Crop Loan Waiver, Farmers' Welfare and their Future Income
Crop Loan Waiver, Farmers' Welfare and their Future Income
By:
Vijay Sardana
International
Agriculture Tarde & Policy Expert
Email: sardana.vijay@gmail.com
Blog: Vijay
Sardana Online
BJP
Uttar Pradesh Election Manifesto promised crop loan waiver for the farmers and
zero interest on crop loans for small and marginal farmers. In the first
cabinet meeting this demand was partially adopted by the new government.
The
basic question remained unanswered, why farmers of India are not able to ensure
livelihood from their own land. This must be addressed in we want to ensure
social and political stability in the country.
Are loan waiver answer to
problems of the farmers?
The
first major loan waiver happened in the year 2008 when UPL one planning for
national elections. In 2009. In 2008, similar scheme was launched with Rs. 60,000 crore
package, offered to nearly 3 crore farmers. Marginal farmers – with cultivation
land less than 1 hectare, and small farmers – with cultivation land between 1
and 2.5 hectares, were given a complete waiver on loans disbursed up to March
31, 2007, which were overdue as of December 2007, and unpaid as of February 29,
2008. Other farmers – with cultivation land over 2.5 hectares, had 25% of their
loan waived as long as they paid back the 75% of the loan (25% or Rs. 20,000 of
the loan, which ever was higher) (AGRICULTURAL DEBT WAIVER AND DEBT RELIEF
SCHEME (RBI), 2008). The scheme was introduced to alleviate the
miseries farmers and address farmer suicides. Now, in 2017 again in
crucial assembly election of Uttar Pradesh, the ruling Party at Center promised
loan waiver and bot the political dividend in the form of majority seats in UP
state. Soon after the election victory loan waiver was announced. It seems that
political parties have identified a simple formula of inducement to win
elections. Like free laptops, free food, free water, free electricity, free
education, free healthcare and now loan waiver and interest free loans will
become the start part of all election manifestos. If you analyze carefully,
these loan waivers are not addressing the causes of the farmers’ miseries and
farmers’ problems. Unfortunately, election manifestos are not even addressing
the factors responsible for miseries of the farmers.
Why loan waivers will break the confidence of private lenders
towards agriculture and rural economy?
Bank credit in
developing countries typically expands faster than national gross domestic
product (GDP) as demand expands and financial deepening occurs. India is also
not exception. Since 1991 after economic liberalization, India’s overall GDP
has grown faster than the agriculture growth over the past over two decades’.
This drives and forces bank agriculture lending to grow much faster than
underlying agriculture GDP, making targets for the bankers harder to meet.
In India, in last many
years, lending to agriculture has settled at about 36% of agricultural GDP. It
is difficult to say what is a good credit/GDP ratio for agriculture in the long
run because the farm economics in India is in bad shape. On one hand India
needs further financial deepening and financial inclusion, especially in rural
areas and on the other sectors such as utilities have higher ratios, though
they tend to be more capital intensive.
Political parties and
ruling government force banks to extend credit to farmers without extending
education and quality inputs for farming. This is a real crisis for the banks
and financial institutions.
In the short-run, forcing agricultural lending
by banks to follow overall lending targets is unequivocally unhealthy, for both
banks and farmers. This forces credit surges unrelated to the sector’s needs.
This was most clearly seen when the economy was running above 9% growth rates
and overall credit was expanding rapidly. Banks had no choice but to nearly
triple their lending for every unit of agricultural output. Due to political
compulsions, even with banks and borrowers pushing the boundaries of
qualifiable lending and fact was the stagnant agricultural sector did not have
the capacity to absorb such large volumes of cash. This is a classic case of
throwing good money, after bad cause and over-indebted farmers became a national
concern. On top of many tragedies, over-indebtedness pushed the farm loan
waiver programme, which dealt a lasting blow to the loan repayment culture of
farmers. As far back as 1998, the M. Narasimham Committee noted that 44% of
non-performing loans (NPLs) originated from Priority sector lending. In 2010-11
that figure was a staggering 73%. This is not a concern for political parties
because for them winning elections at the cost of national development is a
primary concern. Farmers, as voters, are also comfortable with such loan waiver
scheme.
Why loan waivers are not
the answer to farmers’ miseries?
Unless there is an attempt to make agriculture profitable for the
farmers, such loan waivers will become standard policy tool for the ruling
parties and inefficiencies will further increase in agriculture sector. This
will complicate the problem further.
Food demand will continue to rise in India and with stagnant
productivity, the demand for imported food will go up and Indian farmers will
further suffer due to competition from crops from world market.
Estimated food requirements of India by 2030 calculated by author
are given in the table below:
Category
|
In 2015
(Estimated.)
|
By 2030
(Projected)
|
Required Growth
in production per year
(in Million
tons)
|
Pulses
|
17.2
|
40.0
|
1.52
|
Coarse Cereals
|
41.7
|
102.0
|
4.02
|
Wheat
|
88.9
|
95.0
|
0.41
|
Rice
|
104.8
|
156.0
|
3.41
|
Oilseeds
|
26.7
|
70.0
|
2.89
|
Milk
|
146.3
|
182.0
|
2.38
|
Fish
|
10.1
|
16.0
|
0.39
|
Egg
|
39.2
|
57.0
|
1.19
|
Meat
|
6.0
|
15.0
|
0.60
|
Fruits
|
86.0
|
110.0
|
1.60
|
Vegetables
|
167.0
|
180.0
|
0.87
|
Tea
|
0.9
|
1.1
|
0.01
|
Sugar
|
25.0
|
33.0
|
0.53
|
Total food Demand
|
759.8
|
1057.1
|
19.82
|
Please note: Demand for many other items which make part
of food system is yet to be estimated.
Source: The POLITIECONOMY, Int’l
Research Journal of Political Economy, Volume 3, Issue 1, September 2016,
Page 135
|
|||
The challenges which government must address
are:
1.
Problem in poor farm productivity and loan waivers does not
improve productivity - Evidence from NSSO suggests that nearly 40% of the crop loan
amount taken in the name of agriculture is used on non-agriculture purposes
such as marriages, education, health, etc. Unfortunately, there is no effort to
provide quality inputs and education to farmers’ and no focus on extension
education. In case of loan waiver, it will be more sensible and logical to use
the same money for providing good quality seeds and other inputs. This will not
only improve the productivity but will also reduce the cost of production for
the farmers. They will not be in debt trap. These targeted inputs based subsidies
for specific inputs such as seeds, fertilizers can be based on specific
regional needs. This can be better method of utilizing national resources than
loan waiver. This may not be as attractive as loan waiver, for political
parties, which is a political inducement during election times.
2.
Credit alone is not enough to address farmers’ livelihood
challenges – Series of surveys and data indicates such inducements never hep
agriculture sector per say. Food grains growth fell from 2.85 per cent in the
1980s (1980-81 to 1990-91) to 1.16 percent in the 1990s (1990-91 to 2003-04),
which was lower than the rate of growth of population of 1.9 per cent during
this period. While the Indian economy itself may have shifted to a more service
based economy and away from agriculture, the agricultural sector has benefited
little from technological advancements. There was no attempt to improve the
agriculture productivity by proper planning and technology transfer. There has
been little or no improvement in agricultural infrastructure such as irrigation
systems, storage systems, market linkages, etc. The wide spread corruption in
Indian politics and administration has complicated the situation further.
3.
Loan waivers complicate situation for banks - The scheme does not
help the banks either, because they forced to lend to both viable and unviable
clients using the same lending parameters. In addition, banks have to write off
bad loans, which are expensive not only for the banks, but also the government
and ultimately additional burden on tax payers. It is estimated that in
2010-2011, nearly 73% of Priority Sector Lending resulted in bad loans, and
nearly 44% of these loans were in the agricultural sector. In last 7 years,
there is no attempt to reform agriculture marketing system, storage
infrastructure and agriculture extension education system. There are no visible actions on ground to
improve farmers’ conditions.
4.
Informal lending from money landers remain unaddressed – In most villages,
there are no banking facilities. Most farmers take loans either from the bank
or the moneylenders for agricultural purposes. This scheme does not address
loans taken from informal sources. In addition, there were farmers who took on
expensive loans from the informal sector like money lenders to pay off their
agricultural debt in last few years. They are not rewarded under this scheme.
These schemes will force these farmers to think twice for returning loans to
banks in future. Is this healthy sign for rural development? In fact, we are
disturbing national character towards honesty.
5.
Wrong classification of credit need in Indian rural conditions - Classification of
marginal, small and other farmers is inadequate and sometimes faulty because there
is no relation between land holding and productivity. The size of the land might not be a robust
indicator of credit worthiness or credit need. Poor soil and land management
has direct linkage with poor productivity. Credit worthiness should not depend
upon land based criteria.
6.
Lack of credible monitoring and evaluation - The scheme
requires the lending institutions (commercial and public) to appoint a
Grievance Redressal Officer in each State. However, it is unclear how RBI
wanted to monitor the loan usage and grievance issues. Also, there was
insufficient monitoring and evaluation to determine whether the scheme worked
or not. Lack of reach and lack of proper scientific methods of crop management
makes life complicated for assessing officers. Mandatory priority lending
targets for banks also force them to ignore this requirement.
Will Loan waiver help
farmers livelihood?
The answer is No. This money will not go to farmers but to the
banks.
The problem of farmers is productivity and proper price realization
of their crops. These schemes have no impact on agricultural productivity and
well-being of the farmers. Loan waiver is “curing the symptoms, and not the
disease”, it means farmers situation has not improved. He is still in the same
mess and will be pushed back in debt trap soon than later.
The way forward:
1. Ministry of Agriculture with the
help of state administration must develop a district wise action plan to ensure
profitable agriculture production cycle. This will help in ensuring proper seed,
irrigation and other inputs supply. This will also help in developing proper
marketing system. If the proposed production cycle is not profitable do not
force farers into debt tarp but force agriculture research system to respond to
the ground level challenges. This can be done by making agriculture
universities accountable for their performance of crop in their catchment area.
If banks have lending targets in the region, why agriculture universities do
not have performance target in the same region.
2. There is a need to
better understand the credit needs of the agricultural sector, and specifically
the credit needs of the farmers based on the region and weather patterns, and
their risk appetite. The investment required to minimize the risk is not
happening. The biggest risk is poor price realization after bumper crop. Poor
infrastructure and poor market linkages is the biggest concern. There is no
accountability of any department to ensure this. In fact, there are laws, rules
and departments like APMC to prevent efficient marketing and efficient linkages
of farmers with market forces.
3. A more holistic approach
to lending is needed of the farmers in place of forcing banks to push loans under
Priority lending schemes. With better technologies, this approach can be
changed with effective monitoring of activities on farms. There also needs to
be more emphasis on markets linkages, weather and crop insurance must ensure
income support as well, and a greater application of technological innovations
in agriculture productivity and price forecasting.
4. Benchmark India research
system with bets in the world to make them accountable to tax payers.
Government must also create incentive for private sector participation in
agriculture research education. Today, ICAR is the only monopoly in the system
and there is no incentive for private research in agriculture due to various
procedural hurdles. There must be accountability for agriculture research
system in India to address current challenges of agriculture and allied activities.
5. Mindset towards private
sector must change. Agriculture sector is too vast to be managed by public
sector alone. The diversity and complexity of agriculture sector needs state of
the art knowledge base, skills and technology. This cannot be done as routine
office job. Unfortunately, most of the farmer leaders are still in the
communist era and expect government may provide answer to all problems. Government
departments do not want private sector to play key role because their will
expose their weaknesses and working inefficiencies. They all expect markets to
perform better when it comes to price realization but they don’t want private
sector to invest in related activities based on prudent financial criteria
based on returns on investments. Very often policy makers assume they have all
information and this lack of understanding of changing reality is creating big
divide between policy making and ground reality. Political patronage due to
vote bank politics hurting development and shaking confidence of investors and
investment is not taking place. There is no focus on institution building in
the country because political leaders do not want to delegate their powers. There
is no consistency in policies between various levels of administration and
between various political ideologies because Individuals take priority of
institution and facts are ignored. No
private investor is keen to invest in agriculture research in big way in India
due to political risk based on illogical perceptions towards private sector,
which can easily be addressed with proper regulatory framework.
Unless
we change our mindset towards agriculture and focus on institution building
these loan waivers will be integral part of every election manifesto. Can Modi
Government promise there will be no more loan waiver in India because their
policies will deliver as promised and farmers will have sufficient income for
dignified life. Time will tell the difference between promise and performance.
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