Usage of Fertilizers in Andhra Pradesh

Reaching peaks in 2002, usage of fertilizers reduced considerably in 2006. But again there is 88% growth in the year 2007,compared to 2006. 88% increase means farmers invested 100 crores more. Sudden floods and unseasonal rains may be reasons for this growth. But to avoid farmer subsides government must concentrate on this raise.

 

Real costs associated with education in India – 1.

These days I am receiving mails about wonder making with rupees 100 -150 every month. Infosys foundation too became brainless. Rs 100, Rs 150 scholarships per annum are worthless and no way useful for poor children education. How much an primary, upper primary and secondary education costs?

First of all, previous generation political leaders and especially committees on various issues gave important, useful and insightful suggestions. But bureaucracy and corruption in all stages made those suggestions and law useless.

The major challenge our education system faces is dropouts. School going children for primary education are good enough to maintain literacy rate at 80% or more, but suddenly their ratio decreases after they finish primary education. The reasons are, nearly all villages have got primary schools, but for upper primary or secondary they need to go to some near by village. Students need to walk more or less 5 kms. So they drop out ratio used to be more. But that’s past, BJP government concentrated more on education as a result almost all villages has now Secondary schools. More over bus passes for students at low rates, better transport facilities and better infrastructure for schools made this factor a minor factor now. This really gave a push to secondary education in India. Except a few percent, families with annual income above poverty line consider Education as compulsory.

Yet, in India 22% of people live below poverty line, and still female education is at poor stage. We can see a considerable or big push in dropouts of female students final year of upper primary education and early years of secondary education. The reason is simple, poor toilet facilities at School, government took initiative ans concentrating in toilet developments and personal cleanliness, yet the drop out ratio is same, a soft corner associated with this is “Maturity”. In India, waste clothes are being used as sanitary napkins, which are hard to maintain and are not comfortable to handle, but the cost of sanitary napkins is too high for them. As a result parents and child tend to remain at home as a result the drop out ratio is considerable. Mostly matured female students stay away from education and wait for marriage. A few social workers found a solution to this, home made sanitary napkins, they teach children how to make sanitary napkins with blotting paper, but yet in India people refrain to discuss such activities in public even all are females only. Other hurdles like lack of mechanism to supply raw materials, hesitation in Children, very few social workers and its hard to reach every village makes this a hard nut to crack.

This is only one side, but what about children who never enter school? Large families is not uncommon in India, 6-12 children in a family is common in India due to religious superstitions or other beliefs. In such families feeding children is major problem more over, due to home deliveries children and mother become weak and anemic. More over protein rich food is an illusion, they even can’t provide food for the entire family how can they provide food which is protein rich? As a result children suffer with diseases caused due to vitamin deficiency and anemia. So, they are not in a position to reach school. Once the child gets 5 years, the parents places him some where for work, he will  earn 15 rupees a day and he can feed himself, some time his parents too. But still he lives in drastic environment and can’t think about schooling. At least if he works he can eat twice a day, but if he go to school?

Later another reason for more dropouts before or during secondary education is, once they reach 14 years, parents takes the children to farms to work, as a result he has to get out of school and work in him farm. Another reason is, parents hesitate to send him for work before 14 years, since its too early to work. More over most children are from agriculture background changes in monsoon and output also influence their education, if bad output, the family can’t bear his expenses as a result he will come out of school and work for him.  At the stage the daily wage is 45-100 rupees a day plus afternoon food in some works.  So, once he starts working, he can enjoy with his earning that takes schooling away from him. This is the main reason for greater alcoholism in villages.

More over, the child finds it hard to understand the subjects due to mental abilities and changes in medium of instructions, this adds high illiteracy rates in Muslims, they complete primary education in Urdu medium, later they shift to local language medium in secondary schools. English medium government schools a new concept developed recently to compete with private schools adds to dropout ratio, since English is not our mother tongue.

Surprisingly caste is another factor which adds to dropouts, parents from higher casts don’t let their children to sit with lower caste people, if such distinction is not possible they tend to refrain from schools. More over most schools and school surrounding are used as public toilets that too by lower castes why adds fuel to fire.

What about lack of teachers, lack of teaching facilities and lack of infrastructure is predominant in past but with concept “Vidya Volunteers” and central spending of 9314 crore rupees towards welfare of people changed the face of schools. As few as 1000 schools requires teachers and another 1000 schools requires students, but using the resources efficiently nullifies this problem. In practice its successful. So right now its share is 1-2%.

So, called social workers spending 100 rupees a month ignoring the socio-economic factors and thinking of some thing not present in the problem space. Social problems constitute 56% and economic problems constitute only 40% to illiteracy in India. Other factors like problems with schools fill the reaming percent.

What is Subprime Crisis? How to solve the subprime crisis?

The current Subprime crisis is not really a crisis due to over lending of banks, but situation created due to sub prime lending. Banks don’t have enough money to lend money. We will start with subprime lending.

What is sub prime lending?

The term “subprime” refers to the credit status of the borrower (being less than ideal), not the interest rate on the loan itself. “sub prime” is any loan that does not meet “prime” guidelines. If your mid fico score is below 620 and you have any mortgage rates within 12 months or recent BK/foreclosure, you are considered “sub prime”.

Subprime lending, also called B-paper, near-prime, or second chance lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. The phrase also refers to paper taken on property that cannot be sold on the primary market, including loans on certain types of investment properties and certain types of self-employed individuals. Subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and adverse financial situations usually associated with subprime applicants. A subprime loan is offered at a rate higher than A-paper loans due to the increased risk. (wikipedia ).

What about lending rates?

To avoid the initial hit of higher mortgage payments, most subprime borrowers take out adjustable-rate mortgages (or ARMs) that give them a lower initial interest rate. But with potential annual adjustments of 2% or more per year, these loans can end up charging much more. So a $500,000 loan at a 4% interest rate for 30 years equates to a payment of about $2,400 a month. But the same loan at 10% for 27 years (after the adjustable period ends) equates to a payment of $4,470. A 6-percentage-point increase in the rate caused slightly more than an 85% increase in the payment.

The 2/28 ARM
A very common mortgage in the subprime market, which we have never seen outside of that market, is the 2/28 ARM. This is an adjustable rate mortgage on which the rate is fixed for 2 years, and then reset to equal the value of a rate index at that time, plus a margin. Because the margins are high, the rate on most 2/28s will often rise sharply at the 2-year mark, even if market rates do not change during the period.

For example, the rate is 8% for 2 years but the index is currently 4% and the margin is 6%. If the index remains at 4% after 2 years, the loan rate will jump to 10%.

Some borrowers with poor credit scores take a 2/28 at a high rate and plan to rebuild their credit during the 2-year period. Their plan is to refinance at a better rate at that time. The major threat to such a plan is a prepayment penalty that runs past two years, which some do; and a lender who fails to report their payment history to the credit reporting agencies. Borrowers should be on their guard against both.

Who opt subprime lending?

Individuals who have experienced severe financial problems are usually labeled as higher risk and therefore have greater difficulty obtaining credit, especially for large purchases such as automobiles or real estate. These individuals may have had job loss, previous debt or marital problems, or unexpected medical issues, usually these events were unforeseen and cause a major setback in finances. As a result, late payments, charge-offs, repossessions and even foreclosures may result.

Due to these previous credit problems, these individuals may also be precluded from obtaining any type of loan for an automobile. To meet this demand, lenders have seen that a tiered pricing arrangement, one which allows these individuals to pay a higher interest rate, may allow loans which otherwise may not occur.

From a servicing standpoint, these loans have higher collection defaults and experience higher repossessions and charge offs. Lenders use the higher interest rate to offset these anticipated higher costs.

Provided a consumer will enter into this arrangement with the understanding that they are higher risk, and must make diligent efforts to pay, these loans do indeed serve those who would otherwise be undeserved. The consumer must purchase an automobile which is well within their means, and carries a payment well within their budget.

How the subprime crisis started?

The subprime lending is 9% in 1996 but in 2004 it is 21%. Due to securitization, investor appetite for mortgage-backed securities (MBS), and the tendency of rating agencies to assign investment-grade ratings to MBS, loans with a high risk of default could be originated, packaged and the risk readily transferred to others. In addition to considering higher-risk borrowers, lenders have offered increasingly high risk loan options and incentives to them.

Homeowners had been using the increased property value experienced in the housing bubble to refinance their homes with lower interest rates and take out second mortgages against the added value to use the funds for consumer spending. Between 1997 and 2006, American home prices increased by 124%.Easy credit combined with the assumption that housing prices would continue to appreciate also encouraged many subprime borrowers to obtain ARM they could not afford after the initial incentive period. With housing prices now depreciating moderately in many parts of the U.S., refinancing has become difficult, leaving homeowners with higher payments than anticipated.

Beginning in late 2006, the U.S. subprime mortgage industry entered what many observers have begun to refer to as a meltdown. A steep rise in the rate of subprime mortgage foreclosures has caused more than 100 subprime mortgage lenders to fail or file for bankruptcy, most prominently New Century Financial Corporation, previously the USA’s second biggest subprime lender.The failure of these companies has caused prices in the $6.5 trillion mortgage backed securities market to collapse, threatening broader impacts on the U.S. housing market and economy as a whole.

However, the crisis has had far-reaching consequences across the world. Sub-prime debts were repackaged by banks and trading houses into attractive-looking investment vehicles and securities that were snapped up by banks, traders and hedge funds on the US, European and Asian markets. Thus when the crisis hit the subprime mortgage industry, those who bought into the market suddenly found their investments near-valueless. With market paranoia setting in, banks reined in their lending to each other and to business, leading to rising interest rates and difficulty in maintaining credit lines. As a result, ordinary, run-of-the-mill and healthy businesses across the world with no direct connection whatsoever to US sub-prime suddenly started facing difficulties or even folding due to the banks’ unwillingness to budge on credit lines.

As a result

Right now there is “liquidity crisis” on wall street. Basically, because so many sub prime loans are in default, Wall Street investors are no longer supplying money to market which lenders use to lend out over and over again. They make money by originating a loan and selling it to someone else who pays the lender a premium based on future revenue. If lenders cannot “sell” these loans they cannot generate new business. Since guidelines are now so tight, many of these “subprime” borrowers will not be able to refinance their loan. They took short term adjustable loans (2-3yr fixed) which are now adjusting to much higher rates. They can’t afford the new payment and they can’t refi either due to no equity or poor credit.

In the UK, some commentators have predicted that the UK housing market will in fact be largely unaffected by the US subprime crisis, and have classed it as a localized phenomenon.However, in September 2007 Northern Rock, the UK’s fifth largest mortgage provider, had to seek emergency funding from the Bank of England, the UK’s central bank as a result of problems in international credit markets attributed to the sub-prime lending crisis.

What about solution?

Loan modification, pumping money into market may slow down the crisis.

• Establish rescue funds for borrowers facing short-term problems caused by illness, layoffs or other one-time events.
• Establish a bond fund to pay for switching borrowers out of unaffordable ARMs.
• Refinance loans for victims of predatory lending. This would involve working with Fannie Mae, the quasi-governmental corporation.

Changing loan terms is a mess, borrowerand lender must accept to the terms, lenders may be unwilling to change terms but Fed interference will work out. But lender will accept to change in terms to avoid foreclosures.

Pumping money into markets, reducing bank reserves may temporarily weaken the crisis, but these this is two fold operation, pumping money will increase inflation which will results in increase in subprime lending, and reducing bank reserves to small extent is better but as whole destabilize the whole financial system.

Here are some guidelines to prevent that from happening to you:

* Never respond favorably to a solicitation without first checking other options. If you deal with only one loan provider, your prospects are better if you make your selection by throwing a dart at the yellow pages than by accepting a solicitation.

* Check your eligibility for mainstream financing with mainstream lenders. The easiest way to do that is on-line. Some sites that I like for this purpose are Eloan.com, Amerisave.com, and NationalMortgageAlliance.com. These are all Upfront Mortgage Lenders.

* If you can’t qualify with any of them, your best bet is an Upfront Mortgage Broker. They may charge sub-prime applicants a little more because they require more time. You will know what they charge, however, and you will know that you are getting the wholesale price posted by the lender, which means you won’t be exploited.

India isn’t Poverty, Taj Mahal and Indira.

America is the world’s richest, but India is not poor country. Recently one survey conducted in US to name three words which strike in their mind when they hear the name “India”, most answered “Poverty, Taj Mahal and Indira Gandhi”.

Such “poor” image attributed to India shows Color Discrimination and Race superiority policies followed by Foreign Newspapers. Our NRI Software Engineers often show pity towards their counterparts for their Salaries and income directly substituting 45ruppers to a dollar. But I lets analyse that.

10% of Americans are poor, 36.5 million in numbers, population in US is 301,139,947 as of mid-2007. That’s just more than 12.12%. Poverty in India is 226.5 millions, in percentage it is 20.02%. Poverty in India is 8% more to US. But remember don’t try to change every thing directly from Dollars to Rupees. In US a 3 member family needs minimum of 1100$ monthly income any income less than that will mark that family as poor. But in India if your family income is $1100 a month, you will be rich. So, please don’t make a $45- 1 rupee, substitution. Remember Coffee in US is 1.5$(60-65 rupees) and in India the same cup of coffee costs not more than Rs.10 (You will get a biscuit as bonus).

When dollar is adjusted for Purchasing Power Parity, that returns, 4.56 rupees a dollar, so, cost the coffee will be 7 rupees some thing reasonable.

But if you earn $14,400 you cant be in Middle Class, If you want to be in Middle Class Income group in US, your family must earn $40,000 or more. But the fact is as per 2007, total of 50% Americans belongs to families whose income is less than $40k. And total of 28.22% American families earn less than $25k.

Okay now, what about rich in America? In America if your family income is more than $1,00,000 and your family has $8,50,000 fixed assets you will be in Top 10%. Now I will make direct exchange rate conversion. 1,00,000$ turns out to 43,00,000 rupees and fixed assets will be 3,65,50,000. So, if you earn 40 lakhs a year and if you have fixed assets worth 4 crores in India you will be regarded as rich in US too.

Unfortunately only 1,70,000 Indians fall into that category, of 7.7 million millionaires India stands at 23rd place, in case of billionaires we are at 9th place (by 2009).

Lacking rich never mean a country is poor, more middle class people means, a better country since, less gap between rich and others, this situation is deserved by all countries, lower income gap means, income is more equally distributed more peaceful country.

What about exchange rate adjusted to PPP, if you can ear 4.5 lak rupees a year and own 40lakh assets you will be rich, in this case by 2015 11% percent Indians will earn that much amount. So, by 2015 Indians will earn 10% at Top and 22% at the Bottom ( Compared to 10% Top and 28% Bottom in US by 2007). SO we are just 8 years back to US. (Keeping PPP fixed, but if it fluctuates much, people who are in middle will suffer not top and bottom people).

Again, what about people who are below middle class in India, 54% India population belongs to Below middle class income groups, in the case of US its 50%. But unfortunately, saving rates in India lower income families is less, if you save 1$ in US, with that 1$ you can buy assets worth more than $1 in India.

What about IT salaries. The median salary of US IT professionals is $40, bottom 10% mean is 21.6K and Top 10% mean is $70K. Direct exchange rate substitution is illogical, so I am use exchange rates adjust to PPP. In determining PPP we use cost of buying various commodities in both countries, so in earlier case the PPP stands at 12% to 25%. But in case of cities the PPP will differ less, 25%(Necessities) to 36% (House rent), so at the high side PPP will be Rs. 8.5.

So, median salary $40 will be Rs.340K, the bottom will be Rs.183.6K and Top will be Rs. 595K. Companies like Infy, TCS , Satyam, CSC, .. offer 3.5 lakh pay for freshers. So, a fresher’s income fall into Median income of his US counterpart. Yahoo, DEShaw, Google, MS, .. offer 5.5 to 13 lakhs per annum to fresher. Which is higher than his US counterpart, when adjusted to PPP. So, a fresher earns equal to US IT professional, after 3,4 years branded IT professional will earn better to US IT professional. So, there is nothing for US IT professionals to pity in our Software engineers. US IT people earn in worse than our Indian IT professionals.

The poor image of India is just an act of throwing mud by foreign media and our NRIs. When England Queen visited US, our great NRIs raised their voice against poor publicity given to “Real Time Royalty” but they forgot that Vajpayee’s visit to US restricted to small box item news US papers, but no NRI talked against that. Both please change your attitude.

Ref:

1. Note on Purchasing Power Parity

As determined by nominal US Dollar/Indian Rupee exchange rate. 4 … The application of PPP is not limited to simply comparing the buying power of different …

people.hbs.edu/mdesai/IFM05/Sharma.pdf

2. http://www.census.gov

PS: Dont refer to McKinsey’s report on Indian Middle class. Its full of technically wrong assumptions.

Does increase in MSP really benefit farmers?

MSPs (Minimum Support Price) dominating today Political Scenario. By demanding increase in MSP for Paddy since, Paddy cultivation needs more water, more fertilizers and more labor. But in demanding so they are ignoring the fact that MSPs are determined with PSE (Producer Support Estimate). So, Paddy farmers already getting good share of subsidy in terms of fertilizers ( 34.72 percent Subsidy on fertilizer cost), water for irrigation (30.86 percent of the irrigation and power subsidies) and other miscellaneous forms of subsidy (Like subsidies on diesel, agriculture machinery, subsidy seeds).

MSP is 11% negative towards imports and 36% positive towards exports, so further increase in MSP for paddy will make Rice and Importable good, which will result in further decline in “Economic Price” of Paddy and again Government needs to activate MIS ( Market Intervene Scheme – State government buys major amount of goods at MSP price on Central Government Request, and the subsidy deficit will shared equally by both State and Center ). Which again worsens the whole Country’s Economy. Again this directly hits the farmers, since the Government has to reduce the deficit, and the only way will be to cut agricultural subsidies with reduced MSPs in the next fiscal year.

Again its proven fact that if government excludes itself from Market Intervention, price of Paddy will be reduced by 50% and price of rice will increase by 50%, which hits consumer and farmer at one shot. So, current position if FCI is accurate and further increase in MSP of paddy will worsen the countries economy as well as farmers too.

But this post will be incomplete with out answering the question, why MSP of Wheat is more than that of Paddy?

MSP are measured on the fact that, how government subsidizes a particular crop. To aid farmer government gives subsidies and tax cuts, these subsidies may be direct or indirect like, subsidy on power usage, subsidy on fertilizers, tax cuts on agricultural equipment, spending on irrigation projects so on.

So, if a crop uses more power, more fertilizers and other forms of more input, government spends more on its input, so the government tries to reduce its spending on the output.

As paddy needs more inputs its MSP will be less. Low MSP doesn’t mean really low MSP, MSP as its name suggests its support price, optimal support price, means the government, farmer and consumer will end up on budget line. If the supply is more and demand is less, the price of Paddy will fall, when ever it reaches lower rates to MSP, then government intervenes (MIS) and buys the supplies at MSP. So, the price of Paddy finally determined by Supply and Demand, but Minimum price will be MSP.

Paddy share is 34.72% of total fertilizer’s usage and its irrigation area is 30.05%, estimated output is 90MMT (Estimated for year 06-07), and 65% of Indians main food is rice.

Where as wheat consumes, 27.65% of fertilizers and irrgation area us 31.05 and esimated output for 2006-07 is 75MMT.

The view above is only Technical aspect, but as a farmer.

The cost of production of Paddy is nearly 10000 rupees per acre and output is nearly 40 quintals, so if he sells his product at MSP, the profit will be, 40*650 – 10000 = 16,000(Ignoring expenses incurred during the process of sale) . Most Indian farmers own small estates of land, on average just 2 acres, so his profit will be around 28000 rupees. If the irrigation facilities are good enough then he can earn another 28k rupees with second crop. 56k will be okay amount to live in India, but if he can’t go for second crop then he himself cannot feed.

Both government and farmer are responsible for this condition, the government always looks at the figure of subsidies, but finally what matters is quality. Power line losses are 30% in India, but that can be minimised to 5%, so with out decreasing electric subsidy to farmer, working on line losses and power thefts the government can save alot of money spent on subsidies and also the farmer will be benefited by reduction in water and power bills due to quality of Power he gets. Government must educate farmers on power saving mechanisms, can help farmers with better cultivation techniques, better breeds… Working in similar way, the government can server better to farmers.

Farmers must reduce the amount they spend on fertilizers and insecticides, with the use of more and more insecticides the farmers gets nothing except powerful insects and increase insecticide bills. Bio fertilizers will in turn reduce dependance on government, but production of organic fertilizers on large scale is not so easy. But if every farmer starts his own bio fertilizer plant it will be possible. But its the duty of government to educate people.

Increased MSPs will worsen the situation instead of aiding farmers, paddy farmer deaths are rare. Most Indian farmers are hit by the crop “Cotton” not Paddy, again the situation is different, with the advent of BT Cotton, farmers ended up with more capital and very low output, Indian cotton on average gives 20k profit where as the BT Cotton gave 4k or mostly loss. Those who are demanding for increase in MSP, encouraged BT Cotton, so with such brainless demands they are destroying the country’s economy as whole.

BT Cotton entered Andhra during ChandraBabu regime, at that time if the government invested 12 crores, it might have bought the rights of BT Cotton, but later Andhra farmers gave 1600 crore rupees profit to that Company with thousands of lives. Again increase in MSP of Paddy will hit Paddy farmers, then every one has to pay.

Political intervention into such independent matters is not at all advisable, FCI, RBI,.. are autonomous institutes and must be Political Interference free.