汇丰银行-印度农村经济-india’s rural distress puzzle where from,where to-20170710-hsbc

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1、Flashnote10July2017India’sruraldistresspuzzleECONOMICSINDIAWherefrom,whereto?PuzzlingdatafromruralIndiapointsatbothrevivalanddistressPranjulBhandariChiefIndiaEconomistWefindthatthe‘landless’maybedoingbetterthanbeforebutHSBCSecuritiesandCapitalMarkets(India)PrivateLimitedpranjul.bhandari@hsbc.

2、co.inthe‘landed’areworseoff,thankstoariseinrealindebtedness+912222681841Toimprovetheirlotsustainably,inflationtargetingmustbeAayushiChaudharyEconomistaccompaniedbyagriculturereformsthatraiseproductivityHSBCSecuritiesandCapitalMarkets(India)PrivateLimitedaayushi.b.chaudhary@hsbc.co.in+912222682761D

3、hirajNimStrayreformsdonotpackapunchEconomicsAssociateIndia'sruraleconomyissendingconfusingsignals.OntheonehandruralwagesareBangalorerisingandunemploymentisfalling.Butontheotherhand,consumersentimenthasweakened,foodpriceshavefallenloweringnominalreturnsfromfarming,andthereisagrowingdemandforfarmloan

4、waivers.Splittingruralhouseholdsintomarginalfarmers,whowealsobroadlyrefertoasthe'landless'(~70%ofhouseholds,definedasowninglessthan1hectareofland)andthe'landed'(~30%,owningmorethan1hectare)helpsmakesenseofthepuzzlingdata.Afteratwo-yeardrought,thegoodmonsoonrainsin2016increasedthedemandforlabour.Asa

5、result,realwageshaverisengradually.Thishaslargelybenefittedthewage-earninglandlessclass.Ontheotherhand,thelanded,whopaythesewagesandaremoredirectlydependentonincomefromcultivation,havetakenthebruntoffallingfoodprices.Thisgroupisalsomoreindebted,andthesustainedfallinheadlineinflationoverthelastfewye

6、arshasincreasedtheirrealindebtedness.Infact,realindebtednesshasbeengrowingatafasterclipthanrealincomessinceFY14,explainingthegrowingclamourforbankfarmloanwaivers(seechart14).Andyet,farmloanwaivers,inourviewarenottherightsolution.Theyspoilthecreditcultureanderodemacrostability.Inparticular,arapidris

7、eintheissuanceofstatepapercouldbindIndia'sstatesinaviciouscycleofhigherinterestbillandfallingqualityofspend.Thereisalargerpointhere.Strayreformscannotpackapunch.Thereneedstobeaseriesofreforms,eachsupporting