A committee set up by the Modi – government to identify ways to double farmers’ income by 2022 has in its report [second volume] under caption “Status of Farmers’ Income: Strategies for Accelerated Growth” has stated “landless and marginal farmers depend more on the informal sources for credit for asset creation as compared to the medium and large-size landholders”.
The committee 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%].” On the other hand, the medium and large farmers avail most of the loans from financial institutions such as scheduled commercial banks [SCBs], state cooperative banks [SCBs], district cooperative banks [DCBs] and regional rural banks [RRBs].
These revelations reflect poorly on the tall claims of successive governments to ameliorate the conditions of poor farmers who on one hand continue to suffer at the hands of weather vagaries [causing decline in production, sometime very steep] and on the other, miseries due to lack of requisite support needed to ensure a good price for their produce and other avenues for increasing income.
Marginal farmers are those owning up to 1 hectare of land, while small farmers are those owning between 1 and 2 hectares. The farmers owning land in the 2 to 10 hectares range are medium whereas those owning land in excess of 10 hectares are large farmers. An overwhelming 90% of the farmers are small and marginal.
The very fact of the land area being small imposes a serious limitation on the farmer’s ability to generate a reasonable income – be it from crop cultivation or from other activities such as dairy farming, poultry, bee keeping etc. They are also unable to take loans from SCBs/DCBs/RRBs who insist on a collateral, normally the land which they simply do not have to offer. This forces them to go to private lenders who charge exorbitant interest rates citing high-risk.
The high interest rates together with their inability to generate adequate cash flows [due to low production and low price from sale] come in the way of their paying back. That leads to pile up of debt in geometric proportion. In several cases, the indebted farmer ends up ceding whatever limited land he/she has to the moneylender. Most cases of suicide are due to this factor alone.
The committee’s revelation of marginal/small/landless farmers funding a major chunk of their investment needs with loans from informal sources only goes on to confirm this dastardly reality. It mocks at the big pronouncements regarding increase in institutional credit for agriculture made in the union budget year after year as bulk of this is cornered by medium and large farmers. For instance, during 2016-17, they got away with 41% of the total agri-credit of Rs 900,000 crore despite accounting for only 10% in terms of the number.
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 to farmers for prompt repayment of loans within due date, thereby implying an effective incidence of only 4 per cent.
A vast majority of small/marginal/landless farmers who really need such loans don’t have access whereas, the large/medium farmers who could do without get away with most of these loans. According to a study by the RBI, the latter earn an arbitrage on these subsidized loans by on-lending to the former leveraging their clout with politicians and bank officials [this is particularly true of DCBs/RRBs which do not come under the oversight of the apex bank].
The large and medium farmers are also prime beneficiaries of the loan waivers announced by leading political parties [such announcements before every state assembly elections e.g. Maharashtra, Punjab, Uttar Pradesh, Karnataka etc is normal practice]. This is because waivers are applicable only to the loans taken from institutions; these do not cover loans from informal sources. For small/marginal farmers, it is double whammy as in the first place, they don’t get to avail of subsidized loans and second, can’t avail of waiver.
In a bid to boost institutional credit flow to small and marginal farmers and reduce dependence on informal private lenders, the government has revised lending norms for crop loans [this includes fertilizers, seeds etc] and credit under schemes such as Kisan Credit Card [KCC] [under it, land-holding farmers get short-term credit for post-harvest warehousing needs or setting up of small-scale dairy and poultry farms etc]. Under revised guidelines, requirements such as hypothecation of crops, now do not apply to loans of up to Rs 100,000/-
The branch managers, “based on their assessment,” have been empowered to disburse the amount “without relating it to the value of land owned by the farmer,”
Further, small and marginal farmers as well as share-croppers, defined as non-land-owning cultivators, will also not be required to submit a “no dues” certificate by district authorities for new loans of up to Rs 50,000. The step makes farmers already having an outstanding loan eligible for new small loans.
However, the above relaxations are a typical case of too little, too late. The tenant farmers and sharecroppers who don’t own land titles [they are categorized as cultivators] are still largely excluded from institutional credit. The definition of farmers needs to be changed to make them eligible for credit.
While, these changes may help somewhat, a major transformation in the attitude of the political establishment and banking institutions is needed to give subsidized credit to majority of the small/marginal farmers and share-croppers. Sans this, they will continue to remain shackled by the private moneylenders and acute deprivation – forget doubling of their income which will remain a pipe-dream.