In the
manufacturing business, any product usually goes through a life cycle.
But how does the entire process really start? It starts with finding
out a certain possible need of the customer, who could be an
individual or an industry or even Government. The next step is the
research and development stage, where the product goes through a
complete evolutionary process till it is completely tested under
every possible condition ( environmental, thermal, mechanical etc.)
till targeted customer finds it entirely satisfactory.
The
next stage is set up a manufacturing plant and calculate the costs to
decide upon selling price. Every manufacturer faces a dilemma here.
If the selling price is too high, he may not get enough customers and
if it is low, he may incur losses. Once all this is resolved, the
manufacturer starts the manufacture and selling of the product.
However, it is not a smooth sailing even then, because every product has
a life cycle. No manufactured product sells forever, unless it is
selling in a highly controlled economy like that of India in 1960's
to 1980's. Things change, customer choices, preferences, better and
modern technologies become available. These are some of the things
that may drive a product to end of it's life. Even the demand or the
need for the product itself may disappear, ringing the death
knell for a product. Another factor also may bring a product of a
particular manufacturer to its end. This happens when there is a wide spread and
too big a demand for the product from ignorant customers. Looking at the large market demand, unhealthy competition invariably kicks in. This results in
selling price of the product drooping to such ridiculously low levels
that no legitimate manufacture can afford to manufacture the product, unless
he has a great brand name, which would allow him to charge his
price for the product.
Let me
elucidate this process with a product that once was a necessity.
During 1960's to about 1990's, India's power generation and
distribution systems were hopelessly inadequate. Power supply
companies could not maintain and supply power with constant
electrical voltage. This caused burn outs or brown outs of TV's,
refrigerators and pumps. Sensing a need of a correcting device,
manufacturers across the country introduced an automatic voltage
corrector or a stabilizer. Since this prevented the burn outs and
helped working of electrical gadgets, they became instantly popular.
I have seen in Delhi's Chandani Chowk electrical market, hundreds of
brands selling essentially the same product at cut throat prices with very low quality.
After
1990's, power supply situation in the country, gradually improved. In
addition, most of the manufacturers of electrical gadgets improved
their designs so that the gadgets could stand wide voltage
fluctuations. It would have been clear to any manufacturer of voltage
stabilizers then that the product was nearing the end of its life
cycle. Prudent manufacturers, after seeing the gross margins, their
stabilizers could fetch from the customers, immediately decided to
call quits and got out of the market.
There
are some products that are always needed, e.g ceiling fans. Here too,
even though the basic product demand is there, customer preferences
have changed, People want more decorative fans with lamp fittings,
remote controls etc. To adopt to new preferences, manufacturers have
to launch new products continuously and junk the old products. There
would always be some manufacturers, who simply can not make this
change due to many constraints. They have no choice but to give up
the product line altogether.
We
might conclude that this is the normal life cycle for any produced
product, and the product life would be over some time or other, even
when need is still there. If a manufacturer finds that his factory
is making losses, he may as well close down the factory and shift to
some other business. No one finds anything wrong with that.
In the
national economy of a nation, there are always three activities that
add to its gross domestic product, Agriculture, Industry and
services. The latter two have to adopt to economic compulsions that I
have outlined above, if an industry closes or gets merged or some
services disappear altogether, no one gives a second thought to it.
Why is
it then that in case of agriculture, even when the farmer is getting
trapped in more and more debt, because his economic activity simply
is not profitable, we assume that there is something wrong with the system and the
poor farmer should be given all kinds of sops like loan waivers and subsidies so
that he can continue with his uneconomic activities exactly in the
same way as in the past and drive himself more and more in debt. This problem is not
a trivial one and needs serious thinking. As per latest data, a farm
household needs to have at least 1 hectare of land to make ends meet
every month. Unfortunately, over 65 per cent of farmer households in
India have less than one hectare of land, this means that two out of
three farm households are simply not able to make ends meet and go
into debt successively every year. Over half of all agricultural
households are indebted, and these are not small debts; the average
loan amount outstanding for a farm household in India today is Rs.
47,000.
The
latest data released by National Sample Survey Office’s new survey
of India’s agricultural households says that the average farm
household makes Rs 6,426 per month. Out of this farming income is
just Rs 4,000 per month. We can well imagine that with this kind of
income, how anyone can repay his debts?
This
basic paradox is well reflected in GDP data too. In year 1950-51, the
share of agricultural products/Agriculture and Allied Sectors in
Gross Domestic Product of India was 51.9 per cent. This came down to
13.7 per cent in 2012-13. This data by itself does not show any
anomaly as similar trends are seen in many other countries. But the
problem shows up when we consider this with the manpower involved in
agriculture, which has only marginally declined.
It
should not come as great surprise that poor desperate farmers running in
debt, which is never ending, find an easier way out; that of
committing suicides. Just in state of Maharashtra, there have been
10,000 recorded farm suicides between 2011 and 2013. According to
figures from the Ministry of Agriculture, the total of number of
suicides committed by farmers for agrarian reasons in the last
three years, stands at 3313. The five States — Maharashtra,
Telangana, Karnataka, Andhra Pradesh and Kerala, which have maximum
marginal farmers, accounted for 3301 of them.
To survive in any
economic activity (farming is one of it), it is necessary to ensure that the activity continues making profist even with
given economic compulsions. Unfortunately, farmers due to their
ignorance or whatever reasons, seem to ignore this basic fact and are
paying heavy price; sometimes even with their lives. Successive
Governments have done nothing to solve the basic problem and have
only tried the subsidies or financial help route. Unless marginal
farming is augmented with other incomes, our farmers would always
remain victims of vagaries of nature and stonewalling because of their economic
compulsions.
25th
April 2015
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