Out of farm’s way

Jayshree Sengupta

UP Chief Minister Yogi Adityanath may be bringing relief to a large number of farmers in dire straits. His loan waiver of Rs 36,359 crore for 1.5 crore small and marginal farmers is the biggest-ever such waiver for any state. Chief Ministers of Punjab, Maharashtra and Tamil Nadu are also thinking along the same lines. The amount of waiver for each individual in UP is Rs 1 lakh but includes all loans from any bank or cooperative bank. Loans taken against paddy, wheat, fertilisers and insecticides are eligible but not loans for consumption purposes.

Already the RBI chief and SBI chairman have expressed their apprehension about loan waivers. There is a mounting debt problem with state-owned banks (NPAs amounting to Rs 6.8 lakh crore) and populist measures like loan waivers will accentuate it. But giving due importance to the growers of India’s food, one can justify it. 

People are talking about moral hazard by which they mean that farmers in anticipation of such loan waivers will keep borrowing more and more in the future. But then, are we assuming that farmers are irresponsible people who are indifferent towards their own wellbeing? Because a debt incurred by any individual, except the very rich, seems a big burden. Farmers do pay back loans and the track record of loan recovery is better than loan recovery from, say, 10 top corporate groups who owe the public sector banks a staggering amount of Rs 5.73 lakh crore (March 2016). They are mainly from steel and infrastructure sectors. Farmers are unlikely to go on a borrowing spree as compared to the industrial giants, among whom one has borrowed more money (and defaulted) than the total loan waiver of UP.

The problems in agriculture in UP, and in other states, are deep rooted with excessive dependence of the rural population on agriculture and lack of irrigation reforms.  The number of farmer suicides has only increased in the last few years, despite the priority sector concessional lending by public sector banks to the rural sector. In Punjab, the grain bowl of India, suicides have been on the rise.

Farmers have to borrow against their crops to meet their capital expenditures, but frequently, they borrow for consumption purposes. Most borrow from moneylenders whose loans given against jewellery, cattle, land, are usurious but till now, no means have been found to reduce the hold of moneylenders on farmers.

This is confirmed by an NSSO survey that reveals that less than half of the small and marginal farmers in UP owe money to banks. There are 2.3 crore farmers in UP and among farmers with less than one acre of land, just 28 per cent borrowed from banks and the remaining 72 per cent borrowed from non-formal sources, mainly moneylenders. For farmers holding one to five acres, the share of those borrowing from banks was 67 per cent. As in the past, bigger farmers will benefit from the UP loan waiver scheme rather than small and marginal ones. The same is the case in Punjab.

In Punjab, which is well provided with irrigation compared to other states, problems in agriculture have been inadequate returns to investment because of low MSP, lack of diversification and low procurement by the FCI. In UP, Adityanath has asked the FCI to procure more grains. In Tamil Nadu, more investment in irrigation is needed. According to the 2017 Budget, Rs 20,000 crore has been provided to NABARD towards a long-term irrigation fund and Rs 5,000 crore for setting up a dedicated micro-irrigation fund. But their actual implementation is awaited. 

UP and Tamil Nadu, for example,  need better micro irrigation like water harvesting and watershed development. According to CMIE, the irrigated area in UP has come down from 14.49 million hectares in 2001 to 13.43 hectares in 2010-11. Better fertilisers and seeds are also important for crops but water is essential for crop survival. Farmers in states with less irrigation facilities available have resorted to tubewells that have led to ground water depletion.

The disbursal of rural credit is important to prevent indebtedness of farmers. Various reforms have been introduced like the kisan card and more banking facilities in remote areas. The Budget provides for the disbursal of Rs 10 trillion in farm credit. Since farmers are reluctant to approach banks, post office payments, banks should spread to rural areas. The first such banks have been opened in Jharkhand and Chhattisgarh, and hopefully, 1.55 lakh post office branches will be linked with them later this year. Other types of micro-credit institutions and self- help groups are also important and have grown by 40 per cent in the last one year.

The government has to prioritise agriculture otherwise the state of agriculture will not improve. Heavy investments have to be made in rural infrastructure like storage, mandis, and in creation of more non-farm jobs in food processing units, dairy farming and small-scale industries to absorb the rural youth. The livestock sector has emerged as an important source of non-farm income in many parts of UP which has become the biggest buffalo meat exporter. But now with the controversy surrounding slaughterhouses, there will be a setback.

More IT use and futures trading, via the proposed electronic national agriculture market, will enable farmers to earn better prices for their produce. This can enhance their savings, reduce indebtedness and increase investment in improving productivity.

UP being the second-most indebted state with state debt of Rs 3,27,470 crore will obviously have a bigger budget deficit after the loan waiver, which is risky for any Chief Minister. Adityanath has organised the launching of Rahat bonds for funding the loan waiver and appointed an eight-member committee to formulate the scheme. With the current rate of interest between 6.5 and 7.5 per cent, there would be a huge interest burden to bear on the bonds annually. There may be a bailout from the Centre. In Punjab, the loan waiver will be a bigger sum — between Rs 70,000 and Rs 88,000 crore — and in Maharashtra, it will be around Rs 35,500 crore.

By reducing corruption and raising administrative efficiency, the Chief Ministers may be able to manage the fiscal front. In any case, loan waivers can only bring temporary relief.