🧑‍🌾 Raising India’s farm budget

Good morning and happy Friday. Counting from the adoption of the Constitution in 1950, India will celebrate its 76th Republic Day on January 26, 2025 (Sunday). This occasion is particularly noteworthy as it aligns with the 75th anniversary of the Constitution's inception.

Each year, the Indian government selects a theme for Republic Day, and for 2025, it will be ‘Swarnim Bharat: Virasat aur Vikas’, which translates to ‘Golden India: Heritage and Progress’.

Happy Republic Day 🪷 🇮🇳 

- Ruchirr Sharma & Shatakshi Sharmaa  

TABLE OF CONTENTS

• 🧑‍🌾 Raising India’s farm budget

• 📈 Lending outpaces deposits

• 🗞️ Bite-sized summaries

  • 💲 Reducing interest rates

  • 🥗 Recalling spices

• 🧑‍🍳 What else is cookin’?

• 🍿 Entertainment, Entertainment, Entertainment

MARKETS

🇮🇳 India

• Indian stock market showed mixed movements. Small and midcap stocks outperformed large caps, with sectors like IT and consumer durables gaining 1-2%. However, banking indices lagged behind, reflecting a cautious market sentiment overall.

LOANS

🧑‍🌾 Raising India’s farm budget

India is set to raise its agricultural spending by over 15% to approximately $20 billion in the 2025/26 fiscal year, marking the largest increase in six years. According to government sources, this move aims to enhance rural incomes, curb inflation, and bolster food security.

Key Allocations and Priorities

1. High-Yield Crops and Research:

   • Focus on developing high-yield seed varieties to improve productivity.

   • The budget for agricultural research is to rise from ₹99.41 billion to support innovation.

2. Infrastructure Development:

   • Investment in storage and supply chain infrastructure.

   • Expansion of crop insurance and incentives for food processing firms, totalling ₹109 billion through 2027.

3. Production Goals:

   • Boost production of pulses, oilseeds, vegetables, and dairy.

   • Target 30 million metric tons of pulse production by 2030.

   • A $9 billion investment is planned in the fisheries sector over five years.

4. Farmer Support Initiatives

   • The subsidized farm loan limit will increase from ₹300,000 to ₹500,000 per farmer.

   • Duty-free import policies for certain pulses will continue, alongside export restrictions on wheat to stabilize domestic prices.

Agriculture, which employs 45% of India’s workforce and contributes 15% to the economy, is a priority in the upcoming budget. The government is aiming to boost farm exports from $50 billion to $80 billion by 2030.

Overall: Experts warn the measures may not resolve systemic issues like low productivity and stagnant incomes. Analyst Devinder Sharma suggests increasing direct transfers to farmers and improving crop procurement to stabilize incomes and ensure fair prices.

Finance Minister Nirmala Sitharaman will present the budget on February 1, detailing these ambitious plans. This strategic push highlights India’s commitment to revitalizing its agriculture sector and addressing rural economic challenges.

Read more: Economic Times

BANKING

📈 Lending outpaces deposits

Since early 4Q 2024, India's banking sector is experiencing a notable trend: lending growth is once again outpacing deposit growth.

As of January 10, 2025, bank lending increased by 11.5% year-on-year, while deposits rose by 10.8% during the same period. This divergence has led to a credit-deposit ratio (CDR) of 80.4%, up from 79.9% a year earlier.

Factors Contributing to the Trend

Several elements contribute to this scenario:

• Regulatory Measures: To moderate lending growth, the Reserve Bank of India (RBI) has implemented policies such as higher risk weights on non-banking financial companies (NBFCs) and consumer credit.

• Market Dynamics: There's a growing market concern regarding high CDRs, prompting banks to reassess their lending strategies.

• Shifts in Savings Behavior: Households increasingly favour financial assets over traditional bank deposits, diverting savings towards capital market instruments.

Implications for India's Banking Sector

This imbalance between credit and deposit growth has several short-term and long-term implications:

• Resource Pressure: Banks may face challenges funding credit growth, which could lead to increased borrowing from non-deposit sources. This could raise the overall cost of funds and compress profit margins.

• Deposit Rate Adjustments: To attract more deposits, banks might raise deposit rates, impacting their interest margins.

• Asset Quality Concerns: A higher CDR could indicate aggressive lending practices, potentially leading to asset quality issues if not managed prudently. Recent reports show that major banks like HDFC Bank and Axis Bank have increased provisions for potential bad loans, reflecting caution in the current lending environment.

Strategic Responses by Banks

In response to these challenges, banks are adopting several strategies:

• Balancing Growth: Banks are focusing on reducing their CDRs to manage fund costs and maintain profit margins.

• Deposit Mobilization: Efforts to increase deposits include offering higher interest rates and introducing attractive deposit schemes.

• Prudent Lending: There's a cautious approach towards lending, especially in unsecured retail segments, to mitigate potential risks.

Overall: The current trend of lending growth outpacing deposit growth presents both challenges and opportunities for India's banking sector. While it reflects robust credit demand, it also necessitates careful resource management and strategic planning to ensure sustainable growth and financial stability.

Read more: Economic Times

GENERAL OVERVIEW

🗞️ Bite-sized summaries

💲 Reducing interest rates - On January 23, 2025, U.S. President Donald Trump, speaking remotely at the World Economic Forum in Davos, Switzerland, announced his intention to demand an immediate reduction in interest rates, urging other nations to follow suit. This statement precedes the Federal Reserve's upcoming policy meeting on January 28-29, where no changes in rates are broadly expected. Despite Trump's demands, Federal Reserve officials, including Chair Jerome Powell, have expressed caution towards further rate cuts due to persistent inflation concerns. The Fed has already reduced interest rates by 100 basis points since September.

🥗 Recalling spices - The Food Safety and Standards Authority of India (FSSAI) has ordered Patanjali Foods to recall an entire batch of its red chilli powder for violating food safety regulations on contaminants and toxins. This directive underscores the need for stricter quality controls within India's FMCG sector. Patanjali Foods, a major player in this space, reported a 21% rise in standalone net profit for Q2 FY25, reaching ₹308.97 crore. However, such incidents could tarnish its reputation and consumer trust, emphasizing the critical importance of compliance with regulatory standards to sustain long-term growth.

HEADLINES

🧑‍🍳 What else is cookin’?

What’s happening in India (and around the world 🌍️)

• Dr Reddy's Labs Q3 Results: Cons PAT rises 2% YoY to Rs 1,413 crore, revenue up 16%.

• Delhi cyberfrauds siphoned Rs 4,900-cr cyber crime money abroad.

• India Inc invests in learning programmes amidst tough business environment.

• Trade wars sparked by Trump tariffs would be 'catastrophic', WTO chief says.

• Largest tax cuts in American history to be passed, will reverse inflation: US President Trump at WEF.

CULTURE

🍿 Entertainment, Entertainment, Entertainment

• Australian open 2025 is in full swing: updates here.

• Oscars 2025: Guneet Monga's Anuja to Emilia Perez, full list of nominees here.