Reskill to Unshackle and Enrich

22.5% of our farm households are below the poverty line and this is a great tragedy.

 

41% of Indians are in agriculture and contribute only 16% towards the national GDP. The average farmer consequently earns less than a third of the national per capita income. 

You can increase farmer income by increasing agricultural output or by moving people out of agriculture or both.

While there are many ideas for increasing agriculture output we will focus here on one idea to move people out of agriculture.

Everyone including the farmer knows that agriculture is not as remunerative as working in manufacturing or services but spends his life as a farmer because he lacks the skills and education required to move out of agriculture. He also lacks the money to fund the training. Even if he were willing to make the investment on training by borrowing money, he is daunted by the uncertainty of the job market. He does not know if the course he is paying for will be taught well and if it will get him a job. So what does he do now. He does nothing and remains poor.

What if we set ourselves an ambitious target of moving 100 million people out of agriculture without a drop in agriculture output? Studies have shown that moving people out of agriculture has led to increased agriculture output as this chart shared by Anupam shows.

       

We propose to re-skill 20 million people each year through setting up of sectoral skill development (SSD) organisations as part of the national skill development commission. The role of the SSDs will be to provide some guidance to students but more importantly to collect data on performance of training institutes with respect to jobs obtained by the trainees and the income received by the trainees.

If this kind of data is available, then it becomes easier for banks to price and provide loans to the training institutes to cover the cost of the training. The training institute offers the training to the students at no upfront cost to the student but contracts to receive a percentage of their future income. This lowers the barrier to a farmer trying to move out of farming. The training institutes are incentivised to provide good quality training because this will directly impact the employability of their students and their future income.

  Going forward, the banks could securitise these loans and the financial markets will ensure that liquidity flows to those training institutes and courses that generate the best returns. The collaterised reskilling bonds (CRBs) will be the vehicle through which the government partakes a part of the risk by subscribing to the equity tranche. In the initial years, the government should be prepared to lose some of the principal and much of the interest on these investments but over time the CRBs will generate great returns.

The SSDs are a critical part of this exercise gathering reliable data and sharing it with students, training institutes, banks, financial markets and the government.

We expect to train 20 million farmers each year and hope that half of them either get employed or are able to get self-employed outside of the agriculture sector. In 10 years, we can get 100 million farmers out of agriculture and this will be no mean achievement. It cost the government as much as Rs.50,000 crores a year as investment into the CRBs which may take 3 years before they generate returns but the externalities in terms of the increased agriculture output, reduction in rural poverty and overall growth of the economy will justify these early losses and help transform our nation into a vibrant modern nation.

Works Cited

Chand, R. (2017, March). Doubling Farmers Income. Retrieved from Niti Aayog: https://niti.gov.in/writereaddata/files/document_publication/DOUBLING%20FARMERS%20INCOME.pdf.

Sitaraman, K. (2018). Education Loan receivables - newest asset class to be securitised in India. Retrieved from crisil.com: https://www.crisil.com/en/home/newsroom/press-releases/2018/03/education-loan-receivables-newest-asset-class-to-be-securitised-in-india.html

 

       

Training to be provided by private players - risk to be borne by training institute and GOI

·        Funding (securitised)

o   50% by GOI (equity tranche)

o   Rest by banks

·        Training areas 

o   Encouraging entry into livestock (poultry, cattle, fisheries) sector as percentage of agricultural income from livestock is 30% and the sector has grown at 4.5% from 2012 to 2019

o   Up-skill rural Indians to be gainfully employed in industries and services based on market demand