Can Modi’s eloquence respond to farm credit vows?
Mobile Banking can show the way.
http://www.mlmsoftwarezindia.com/images/mlm-mobile-banking.jpg
“India accounts for only about 2.4 % of the
world’s geographical area and 4 % of its water resources, but has to support
about 17 % of the world’s human population and 15 % of the livestock.
Agriculture is an important sector of the Indian economy, accounting for 14% of
the nation’s GDP, about 11% of its exports, about half of the population still
relies on agriculture as its principal source of income and it is a source of raw
material for a large number of industries.” (State of Indian Agriculture
2013-14, Ministry of Agriculture, GoI, New Delhi)
Policy
Brief
‘Agriculture credit is one
of the main drivers of agricultural production.’[1]
Farming and credit have been highly interdependent for ages because the farmer
would have his cash stashed either in soil or in silo and never in liquid form
for him to spend for both production and consumption requirements. So is the
case for credit at any cost and anywhere for the farmer. This is where the
roots of money lender lie. He sits in the village close to the farmer.
Efforts at
institutionalizing money lender started with the starting of primary
cooperative agricultural credit societies. Post nationalization, nationalized
banks, regional rural banks took to agriculture lending in a big way. NABARD
was established in 1982 to accelerate productive agricultural credit flow with
focus on improving the lot of the small and marginal farmers.
Post liberalization, with
India becoming an important constituent of the WTO, Agreement on Agriculture
and Market Access has also witnessed diversification of agriculture and rural
economy. The wide ranging definition of farming encompassing dairy, poultry,
piggery, fisheries, and all animal husbandry and horticulture activities led to
inadequacies and delays in extension of credit from institutions. Public sector
banks are mandated to extend credit for agriculture that now includes
agro-industry and agri-businesses up to 18 % of the total credit.
RIDF
helped Banks and NABARD more than the farmers:
The banks that fail to reach
the target have to invest the shortfall in the Rural Infrastructure Development
Fund (RIDF) of the Government of India. RIDF is expected to provide backend
infrastructure to make credit effective eventually. Union Minister for Finance
allocates the RIDF as part of the annual budget announcement. During the last
ten years, even crop loan targets are also announced in the Annual Budget
speech of the Finance Minister although that has no relationship with the
annual statement of accounts of the Union Government.
NSSO in its 70th
edition (Jan-Dec 2013) throws some evidence in this direction. 95% of the
agricultural households used whatever land they had for some agricultural
activity or other during the year.[2]
The size of average operational holding has significantly come down to an
uneconomic level of just 1.15acres.[3]
The sunk costs for crop production have been rising to unsustainable levels and
labour costs today have come to take a major slice at around 35% according to
the field level information.
Government
softened Interest rates for farm credit
Having seen that the farmer
living on debt is more a necessity than evil, efforts would become necessary to
ensure that such debt does not eat into the vitals of his existence. This has
led to the government announcing a slew of measures for flow of credit at least
cost (now 7% per annum – the difference between the commercial lending rate and
7% would be reimbursed to the banks). It also incentivized prompt repayment by
announcing a further reduction of 3% per annum for those who repay the loans on
due dates. Thus farmers who repay the loans promptly would be able to secure
credit at just 4% per annum.
Interest subvention scheme
has also been extended for post-harvest loans for small and marginal farmers
availing loans against ware house receipts and against Kisan credit cards for a
period exceeding six months after crop harvest. The limit for collateral free
loans has been enhanced from Rs.50000 to Rs.1,00,000. In the event of loss
arising out of natural calamities like cyclones, floods, drought etc., rescheduling and rephasement in accordance with the guidelines evolved by the state Level
bankers’ Committee has also been facilitated. Efficiency and equity are thus
taken care of. This aspect will be dealt
with subsequently in some detail as to the situation on the ground.
“As compared to 257.1
Million tonnes of food grain production during 2012-13, the total horticulture
production was 268.9 Million tonnes. The annual growth rates for area and
production of horticulture crops during 2012-13 over 2011-12 were 1.9% and 4.5%
respectively. Percentage share of vegetables production in the total
horticulture production was highest (60.3 % during 2012-13) as compared to
other horticulture crops.
During 2013-14 the total
value of export of horticulture produce from India to different countries was
Rs. 14365 crore. Export of flowers from India was about Rs. 456 crore. The
percentage share of calorie intake from fruits and vegetables has increased
from 6.9% in 2004-05 to 7.0% in 2009-10 in rural areas and 7.2% to 8.0% in
urban areas during the corresponding period.” [4]
The Reality:
Crops
|
Average
Annual Growth (%)
|
Average Annual
Growth (%)
|
||||
10th
Plan (2002-03 to 2006-07)
|
11th Plan (2007-08
to 2011-12)
|
|||||
Area
|
Production
|
Yield
|
Area
|
Production
|
Yield
|
|
Total Food grains
|
0.29
|
1.29
|
0.59
|
0.19
|
3.80
|
3.55
|
Sugarcane
|
3.98
|
4.90
|
0.66
|
0.04
|
0.99
|
0.87
|
Total Nine Oilseeds
|
3.55
|
7.99
|
3.53
|
-0.07
|
5.54
|
5.32
|
Cotton
|
0.57
|
20.01
|
19.40
|
5.97
|
10.46
|
3.93
|
Source:
State of Indian Agriculture, 2012-13, Department of Agriculture and Cooperation,
Ministry of Agriculture, Government of India.
Growth rates in area
declined for food grains between the tenth and eleventh plans but both
production and yield rates have been rising indicating that the farmers in
spite of all odds are toiling to squeeze oil out of sand to provide food
security to the economy.
The annual increases of crop
loans from banks have led to 250mn-260mn tons of food production in the country
during the last five years. It will be of interest to see the growth of credit
for agriculture that covers all the activities defined under agriculture till
2012. The annual growth rate of credit has been inconsistent when seen in
comparison with the growth rates of production of various crops. Banks can be
seen to be supporting the government during the election years – 2005-06;
2009-10 more than the other years. The baggage of NPAs in this sector and other
sectors seems to have had an impact in the election year 2013-14. It is also
noticed that achievement of targets by itself did not lead to increase in
growth rates of credit for agriculture.
While the allocated targets
have always exceeded as per the RBI statistics, we see no reason or rhyme in
the very allocation of crop loan targets. They do not indicate any relationship
with either the area or production or yields. The disaggregated details also
indicated that urban agriculture has increasingly got better attention than
rural agriculture. There has also been variation between long term credit that
goes for capital formation and the short term crop loans. While the crop loans
have gone up by five times during the period 2004-14, the investment credit has
only doubled. This indicates that the contribution of bank credit for capital
formation in the farm sector has not been significant. Further, it also
indicates that the short term loans that basically consist of crop loans is of
that high order because of targets assigned in the Union Budgets year after
year.
Year
|
Incremental
credit target in the Union Budgets Rs. Crores
|
Annual
Growth of total agricultural credit %
|
2005-06
|
36000
|
44.03
|
2006-07
|
34000
|
27.04
|
2007-08
|
50000
|
11.00
|
2008-09
|
55000
|
12.76
|
2009-10
|
45000
|
33.90
|
2010-11
|
50000
|
21.78
|
2011-12
|
100000
|
8.36
|
2012-13
|
100000
|
18.8
|
2013-14
|
125000
|
17.15
|
Source: Union Budgets for
the defined years; Annual Reports and Report of the Trend and
Progress of
Banking of the RBI for the relative years (compiled by the author)
Either the credit is
distributed unrelated to production or undelivered credit is getting into the
target achievements year after year. Going by the experiences of the two States
of Andhra Pradesh and Telangana who announced loan write off as a ploy for
winning the bourses, the banks have failed to establish the claims in several
cases due to one or more of the following lapses:
Both
the State Governments announced write off of farm loans with the premise that
the farmers have suffered huge losses due to both natural and manmade
calamities and that the farmers would not be able to bear the losses by
themselves. The arguments adduced became contentious with the RBI reasoning out
otherwise on the basis of independent enquiries. Nevertheless the promises held
out to the farmers by the Governments were allowed to be a pass through. But
when the state governments asked the banks the details of the outstanding farm
loans, the figures held out did not match the actual availment by the farmers.
The discrepancies arose on account of the following reasons:
·
Several borrowers rushed to the banks after
the announcement of loan write-off to pledge gold ornaments;
·
A few farmers availed in both the States
citing varying land records;
·
Several farmers were noticed to have availed
loans using fraudulent pattadar pass books;
·
The quantum of loan availed and the crops
grown did not match with the relative scales of finance prescribed by NABARD;
·
There were also benami loans.
Reconciliation
of accounts that deserved write off took therefore as much as six months
leading to unrest among farmers as they were unable to obtain crop loans for
the season ahead.
Scrap APMC Act and write a new law
In
order to provide better price to the farmer, APMC Act requires modifications in
a manner that the farmers will have a say in the markets and would be able to
deliver their produce on cash and carry basis. Technological changes to the
functioning of markets become imminent. Huge investments required for this
purpose should qualify for investment finance portfolio of banks and speedy
investments as well once the Act provides for facilitating provisions. The
other important area requiring speedy investments is storage and distribution
channels in the farm sector. The third area of equal importance that has
already been announced in the Union Budget 2015-16 is providing finance in
adequate measure for agro businesses and agro industries and as part thereof,
producer companies and producer cooperatives in recognition of value chain
management in farming portfolio.
In
fine, banks’ role in financing farming and allied activities as also the value
chain assumes criticality in the emerging context of Indian economy targeting
double digit growth by 2020. Whenever there was sluggish growth in the farm
sector, in spite of its dwindling share in GDP, the overall growth of the
economy suffered.
Banks have to be effective partners in
growth of farm sector
It
is imperative that the banks have to be effective partners in growth with their
wholehearted involvement in the programmes of the government to increase farm
production both quantitatively and qualitatively. Banks have to extend credit
with extension support through effective coordination with the Agricultural
universities, research and development institutions, and the extension
machinery of the government.
Banks
have to keep their records clean and improve their data bases to reflect the
farm credit flow to various activities, various client groups, like the small
and marginal farmers, area wise and activity wise so that reliable data would
lend to improvement of policies on an ongoing basis.
Mobile banking should be a handy tool
substituting moneylender
Now
that the mobile phone is in his palm cant the banks use this disburse credit
through this instrument? It should be
possible. The farmer can go to the input dealer of his choice and purchase the
inputs according to his requirement through the mobile bank. The dealer gets
his price instantaneously. His cash requirements for consumption and labour can
be met from his Rupay or ATM card. This obviates the farmer visiting the branch
for availing credit repeatedly excepting for securing sanction of the limits.
His credit requirements can be met at any time he wants and not just during the
banking hours. It is time banks take technology to the farmers faster than
ever. When credit is received in time, his loyalty to the institution improves.
His repayment obligations are not forsaken.
Governments
can concentrate on taking weather and crop insurance effectively. Only in
severe natural calamities like the chronic drought, hailstorms or devastation
by tsunamis the loan write-off can be done by the Parliament and Legislatures
as per the recommendations of the SLBC. The usually occurring cyclones, floods
and drought can be tackled by rephrasing and rescheduling both investment and
short term credit through RBI refining this product.
*This
paper has been prepared for the Seminar on 'Indian Agriculture - Transforming a Nation' on April 5, 2015. The author is member of
the Board of Governors of the FRSF, Hyderabad.
[1]
Reserve Bank of India, Annual Report 2013-14,
[2] (C.R.Chandrasekharan:www.thehindu.com/sunday-anchor/sunday-anchor-steering-reforms/article6751894.ece)
[3]
State of Indian Agriculture, Ministry of Agriculture and Cooperation,
Government of India, 2013-14
[4] Hand
Book of Horticulture, 2014, Ministry of Agriculture, Govt. Of India:
http://agricoop.nic.in/imagedefault/whatsnew/handbook2014.pdf)
No comments:
Post a Comment