India's farmers need a buget outlay of Rs 2 lakh cr to break the debt cycle
It is never clear to me why media make a screaming headline out of budget announcements around agriculture credit. “Agri credit raised to record 10 lakh crores” was the headline last budget season, while the finance minister and the government made it look as though it is of their own doing!
Year-on-year growth of agri-credit is something to be expected, and there will be a ‘record break’ each year. If nothing else, even with the same set of farmers and area, “scale of finance” or size of crop loan for different crops increases, which will be reflected in overall agri-credit also.
What is worth noting however, is that credit to agriculture is actually showing a deceleration in growth from scheduled commercial banks, which have become the main source of agri-credit (70-75% of ground level flow of agri-credit comes from commercial banks, compared with Regional Rural Banks or Cooperative Banks).
While that may be so, the real praise for burgeoning agri-credit should go to farmers, for giving back to the kitty, even as they borrow from banks. Either through loan ‘renewals’ (repayment at the last minute, to withdraw from the loan account a few days later), which help the banks keep their books healthy, or by sheer hard work and discipline, farmers are somehow repaying the loans borrowed and expanding the kitty every year.
While praise is heaped on the government, record agri-credit has nothing to do with the budget outlays, other than to the extent that a certain amount of interest subvention subsidy for timely repayment is connected to these targets.
Even in that interest subvention outlay, carry over liabilities are not being budgeted for payment (around Rs 41,750 crore is the estimated backlog to be paid to banks against their claims), while under-utilisation of interest subvention budget seems to be happening.
Further, in a clever move by the Narendra Modi government, a marginally increased interest subvention outlay was shifted out of the Union Finance Ministry Demand for Grants, to the Union Agriculture Ministry in 2016-17. That bloated up the latter’s budgetary outlays in an impressive way, allowing the media to say that “agriculture received a large budgetary increase” without bothering to check the jugglery.
In most years, agricultural credit targets have been surpassed by banks (there are also 24 banks that have fallen short of target in FY2016-17). In 2016-17, while the target was Rs 9 lakh crore, banks disbursed Rs 10.66 lakh crores in agricultural credit.
However, it would be good to go beyond the ‘target’ announced, and get down to figuring out the real vexatious issues related to agricultural credit, from the farmers’ end and to see if the government has tackled them seriously or not.
For instance, going beyond absolute numbers of ‘targets’, it is important to note that commercial banks, mainly private banks, have failed to meet priority sector lending target of 18% in agriculture.
WHO ACCESSES SUBSIDISED AGRI-CREDIT?
Most readers have knowledge about farm suicides, and that the most direct and proximal cause for such extreme measures is indebtedness (which in turn builds up due to a vicious circle of many factors making farming unviable).
The number of indebted households amongst agricultural households has increased to 52% from 48.6%, (around 4.68 crore households), along with an increase in average amount of outstanding loan (Rs. 47,000/- in 2013, up from Rs 12,585 in 2003).
The real questions to ask are: how much of the subsidised agriculture credit goes to real cultivators or farmers. And on the other hand, how many farmers get to access such credit? Can “agricultural accounts” be considered as equal to farmers, when NSSO data indicates clearly that the so-called agricultural accounts with banks are significantly higher than the farmers serviced by institutional credit sources? Policy makers already know the reply.
Subsidised agri-credit is not going to farmers alone. A larger share of agri-credit from institutional sources is apparently taken by non-farmers (~52%), even as the largest percentage of our marginal farm households don’t have access to institutional credit (85% of agri households with marginal landholdings depend on private sources for their loan requirements).
While the RBI has issued guidance to banks that all efforts should be made to reach the level of 13.5% to non-corporate farmers (‘direct credit’ in earlier parlance), this average figure stood at 11.70% in 2016-17.
The apec bank issued guidelines in 2015, setting a sub-target of 8% within the priority sector lending for agriculture (which is set at 18%) for small and marginal farmers, to be achieved by March 2017. But this was done after unwisely doing away with a distinction between ‘direct’ and ‘indirect’ lending. Private banks (which provide 23% of agri credit from banks) have not fulfilled the sub-target.
Incidentally, the credit disbursed to small and marginal farmers in the first two years of Modi government was a lower portion in the total credit disbursed, compared with 2013-14. It is worth remembering that small and marginal farmers constitute roughly 85% of the total holdings and around 60% of ‘agricultural accounts’ while their share in agri-credit disbursed was around 44% in 2016-17 and importantly, the average loan amount has actually declined by around Rs 5,000.
TENANT FARMERS, WOMEN FARMERS
While the National Sample Survey Office estimated that leased-in area within the total operated area to be around 11% (2012-13), which is around 105 lakh hectares. In certain states, it is as high as 34%, and even these numbers could be under-reported data.
In just Telangana and Andhra Pradesh, it is estimated that there are around 35 lakh tenant farmers. Even though these farmers incur more expenditure than other farmers just by the fact that they also have to pay ever-increasing lease rents in addition to other cultivation expenses, they don’t get to avail of agri-credit from institutional sources since banks continue to seek pledging of land titles even for short term crop loans (which is in violation of RBI guidelines on the matter).
It is seen that a vast majority of farm suicides in these states are of tenant farmers. Similar is the case of women farmers. No gender-disaggregated data is maintained to know how much agriculture credit has gone to women land owners. Even though women in agriculture are farmers in their own right, because of lack of land ownership, they are not considered as Farmers.
Though the concept of Joint Liability Groups (JLG) exists in the banking system, adequate investments are not made into institution-building of these JLGs to make them ‘credit worthy’ for banks (unlike in the case of self-help group, which also work on joint liability principles but have stable institutional systems built).
It is time that the Union Budget addressed the issue of 'Bhoomiheen Kisan' in letter and spirit, which requires changes in design and implementation of the Bhoomiheen Kisan Credit scheme and more ambitious outlays. On the ground, Bhoomiheen Kisan Credit scheme is running in the same JLG mode as before.
Though not connected directly with budgetary outlays, banks have to be compelled to follow RBI guidelines for short term crop loans without collateral, other than crop value. Unless the central bank tightens the screws on banks, especially commercial banks, to ensure that real cultivators benefit from agriculture credit, all hyped statements will only sound hollow for the knowledgeable.
At least Rs 5,000 crore have to be set aside as a credit guarantee fund for extending loans to real cultivators.
It is not out of place to bring up the exercise done by NITI Aayog on creating a Model Land Leasing Act 2016, which did not really address the protection of lessee’s rights even though the power play between a land lessor and lessee is unequal in our system.
This Model Act did not explicitly build in access to credit and other services for lessee farmers by obligating state departments and agencies to ensure the same.
Compared with the Model Land Leasing Act 2016 of Government of India, the Licensed Cultivators Act of telugu-speaking states of Telangana and Andhra Pradesh is far more progressive and cognisant of the requirements of tenant farmers.
In any case, it is worthwhile to note that only Madhya Pradesh has reportedly brought in a new land leasing legislation after the efforts of the Centre to push a Model Act on all states.
Even here, there is no report of any significant benefits accruing from the implementation of this Act. Uttar Pradesh made a minor but significant modification in its existing law that expanded the definition of who all can lease out land, thereby legalising land leasing but not necessarily protecting lessee farmers.
NPAs IN AGRICULTURE & ALLIED SECTORS
There is a popularly held notion that non-performing assets (NPA) are high in agricultural sector. However, evidence points to a different picture. While the Gross Non-Performing Assets (GNPA) for agriculture and allied activities stood at 62,307 crore rupees on March 31, 2017 (provisional), the GNPA ratio is only 5.61% (up from 4.6% on 31 March, 2015), and this cannot be seen as “wilful default” by any stretch of imagination.
Meanwhile, the overall Gross NPAs on 31 March, 2017 of public and private sector banks was a whopping Rs 7,76,647 crore (and at Rs 8.36 lakh crore by 30 September, 2017, as per Starred Question 271 in Lok Sabha, dated 5 January, 2018).
Agri NPAs, therefore, are only around 8% of the overall NPAs in our banks. That is a reflection of the discipline and ethos of our farmers, who repay despite adversities.
Public sector banks wrote off (or compromised on) Rs 7,091 ures for indutcrore lent to agriculture and allied activities in 2016-17 and Rs 2,369 crore in the first half of this year. The corresponding figures for industries were Rs 48,435 crore and Rs 36,510 crore.
WHY NO LIMITED LIABILITY?
It is well known that agriculture is an enterprise where hardly any variable/factor is in the control of the entrepreneur. The land plot operated, the uncontrollable weather conditions, suitable crops to be sown and the markets in which the produced commodity is to be sold are all a given, which are mostly not in the control of the farmer.
Risk is high, with weather variability playing havoc with the farmers’ plans in addition to volatile markets.
Though there are so called calamity relief guidelines issued by the RBI from time to time, these are not followed. These are also not necessarily farmer-friendly – for instance, rescheduled crop loans, when they are made into medium-term loans after a disaster, attract a 9% interest rate, with an interest subvention of just 2% available that too only on the first year of the restructured/rescheduled loan.
For no fault of the farmer, the loan continues to build up, even though the official acknowledgement of a disaster is available.
A response to a query under Right to Informationn received from the RBI by this author, on loan rescheduling and other calamity relief measures in 2016-17 (the natural disasters of these years were widely reported across at least 15 states, with the National/State Disaster Fund allocations touching Rs 30,000 crore), shows that only 21.5 lakh agricultural accounts benefited from rescheduled loans due to disasters. Worse, only 7.77 lakh accounts saw fresh loans being disbursed after restructuring.
What farmers need are “non-recourse” loans, where repayment defaults due to disasters and other similar losses will have no implications for the personal assets of the farmers (no auctioning of the gold, or land pledged or no recovery of agricultural machinery and other assets by bullying recovery agents).
Farmers also need a scheme and disaster relief guidelines that allow complete interest subvention by the government when loans are rescheduled and restructured due to disasters, and this has to happen automatically, making the farmer eligible for fresh crop loans.
Farmers need complete and effective coverage for disasters of various kinds, including highly localised losses and losses from wild animal attacks. The solution is not in the much-hyped Pradhan Mantri Fasal Bima Yojana (PMFBY), which has been a boon to insurance companies, and not farmers.
All of this requires a major overhaul of crop insurance products, and also of disaster compensation outlays and guidelines. A budgetary investment of at least Rs 25,000 crore is a requirement here.
DEBT RELIEF NEEDED
Right now, farmers are reeling under successive bad seasons as well as a massive price crash across different crops all over the country. Farm suicides continue unabated in different states, while the Centre has stopped reporting on the data with the National Crime Records Bureau choosing not to put out any information on farm suicides for 2017 so far.
Farmers around the country have been agitating for a debt relief package, which the Centre is not responding to. State governments in some cases have agreed to provide loan waivers, but given the fiscal implication of doing this fully, they are converting the loan waiver announcements into meaningless execution on the ground, basically trying to limit the financial implications for themselves in as many ways as possible.
Farmers who were supposed beneficiaries of such loan waivers find themselves in the same position as they were, before the scheme.
It is time that the Centre stopped abdicating its responsibility on this front, and to become responsive to citizens in distress. A budgetary outlay of around Rs 2 lakh crore, for taking up immediate debt relief along with state governments, in addition to setting up of a permanent, statutory institutional mechanism for dealing with debt relief for farmers is a must.
All India Kisan Sangharsh Coordination Committee (AIKSCC) has drafted a Bill for entitling all farmers to Freedom from Debt, which includes proactive and preventive measures for debt relief as well as reduction in indebtedness. This draws heavily from the Kerala Debt Relief Commission Act 2006 with many improvements put in.
Narendra Modi’s government should enact such a law for all farmers in this country – the nation owes this to our anna daatas.