Farmer Hurt and Farming Needs Innovative Push
Priority Sector Credit Policy to Synchronise
Agriculture, India’s largest employer is undoubtedly the engine of India’s economic growth. Agriculture is constitutionally a State subject, but, in practice, all policy decisions in its activity chain like Agriculture Credit, Procurement, MSP, fertilizer allocation and subsidy, and relief measures, etc., are in the domain of the Central Government. Indian farmer and the entire value chain in the farming sector, as a consequence, is strangulated by regulations of over twelve ministries of GOI and at least six ministries of the State Government.
While the priorities should be on improving soil health, conserving water and improving markets for assuring reasonable prices for the farmer, the present Government misplaced its priorities to introduce Land Acquisition Bill that now got into the second ordinance faced with stiff opposition on the floor of the house and in the streets of North India.
Farmers get their extension support and weather forecast on the mobile phones most of them own, but fail to secure the prices for their produce and agricultural market yards failed them. The result is about 3lakh suicides of farmers in key agro-intensive states across the country during the last one and half decades. The efforts to contain them have not even touched the fringe of the problem. The problem touched the roof of the Parliament with a solitary suicide of a farmer on the fringe of AAP agitation in Delhi against the Land Acquisition Bill.
There is an undue anxiety to cut subsidies to the farm subsidies although they constitute less than 15% of the dwindling Agriculture GDP. The role of women in farming activities has been unnoticed instrument of stability with several women SHGs contributing their pooled savings and credit as also labour for stability in farm production.
Agricultural Insurance Reforms need to move in the direction of low premiums, high security – particularly of weather, loss of crop on and off the field at the matured stage and in market yards.
Revision of the APMC Act to permit pan-India trades, electronic auctions and trading in warehouse receipts and monitoring its implementation in the states, brooks no delay. Farmers should be able to sell their produce anywhere in the country without hassles to derive the price advantage.
Primary Agricultural Credit Cooperatives and the rest of the rural credit system in cooperative fold is in shamble. Government may expedite 97th Constitutional Amendment Act and amendment of Multi State Cooperative Societies Act, 2002, so that all the State governments may harmonise their Co-operative Acts, on the lines of 97th Constitutional Amendment. In a mission mode the Government has to invest in technology infusion from PACS to bring them into mainstream rural lending structure.
If the Government were to invest on mission mode a Farm Skills and Entrepreneurship programme in about 50 acres in all the agriculture intensive states it has potential of creating a million entrepreneurs and eventual job creation through them.
Promotion of Integrated farming system approach involving synergic blending of crops, horticulture, dairy, fisheries, poultry, etc. seems viable option to provide regular income and at site employment to small land holder, decreasing cultivation cost through multiple use of resources and providing much needed resilience for predicted climate change scenario. Model Farms need to be established in each district with 100% GOI funds for farmers to learn and adopt.
Instead of the government hurriedly introducing the Land Bill had it demonstrated its farmer-friendliness by taking the following baby steps to win the trust of farmers: 1. annulling the APMC Act to facilitate introduction of technology and price discovery mechanisms in all the agricultural market yards, 2. issued soil health cards, and 3. Recognizing the family based farming, the Land Bill would have been a cakewalk. It is just coincidental that the RBI should also revise its priority sector guidelines, redefining agriculture on the day the debate on second ordinance on Land Bill commenced with, of all, Rahul Gandhi winning the floor on the 23rd April.
Credit For Agriculture in the revised format:
Credit for farm activity has to facilitate production in agriculture and allied activities, storage and marketing and move with extension, simultaneously de-risking of the loan write-off as a ploy to win the bourses. The decision to write-off should vest with the Parliament only in cases of acute natural calamities.
Credit and insurance needs to be looked at together. The stress of increasing costs of production and reducing farm size are acute concerns of the farm sector that require to be addressed as recommended by M.S. Swaminathan in the National Agricultural Commission eight years ago.
Priority for credit for agriculture sector has to be viewed in the above perspective. While there has been no explanation in the past for fixing 18% of ANBC to go for agricultural credit from commercial banks, the recently modified definitions of the priority sector and the allocations also continue the same ambiguity.
Small and marginal farmers and micro enterprises get specific credit allocations: 7% during the current year and 8% after 2016 of the ANBC for SF and MF and 7% for the micro enterprises. Although this is significant in itself for the approach, adequacy is still not addressed. Nearly 80 percent of holdings are small. If the RBI true to the financial inclusion goals had stipulated that the number of farm accounts belonging to small and marginal farmers and leaseholders should reach 50% of the number of total farmers in 2015 with an increment of 10% over the next four years, statistical mirages in achievements would have been minimized.
Loans to distressed farmers indebted to non-institutional lenders have featured under eligible activity. This is a welcome move. The implementation would depend on the rules framed for recognizing this portfolio and the initiative the primary lending institutions take in this regard.
Removing ‘indirect agricultural credit’ would have been in order had the RBI reclassified the newly included sectors – a host of them – with a cap on the credit limit to such sectors. For example, any loan of Rs.25lakh and above for any activity has to be on a project basis standing the test of financial viability and economic feasibility. Produce loans beyond Rs. 10lakhs limit and that too up to one year, has a chance of encouraging hoarding of grains.
The policy of rephasing and rescheduling of farm loans should be strengthened to take care of frequent crop failures due to floods, cyclones etc. Insurance should move in tandem. RBI has to therefore reformulate its directives relating to farm loan adjustments in situations affected by natural calamities that have attracted increasing attention in the context of loan write off by the union and state governments.
It is surprising that corporate farmers qualify for priority sector. Corporate farming is a commercial lending activity and does not deserve any special dispensations. Urban and Metro branches are well poised to take up this activity with or without assigning priority as they also hold deposit and export credit accounts of such farmers.
Lending to weaker sections at 10% includes lending to small and marginal farmers, Joint liability groups among others that already are covered in the 7-8 percent minimum lending compulsive portfolio. This would leave 2-3% for the other categories indicated in the weaker sections.
If the banks meet enlarge their farm credit portfolio in terms of the enlarged definitions of agriculture and social infrastructure, the RIDF window becomes irrelevant. Even if it is allowed to continue it should get resources only from budget allocations and not as shortfall in annual targeted credit flow for agriculture.
Kisan Credit Cards also figured as separate classification. All the farmers eligible for institutional credit should qualify for the issuance of KCC. RBI should have made it mandatory for a chip embedded KCC to every farmer–borrower, with sub-limits for various activities and a debit card for meeting consumption needs. Within the KCC limit, the farmer would have accessed his inputs at a shop and time most convenient for him. This would have substituted the money lender effectively. RBI yet again failed to think out of the box for resolving the farm credit issues.
Institutional frailties also need immediate attention. NABARD, fully owned by GOI, RRBs and Cooperative Banks and PACS supervised by it have failed the nation. It is time to restructure NABARD to meet the farm sectors’ requirements more effectively.
The circular at the end says that the rates of interest would be prescribed by the Ministry of Finance! RBI’s regulatory responsibility is passed on to the Ministry of Finance!! Interest rate fixation is part of monetary policy and it has now become a political ploy.