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Re: Farm policy

Dear Sitaramayya,

My sincere thanks to you for moving together with us in this momentous and
herculean task of building a completely integrated, detailed, and
effective set of policies meant to bring India to the top of the world by
the end of the next century. My sincere apologies to anyone who felt too
hot due to the "heat wave" of emotion that I may have created. I think we
can put the air conditioners on, now!

Well, you have introduced a problem into the debate. There is no solution
offered except that 

> One of the lessons I learnt from my argument with
> Sanjeev is that the farmers would have to wait till prosperity tickles
> down from above. Please don't waste my time and yours with that. There
> will be no farmers left by that time. 

which is a bit odd, I must say, since I never once have implied any thing
like a "trickle down" effect. I have implied always, a "flood" effect. 
That is what took place all over SE Asia, even without a very good set of
policies. If we set into place a full-fledged "treatment" for our patient
then there will be a flood of wealth in India. Unleash the creatitivity,
competitiveness and brainpower of India. No trickle down I care for. I
have been talking of farmers and everyone's incomes growing at more than
10% in real terms for at least 20 years before these rates come down to
7-8% (compared with 1.7% achieved by India in the past 50 years). I have
been talking of eradicating poverty virtually instantaneously, within a
decade at the most. 

Sounds too good to be true? Well, it is not. It is the consequence of
discoveries of the "economic" science which has studied and understood
rather well, today, the process of wealth creation. We shall only be
applying rather standard remedies, coupled with a little caution and a
little innovation. 

The question is how does all this happen in this particular case.  Nothing
happens if we take a look at this problem in isolatin. In Economics that
would be called "partial equilibrium analysis" and that does not work in
most cases, except show a few things of interest. The entire economy has
to be energized simultaneously: "general equilibrium."

Prem thought that we need usury laws. No, not at all. That would never
work because it is a hasty, "common-sense," piecemeal solution like what
would be prescribed by a quack doctor [the other suggestion of his: 
quality control by government, is VITAL, however]. What appears to be the
solution will SERIOUSLY aggravate the problem. 

Usury laws would simply not be implementable. Based on my understanding of
how a poor, untrained, and grossly overworked set of government
functionaries function in the field, I can say without any fear of
contradiction that no one can devise a system in which usury laws of this
nature can ever be implemented. 

Instead, the usury laws will enrich the implementers of the usury laws,
the Minster of Usury, the loan givers, etc. That, too, I can guarantee. 
Simply take a look at the zillions of such well-intended laws operating in
India today (child labor laws??  anyone heard of such things??? What? We
have no child labor today???! Brilliant, then my wife was wasting her time
studying this problem for half a year).

If you do find a very sincere Deputy Commissioner (like I was! Ha!), and
if that DC were having the time (from a schedule that is nerve-rackingly
busy) to look into a few cases personally, you might be able to implement
the law in those few cases, but the userers will quickly get out of the
legal system by bribing everyone around, and lo and behond! You've made
everyone richer but the farmers, who then make a beeline to the nearest
lake or river to jump into the deepest part.

What then might work on our dying patient called India, even in the very
short run?


Ensuring that massive test relief programs are organized wherever there is
any possibility of people 'going under' in the short run. Laws to provide
such relief are in place. The fact that such relief was not provided
instantaneously needs serious investigation (I am assuming this: I don't
know how much of relief was provided, if any). 


a) Begging Grameen Bank to rapidly expand its formula all over India. That
has to be completely in the private sector. Government cannot run such
programs. That is 100% impossible. 

By the way, if you were ***really*** concerned, then you would read the
story of the Professor of Bangladesh who tried a very very small
experiment personally in 1975 and from there created wonders for the poor
in Bangladesh. Maybe you could be such a person for India?? Please write
to Muhammad Yunus. 

[In fact, I can provide you a ready-made platform and some experience. I
am looking to expand such work through Shram India
(www.indiaconsult.com/shramindia/). We are developing a major rural
technology center in Assam, and if you know of anyone willing to help me
expand the NGO effort directly in the field, please let me know.  There
was Grameen in Bangladesh. There can be Shram India in India. It only
needs ONE person to completely transform a nation. You could be the one. I
have already a good number of educated professionals including IIT
engineers working on this. If I can get help to expand the concept
nationally, that would be great, and rather timely.]

b) Completely liberalizing the Non-bank financing institutions and
releasing any control on interest rates.

Just imagine the opportunity for a private banking institution today. You
say that farmers were paying 36% rate of interest. The tragedy is that we
have these atrocious nationalized banks which are required to furnish
loans to farmers, but are completely unable to do so, for various reasons.
And we have these laws that prevent the rapid emergence of private banks
of NBFIs. [USA has over 5,000 commercially viable banks today. We can have
20,000 banks]

If private banks were freely allowed to be set up and were only
"regulated" rather than personally managed, then I would jump at this
great golden opportunity. Where would I go? Given that I know from
Grameen's experience and all studies so far that the poor pay their debt
best, what would I do? I would collect 10 financers together to underwrite
my bank and start a small bank in the rural areas where I can charge -
officially - 25% interest, say. That would be a great relief to farmers
from the usurious interest of 36% which they are paying due to complete
reluctance of nationalized [read: inefficient, corrupt] banks willing to
get into this market. I would not reduce my interest to below 20% since I
am taking a huge risk. 

If you, as my personal well-wisher but business competitor, see me charge
25% and you think that you can manage to recover loans and get a profit
even at 22%, you would jump in with 22% and I would either have to compete
with you or close down my bank. Similarly, Charu would have his own bank,
Prem would open up another, and finally, I guess, all of us would be happy
to charge about 20% interest - called the MARKET rate of interest, and the
farmer would be happy too, since there is a HUGE difference between 36%
and 20%.

All banks would have to be fully regulated, such as being required to take
full insurance for their deposits, etc. I am not - and please remember
that - advocating a free for all. The free for all is what is going on
NOW, called the black market for loans (which includes the local

By jumping to quack doctor prescriptions like forcing a 4% interest to be
given to farmers through government banks which are completely reluctant
or incapable of doing so, what we have done is force a black market in
loans to come up. 

[Just another point: Do you notice one more reason why I have been
advocating urbanization? It is EXPENSIVE, very inefficient, to go to lakhs
of villages to tap this market of loans. Most services are more expensive
to provide to rural areas, and we want these people to get them at cheaper
cost! Result? They get at at HIGHER cost than what the "market"  would
have fixed. Let me illustrate this critical point by giving the example,
once again, of kerosene oil price fixation. By having a huge network of
completely corrupt "Fair Price Shops" we have still not succeeded in
providing kerosene properly to the farmers. They pay AT LEAST 3 times the
actual fixed price - to the Fair Price owner, in order to get their
kerosene. The entire rent (subsidy, etc.) is pocketed by Ministers,
bureucrats and the Fair Price shop owner. Instead, if we had not
controlled this commodity and let private enterprise supply it, I
GUARANTEE that the price the farmer would have to pay would be much less. 
It would be more than what is paid in cities but less than with these
controls. And the tax payer would save himself the expense of running a
completely inefficient and corrupt organization which looks after Fair
price shops, i.e., you and I (since only urban people pay taxes) would be
better off too.]

c) Completely liberalizing the insurance market to allow massive
competition in this sector. 

You would be shocked to know that the premia charged by our nationalized
insurance corporations are not at all actuarially fair. These are based on
ancient life expectancy and other schedules, not based on sound research,
etc., and still these companies go into loss because of course, they are
monopolies and they have no accountability to the people since they are
"public" sector. And they are corrupt, on top of all this!

There is a desperate need for competition in the insurance market. Today
there are any number of Indians in the USA and in India who are experts in
calculating the optimum insurance premia and capable of running superbly
efficient insurance companies. 

By completely blocking competition in this sector, ALL people of India
have suffered grievous self-inflicted injury. 

d) Setting into place a completely massive privately funded, crop
insurance market.

Farmers would be the first persons to go to such a company if
competitively priced insurance premia were offered. The opportunity is
enormous. Hundreds of private individual's mouths water at the thought of
being allowed into this market. Let us let them all jump in (subject to
tight regulation), and then what will we find?

- farmers will get a basket of choices in selecting an appropriate policy

- the rates of premia will drop progressively until these are the MOST
efficient possible. No one in the world, (not even God!) would be able to
offer cheaper premia and survive. That is called social efficiency, or a
social optimum, when the resources of the economy are allocated in the
best possible way.

Remember carefully what I have been saying all along: Keep a very tight
check ("small, intelligent government") on transparency, prevention of
collusion, building safety checks so that no one can decamp one fine day
with the money, etc. But that's all you need to do as a government. You do
NOT need to try to run insurance companies. Nothing is more foolish ("big
and foolish") than that. 

Let us think with a completely scientific attitude, and use the experience
gained from 50 years of running the mess we have in India. Then maybe you
and I can actually help the farmers. Think emotionally and in short-hand
jargon such as trickle down etc., and we can go on hobbling about in the
corridors of USA, begging for alms from everyone including the IMF (whom
we then hate! What igrates!), begging foreigners to invest in India and
then promptly burning their shops when they come and help us to make
better and more competitive icecream. 

Instead of reverse engineering this ice-cream, adding a few of our own
indigenous flavors, zapping it up, and then exporting the new flavors and
methods to the USA, we demolish the competition from our "Akhara" simply
by buring their shops! And so we live on in our closed world little
realizing that the world is getting stronger and stronger, outside, and
one fine day, it will bulldoze us down and abolish our existence as The
Only and Biggest Crybaby and Weakling Nation in the World (TOABCAWNITW !). 

We want to be rich without putting in the effort to think how wealth is
created. And by burning out our competitors. How long do we think that
will work? 

Or maybe we can simply mandate these things. Let us make a Law that from
tomorrow, Every One in India Will Be Rich. Let us write to our Law Makers,
to our Home Minster ... 

Hey! I've written too much. My fingers are aching. I'm signing off for the
day. Bye, and welcome to this tough club of intellectual competition [also
known as the Club That is Searching for The Truth, or CTISFTT].


Go Truth!  And Let Only the Best Win! 

{Sorry, Prem, but your suggestion to put usury laws in the document is not
being fulfilled. Do you wish to battle out further to win that point?}