Successive governments have show-cased loans from scheduled commercial banks [SCBs], state cooperative banks [SCBs], district cooperative banks [DCBs] and regional rural banks [RRBs] [also referred to as institutional loans] to farmers at concessional rate of interest as demonstration of their commitment to help them increase their income from agricultural and allied operations. Modi – government has often proclaimed this as one of the potent instrument of doubling farmers’ income by 2022.
The total amount of agricultural credit increased from about Rs 915,000 crore during 2015-16 to Rs 1065,000 crore during 2016-17 and further to Rs 1170,000 crore during 2017-18. As per directives of the Reserve Bank of India [RBI], farmers get short-term crop loans up to Rs 300,000 at subsidized interest rate of 7 per cent per annum. An additional incentive of 3 per cent is provided for repayment within due date, implying an effective rate of only 4 per cent.
Going by these numbers and other efforts aimed at making agricultural inputs viz. fertilizers, irrigation, seeds, power etc available at subsidized price and increase in the minimum support price [MSP] to ensure 50% profit over cost – as per Dr Swaminathan committee recommendation – one would have expected a substantial increase in income. Yet, majority of the farmers have not seen their incomes go up, their living is miserable and large-scale suicide continue unabated.
This has a lot to do with the inability of the government to deliver on the promised hike in price realization from the sale of produce. But, the other factor [that often goes unnoticed] is a disconcerting fact that the institutional credit is not going where it should. According to a study conducted by an internal working group of the RBI, a lot of this is being mis-utilized and mis-directed.
The study concludes that in several states, the quantum of crop loan is higher than the value of all agricultural inputs [in Andhra Pradesh, during 2015-2017, this was found to be a whopping 7.5 times the value of agri-inputs]. Considering that crop loans are taken mostly for buying agri-inputs, how could the former exceed the latter? This clearly points towards blatant misuse of the loan. This is also confirmed by another study [2015], based on RBI data, which shows that bank branches located in urban and semi-urban areas disburse large sums of agri-loans; further disbursement of crop-linked credit continued during agriculturally lean periods which defies logic.
Even out of credit that flows to agriculture, a major share is cornered by medium and large farmers viz. those owning land in the 2 to 10 hectares and in excess of 10 hectares respectively. During 2016-17, large farmers alone got away with 41% of total agri-credit of Rs 915,000 crore despite accounting for only 10% of the total number. Small and marginal farmers [land holding size between 1 and 2 hectares and less than 1 hectare respectively] who account for nearly 86% of the total number don’t benefit from institutional credit. About 41% of them don’t even have access to commercial banks.
Every government recognizes that investment in agriculture holds the key to increasing farmers’ income on a sustainable basis. Yet, in so far as the availability of institutional credit for this purpose is concerned, this does not get required attention. In fact, the share of investment related loan in total farm credit has decreased from 50% during 2000 to barely 25% in 2016. Even the limited investment credit is cornered by the medium and large farmers forcing small and marginal farmers to go for informal sources.
This is confirmed by the findings of a committee set up by Modi – government on “Status of Farmers’ Income: Strategies for Accelerated Growth” to identify ways to double farmers’ income. It concludes that “landless and marginal farmers depend more on the informal sources for credit for asset creation as compared to the medium and large-size landholders”. It goes on to state that “a higher percentage of investment is carried out through informal sources of borrowings such as moneylenders, traders and input dealers by the landless [40.6%], marginal [52.1%] and small farmers [30.8%].”
A study by RBI has also made a startling revelation whereby large farmers who manage loans from institutions using their clout with bank officials and politicians [this is particularly true of DCBs and RRBs who do not come under the oversight of the RBI] on-lend these to small and marginal farmers masquerading as money lenders. The differential interest is pocketed by them. Alternatively, they earn higher interest on fixed deposit in bank. Being able to repay the loan in time, they get further concession of 3% in interest [as per RBI rule] thereby boosting their profit from arbitrage.
Modi has exhorted farmers to tap activities allied to agriculture such as animal husbandry, fisheries and forestry etc to augment their income. Here again, despite contributing nearly 40% of the agri-GDP, these activities get less than 7% of total institutional funding. In this backdrop and getting least attention in credit availability, how are they expected to contribute to increasing farmers’ income?
To sum up, a big slice of credit meant for agriculture gets diverted. Whatever is available, most of it [for both crop loan and investment] is taken by medium and large farmers. Small and marginal farmers who need the most don’t get. They are forced to depend on informal sources who charge exorbitant interest rates. This together with the meager income [courtesy, low yield and low price for their agricultural produce] comes in the way of their paying back. This leads to accumulation of debt forcing many of them to take the extreme step of suicide.
These anomalies can’t be addressed merely by increasing the qualifying limit for loan or dispensing with the requirement of collateral for loan or provision for direct transfer of interest subsidy to the bank account of farmers etc [the approach so far adopted by the RBI and the government]. This will call for a fundamental change in the attitude of the political establishment and banking institutions. Sans this, poor farmers will continue to remain shackled by the private moneylenders/traders and live in acute deprivation – forget doubling of their income.