmer is around 1.4 hectares (one hectare equals around 2.5acres).This is very small and even if he sells, he is unlikely to make much money from it. The right to property is not a fundamental right in India. And over the years the government of India has acquired land forcibly from the citizens of this country at rock bottom prices. This is an impression that cannot be gotten rid off overnight. And hence the Indian farmer is unwilling to sell his land.
\nBut things have gradually started to change as the government has started to offer reasonable prices for acquiring land. \u201cNational Highway Authority of India\u2019s cost of acquisition of land was Rs 25lakh per acre in Financial year (FY) 2011\u2026It acquired 8,533 hectares in FY2011, up from 3,120 hectares in FY2009. In FY2012, NHAI expects to acquire 12,000 hectares. The size of land acquisition is up 4 times over the past four years when the going narrative has been that land acquisition has been made impossible in India<\/em>,\u201d writes Tilotia.
\nSo just saying that the Indian farmer needs to move is not enough. The conditions have to be right for him. He needs to have the skill-set to move on, which he currently doesn\u2019t. Very little attempts are made by the government to rehabilitate those whose land is acquired. And more than that, the farmer needs to be offered the right price, which he wasn\u2019t being offered till very recently.
\nThe other suggestion that came from Godrej was that farmers should invest in stocks and mutual funds. It would be nice if he goes through a November 2011 presentation made by the
\nby the India Brand Equity Foundation (IBEF). This shouldn\u2019t be difficult given that IBEF is a trust established by the Ministry of Commerce with the CII. As pointed out earlier Godrej is the President of the CII.
\nThe presentation throws up some interesting facts: A few of them are listed below:
\n– Despite healthy growth over the past few years, the Indian banking sector is relatively underpenetrated.
\n– Limited banking penetration in India is also evident from low branch per 100,000 adults ratio – – Branch per 100,000 adults ratio in India stands at 747 compared to 1,065 for Brazil and 2,063 for Malaysia
\n– Of the 600,000 village habitations in India only 5 per cent have a commercial bank branch
\n– Only 40 per cent of the adult population has bank accounts.
\nGiven this it is unlikely that many Indian farmers have banks accounts. How can those who don\u2019t even have bank accounts be expected to invest in the stock market? Also the stock returns in India even over the long term haven\u2019t been great. The BSE Sensex over a period of 20 years has given a return of 8.9% per year. And even these returns haven\u2019t been guaranteed.
\nSo the first thing that Indian farmers should be doing is opening bank accounts.
\nAlso, how can farmers be expected buy stocks when even the Indian middle class, which makes much more money than the Indian farmer has stayed away from investing in stocks. And there are genuine reasons for it.
\nAs Shankar Sharma of First Global told me in a recent interview I did for the Daily News and Analysis<\/em>(DNA): \u201cWe see too much of risk in our day to day lives and so we want security when it comes to our financial investing. Investing in equity is a mindset. That when I am secure, I have got good visibility of my future, be it employment or business or taxes, when all those things are set, then I say okay, now I can take some risk in life. But look across emerging markets, look at Brazil\u2019s history, look at Russia\u2019s history, look at India\u2019s history, look at China\u2019s history, do you think citizens of any of these countries can say I have had a great time for years now? That life has been nice and peaceful? I have a good house with a good job with two kids playing in the lawn with a picket fence? Sorry boss, this has never happened<\/em>.\u201d
\nThis statement is as valid for the Indian farmer as it is for the Indian middle class. And so it\u2019s time Adi Godrej realised that things in the real India are a little different. Marie Antoinette
\nmay not have said \u201clet them eat cakes\u201d but Adi Godrej surely did.
\n(The article originally appeared on www.firstpost.com on September 12,2012. http:\/\/www.firstpost.com\/business\/adi-godrejs-marie-antoinette-moment-indian-farmer-should-invest-in-stocks-452776.html<\/a>)
\n(Vivek Kaul is a writer and can be reached at vivek.kaul@gmail.com) <\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Kaul “Qu’ils mangent de la brioche” is a French phrase which means \u201clet them eat cake\u201d in English. It is often attributed to the French Queen Marie Antoinette. She had apparently said this to peasants when she came to know that they had no bread to eat. There is no record that the Marie … <\/p>\n

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