...read this one. My understanding of macroeconomics is woeful so I'm not gonna run the risk of putting my foot my mouth twice in the same day by commenting on the content of the report, but I will say that it's highly readable and does a great job of putting all the key issues in perspective.
Congrats especially to Sona Varma and her team for their work on the financial inclusion chapter. You can find a summary of the main proposals to increase financial inclusion included in the report by Sona here.
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I read Dr Mor's piece with great interest. The idea of substitutability between consumption loan for marginal farmer vis-à-vis loans for animals and machine; and its impact on agricultural productivity is great. From an outsider perspective I have some questions/thought. Some of these might sounds trivial, which is okay, given my limited knowledge on this area.
First, Dr Mor has mentioned that the banks upon failing their target lending to the priority sector have to perk the shortfall amount to NABARD at a much lesser rate of interest. Is there any way the banks can trade among themselves where the banks which have achieved priority sector lending (may be with better rural network) can buy some of the loan amount from the banks which are finding it hard to fulfill their target. The trading rate will obviously hover between 6 and 10 percent; and both the parties gain – something in the line of Ronald Coase law.
Second, States with highest labor days per hectare are Bihar, Andhra Pradesh, West Bengal, Uttar Pradesh, Tamil Nadu and Orissa. West Bengal makes sense as they have done land reform program. Orissa, Uttar Pradesh and Madhya Pradesh also make sense as these are the States with lower State GDP; with prevalence of larger number of farm labors. What about Tamil Nadu and Andhra Pradesh. Does it tell us anything about skewed income distribution in these two States?
Third, if I understand correctly there is a hump in the mode of loan repayment - most part of loan repayment happens immediately post harvest. Since market price tend to be less just immediately after the harvest season with most farmers trying to sell at the same time, the pay off to the farmers and hence probability of loan default might increase. Why can’t the bank step in here? I mean it makes sense for banks to invest in warehouse to hoard grain stocks and release the same when the market price stabilizes. In that way both the bank and the farmers gain. Banks can actually benefit from this arbitrage.
These are few observations which come to my mind at this moment.
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