Close to seven decades since independence, Indian society continues to suffer from the stigma that ‘farmers feed the whole country but are unable to feed themselves’. The proof of pudding is in eating as thousands of them are forced to commit suicide every year. During the last one-and-a-half decade or so, about 300,000 farmers have committed suicide and the numbers continues to increase unabated.
Invariably, analysts attribute this to their inability to generate adequate income [on an average, a farmer earns just about Rs 5000-6000 per month from cultivating land] because of generally low crop yield on one hand and un-remunerative price for agricultural produce on the other. When, viewed in the backdrop of government giving huge subsidies on inputs such as fertilizers, seeds, irrigation etc and equally huge increases in MSP [minimum support price], this will flummox any one with some common sense.
The dilemma gets resolved when we take cognizance of the fact that a substantial chunk of the subsidies on agricultural inputs never reaches the farmers [as this is mis-appropriated by very persons who are entrusted to deliver these subsidies] and very often farmers especially resource poor, small and marginal farmers are forced to take recourse to distress selling at low prices [MSP remains mostly on paper]. In short, they benefit neither from increase in MSP nor from input subsidies.
The persistence of low income on one hand and ever increasing expenses [exposure to modern life styles (courtesy widespread reach of television and internet) has led to their kith and kin spend more besides unrelenting burden of social commitments e.g. marriages, religious ceremonies etc] on the other has led to increased borrowings. No wonder then, nearly 52% of farmer households in India are indebted, according to NSSO [National Sample Survey Organization] report released in December, 2014.
The NSSO report based on the “Situation Assessment Survey of Agricultural Households in India” covered nearly 35,000 households for which data was collected for the agricultural year July 2012 to June 2013. The survey comes out with a startling revelation that nearly 40% of farmers loans come from “informal” sources. Moneylenders, who charge interest rate of more than 5% a month or more than 60% per annum, are the source of borrowing for 26% of these farmers.
This sounds bizarre when viewed in the backdrop of successive governments announcing from house tops their intent to get banks to give loans to farmers at concessional rates of interest normally @ 7% [even lower @ 4% to those who return in time] – by declaring such loans as “priority sector” advances and increase in provision for agricultural credit year-after-year. If, farmers had got access to institutional finance, they would not have been forced to borrow from moneylenders at extortionate interest rates.
With interest as high as 60% per annum, even a small loan of say Rs 10,000/- can assume monstrous dimensions [in 5 years, this will grow to around Rs 105,000 and reach around Rs 1100,000 at the end of 10th year]. When, the moneylender pressurizes farmer to pay back and threatens to appropriate his land or uses other punitive means [for instance, making his child work as bonded labor], the latter is forced in to the extreme step of suicide.
In some state like Andhra Pradesh, the void due to limited reach of banks has been filled by microfinance institutions [MFIs]. They extend largely small-size loans to the rural poor predominantly. Though interest rate charged by them @ 25-30% is significantly lower than what moneylenders charge, this is much beyond their capacity to pay. Quite often, coercive methods used by MFIs to secure payments have also led borrowers to suicide.
The crux of problem with previous dispensations was that they merely talked big on giving loans to farmers but never bothered to set up the required infrastructure and increase the reach of banking sector. Even where the banks had a reach, their procedures and requirements even for opening an account were so cumbersome that the poor were deterred from coming anywhere near them. Modi – government has changed all that.
Within 3 months of taking charge, on August 28, 2014, the prime minister launched the ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’, a mammoth nation-wide financial inclusion project that seeks to bring every household in India within the ambit of the banking system. Under it, a household can open an account even with ‘zero’ balance and get a RuPay debit card. It comes with an overdraft facility of Rs 5000/- and an accident insurance cover of Rs 100,000/- . Persons opening account before January, 2015 also get life cover for Rs 30,000/-. For details, pl read:-
Through PMJDY, Modi has delivered something that did not happen for generations. More than 150 million households opening a bank account in less than 6 months is unprecedented. There could not have been a more potent way of economically empowering such a large section of population. These people have got an opportunity to shape their destiny in a sustainable way.
The scheme will enable million of farmers come out of the stranglehold of moneylenders/MFIs. By substituting a loan from such exploiters that carries 60%/30% interest rate by a bank loan on which they have to pay only 7%, imagine, how much of erosion of their savings will be averted. They can use the savings for investment in farm equipment, technology, modern agri-inputs, improvement in land etc to raise crop yield and quality.
Under the extant dispensation of routing various subsidies on fertilizers, fuel, food, seeds etc through suppliers/manufacturers, a major slice of these is lost on the way courtesy, widespread corruption and steep decline in value based governance. Under a well regulated and transparent process of transferring money to the bank account of beneficiary, there will be absolutely no scope for corruption and leakages. Subsidies will be better targeted to the poor and they will receive the money in full.
Additionally, even though guidelines under PMJDY do not require an account holder to maintain a balance, it is a great opportunity for household to keep its savings in the account. In the absence this novel scheme, a woman head of a poor family had no safe avenue available to keep her cash. The scheme has filled this gap. According to finance ministry, a whopping Rs 15,000 crores has already been deposited in these accounts.
All those channeling their savings to the account will be much better equipped to face any contingency [this is in addition to overdraft of Rs 5000/- available to everyone including those with zero balance]. The account will be a great support to an enterprising youth in a farming family who wants to set up business based on an innovative idea. Several venture capitalists are ever willing to fund such ideas and a bank account will provide much needed springboard for taking it forward.
Even with adequate access to institutional finance at low interest rates, many farmers may not be in a position to service their loans [after all farming is inherently risky due to high dependence on weather, vulnerability to pests and disease and wide fluctuations in prices of agricultural produce] due to disruption in their income streams. Still, they will not face hell as recovery processes of banks – unlike moneylenders/MFIs – have a human touch.
In a nutshell, vide PMJDY – a masterstroke scheme that has few parallels in the world – Modi has given millions of poor farmers, landless workers and others with meager income a chance to improve their economic well being, ensure a safe future and partner in the development process.