India waits for a crisis to make reforms. It happened in 1991 and India benefited from it over the next two decades. Back then, when industrial India adopted liberalization, 'Bharat' missed that bus. Now, after more than two and a half decades, a pandemic offers an opportunity to correct that mistake.
Indian market attempts to recover after the disappointment of the stimulus package minus stimulus. We are going to pick up the agriculture reforms announced in the package and analyse their impact in detail in the latter part of this newsletter. But let's first focus on the rights issue of Reliance Industries which opened for subscription today.
The ongoing rights issue offers an attractive opportunity for the existing shareholders. RIL's rights issue has come at a time when a lot is going for the company.
Through its consistent effort and investments, RIL has now turned it into a tech giant firm from an oil and gas conglomerate. The recent entry of marquee investors and pledge of the promoter group to buy the full extent of their entitlement and also subscribe to any unsold shares offers a lot of confidence about the company's prospects.
Intraday, the market took off in the second half of the day with healthy buying seen all around. Sensex closed 2.06% up at30,818.61 while Nifty closed the day 2.11% up at 9,066.55. Shree Cements (up 5.84%), M&M (up 5.78%) and Dr. Reddy (up 5.69%) were the major gainers while Bharti Infratel (down 8.18%), IndusInd Bank (down 2.85%) and HeroMoto (down 2.41%) were the major losers of the day.
Stimulus package aims to correct an error, made in 1991
Indian policymakers are known to wait for a crisis to bring out the reforms. It happened in 1991 when under PM Narsimha Rao, India embraced liberalization and opened its economy. It happened only when the country was on the brink of being bankrupt. Decades later, a pandemic has forced the politicians to look into the structural reforms that were ignored even during the crisis of 1991.
In the race of globalization that India joined in 1991, the agriculture sector remained a complete laggard. From then until now, India came a long way from being a food deficit nation to a food surplus nation but our farmers were left completely ignored. While the industrialization took off at a rapid pace, the same free-market remained out of reach for our farmers.
However, two major reforms that are being undertaken now, promises to give farmers their due. It is also a step in the direction of making India truly a free market that it aspired to be back in 1991.
The proposed amendments to the Essential Commodities Act aims to give this free market access for farmers by allowing them to engage directly with buyers. This will make it possible for large and small private players to purchase agricultural commodities on a large scale, realizing better prices for the farmers.
The second big reform is the amendment of the Agricultural Products Marketing Committee Act (APMC). The proposed changes will allow farmers for interstate trading, killing their dependency on exploitative traders at the local mandi.
Both the steps, though in the initial stage, are the steps taken in the right direction. Given the large throng of migrants returning to villages, even the state governments are pressed for drastic measures to adopt a rural centric approach.
Agri reforms have always been a complex issue in India and forming political conscience has always been next to impossible. But, given India's penchant to reform only with its back to the wall, the road ahead shouldn't be difficult.
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