Agriculture - An area of concern

India may be a long term growth story, but we do have our areas of concern. One such is agriculture. No, i am not going to write on the failure of monsoon, but what is evident if we do some data analysis.

India, with about 160 million hectares under agriculture has the second largest land under agriculture, just behind the United States. This area is larger than the area in Europe or the area in China devoted to this activity. So what is the problem?

Consider the following.
1. Agricultural growth in India has been much slower than our population growth in recent years.
2. Despite being the second largest producer of wheat and rice in the world, our productivity is way behind many countries.
3. With increasing industrialization and urbanization, the land under agriculture will reduce in the coming years.
4. Population in our country is likely to grow by about 30-40 crores in the next 40 years.
5. Population of the world may grow by about 150 crores in the world during the same period.
6. In view of 5 above, do not expect availability of much food through imports.
7. With better standards of living in the country, per capita consumption of food is bound to go up.

Should we worry? I think yes. If we do not improve our yields soon, we may see food problems in the years to come, monsoon or no monsoon.

Why great economies and nations fail?

History has shown us that nations and economies often fail, soon after they have become so strong that nothing seemed to come in their way. In recent history, the United Kingdom lost its position of the global leader as well as its empire in a matter of decades. Earlier, history is replete with stories about the decline of other empires, notably the Roman empire. Our own country, was perhaps the most important place in the entire world just a few centuries ago, a place of great learning, resources and wealth. By the time the British left in 1947, we stood almost 180 degrees away from our position a thousand years earlier. So what destroys great nations? What makes them so weak that others can steam roll them over?

The answer perhaps lies in the inability of a nation to recognize slow but definite changes in the environment. Failure to adjust to these changes and sometimes overconfidence in one's own abilities lead to a nation's downfall.

I am reminded of a story i heard at school. A frog thrown into boiling water would jump out quickly in order to save itself, but if a frog is put into cool water placed on a fire, it would not react. As the water heats up, the frog adjusts to it, never realizing that the water temperature is changing. By the time realization dawns on the frog, it is too late.

Are economies and nations like that? I think so. The Romans perhaps failed to foresee changes around them. That led to their downfall. Indians were busy amongst themselves, not realizing the growing power and the aspiration of the people in middle east. Later they, failed to see the changes in Europe and thus failed to ward off the British. The British themselves, at the pinnacle of their power, failed to see a changing world and lost their position by the time the Second World War ended. Now it seems, it is the time of the Americans? Would they be able to meet the challenges of a changing world in the future? I think not. History has a funny habit of repeating itself. My bet is that a few decades down the line, US shall no longer be the leading nation of the world.

Perhaps, it is time for India to rise again. Lets hope we do and become at least one of the leading nations of the world over the next few decades. Lets hope we take the bull by the horn and make use of all the opportunities. A few decades to enjoy prosperity and power, before history once again repeats itself.

Where does the money come from?

Keynesian economists conveniently ignore this question when they preach govt spending/stimulus to revive economies out of downturns. Now Warren Buffet has raised this question. Not necessarily always right (nobody can be always right), nevertheless, when Warren Buffet speaks, one must listen.

The link is
http://www.fortunewatch.com/warren-buffet-america-has-hit-the-panic-button/

We must also stop and take stock. Should India be on the path of high deficit? Mind you Krugman suggested just a few days back that in an interview suggested that the plan to balance the budget can wait till the next year. Do we want to follow his advise and reach a stage where somebody like Warren Buffet reminds us that things are no longer good?

Excerpt of Krugman's interview published in Economic Times dated 11th Aug 2009 is pasted below

What will be your advice to India as our budget balance is fairly scary, but the FM has said: I’ll worry about it later and play for the growth now?
I think that’s right. You do have to have a plan in place to restore a healthy budget but not this year. Not with the world economy still so fragile, not with so much excess capacity still out there.

Is Nifty headed for a crash?

I think so. The chart patterns do not look good. Economic scenario does not look good. Expect a substantial correction in the next month or two. Of course, the path down may not be a straight one.

IIP Growth in June 2009

The IIP index for the month of June 2009 stands at 290.2. This is an advance estimate subject to two revisions. When compared to last year, this amounts to a 7.8% jump, but compared to the previous month is a lesser 3.4% jump.

Yet, if this figure does not get revised seriously downwards and the index sustains and grows in the coming months, it does represent a possible positive for the economy. But as of now i remain a little skeptical. Lets examine why..

The figures for IIP for the last 15 months are given below. Note that figures are revised twice, so figures upto April 2009 are final. The figures of May and June are subject to revision.

A line chart followed by the detailed table are below:

(Click on the images to get a sharper view)

Note that the spike in March 2009 seems to be an outlier. In March 2009, electricity, mining and manufacturing all spiked up. Mining has clearly not sustained its spike after March. The interesting thing is that the advance figures for manufacturing in June 2009 show another spike but electricity dips. How is that possible? Does it mean that we have used less electricity for manufacturing more? Note mining has risen ever so slightly in June 2009. So what is the explanation?

I for one would wait to see if this "stupendous" performance repeats itself in the coming months. I would also wait to see if the figures for June 2009 get revised downwards (two revisions are forthcoming). Only then will i jump to conclusion that there has been an improvement in the IIP.

Baltic Dry Index - Does it tell a story

Baltic Dry Index indicates the price of moving raw material by sea. Note that a higher price indicates high demand for movement of raw material by sea and hence a higher level of economic activity around the globe.

The chart below is very insightful.

(click on the image to get a sharper view)

Note that the index started rising around 2002-03, a time when most of the economies around the world entered a boom phase. The index peaked in 2007 before falling sharply, indicating a contraction in economic activity post 2007. In recent months the index again rebounded. What was the cause for it? Apparently, the Chinese have been building reserves of coal and steel, using their huge forex reserves, just when the prices of commodities were low. Smart of them! Their action helped global economy too to a certain extent.

Note that in the past few weeks the index has fallen roughly 35%. Perhaps the Chinese have eased buying coal and steel. Does this mean that the world economies shall soon show another round of slump? While it would be too early to comment on that, i think this may be so. So expect the next quarter GDP figures to fall around the world, commodity prices to fall again and the stock markets to plunge once again.

Real Estate

The Times of India on date carries a huge supplement on real estate. I do not remember having seen anything like it before. I think it is a desperate bid to sell real estate. Does not look good to me. The real estate sector in India has some time to go before it can recover.

It also means that the Indian economy is not yet out of the woods.