Every now and then, one hears talk of agrarian distress and farmers committing suicide. They are heavily indebted and are unable to earn enough to make both ends meet and repay the loan. The average monthly income of farmer is about Rs 5000 whereas for many, it is even below Rs 2000.
It is also a fact that the government spends gargantuan amounts on subsidizing agricultural inputs viz., fertilizers, seeds, irrigation etc and makes huge quantum of credit available to them through public sector banks [PSBs] at subsidized rate of interest. Yet another truth is that barring present dispensation under Modi, government of the day had granted sumptuous increase in minimum support price [MSP] – a bare minimum price that farmer should get from sale of agri-produce.
Juxtapose subsidized price of agricultural inputs with increase in MSP, logically, one would be inclined to believe that farmer’s income should have been increasing. But, what we see on the ground is just the opposite. This clearly shows that promised benefits are not reaching them. Now, it is a matter of official record.
In this regard, a committee on medium-term path on financial inclusion set up by Reserve Bank of India [RBI] in mid-July, 2015 has observed that actual cultivators are not always the landowners and hence subventions [a euphemism for concession in interest rate on crop loan] do not even reach them. The land owners, being the recipients of the subventions, turn into money lenders.
Noting that the scheme is for short-term crop loans, it discriminates against long-term loans and thereby, does not incentivise long-term capital formation in agriculture, which is essential to boost productivity. The committee adds that any subsidised credit increases the chance of misuse.
In regard to subsidy on fertiliser, irrigation and power also, the committee has concluded that these are prone to vast leakages. For example, it avers “the fertiliser subsidy which increased from Rs 18,500 crore in 2005-06 to an estimated Rs 73,000 crore in 2015-16 is not financially sustainable in the long run.” It further notes that subsidising farmers by reducing price of inputs is regressive as it benefits rich households more than their poorer counterparts.
The Economic Survey [2015-16] too reinforces the above conclusion of the committee in regard to fertilizers when it says “24% of the subsidy is spent on inefficient producers, 41% is diverted to non-agricultural uses including smuggling to neighbouring countries and 24% is consumed by larger – presumably richer farmers.”
Majority of the poor farmers are forced to make distress sale at price much lower than MSP [those in states like Bihar, eastern Uttar Pradesh, West Bengal etc have not even heard of MSP]. This is due to poor connectivity, bad roads, absence of selling options, exploitation by middle-man [who also double up as lenders to farmers].
In short, there is a conspiracy to defraud farmers. So much so, even the money meant to reach them is siphoned off by unscrupulous persons [traders, corrupt politicians, bureaucrats, industry/input suppliers etc] while on way or reaches only larger/richer farmers.
How can their plight improve when a pittance Rs 8000 crores [out of a total of Rs 73,000 crores] fertilizer subsidy reaches poor farmers? How can they come out of debt trap when subsidized loans meant for them are cornered by landowners who in turn, charge high rates from cultivators? How will productivity increase when hardly any bank funds are invested in land improvement?
In this backdrop, committee’s recommendation for Government-to-Person (G2P) social cash transfers instead of subsidizing fertilizers, irrigation etc is commendable [its emphasis on better use of mobile banking facility will help achieve faster penetration]. This will curb leakages, remove price distortions and unleash benefits of competition in market place to lower price.
It has also recommended that agricultural credit must flow to the ‘actual cultivator’ for which tamper-proof digitisation of land records is a must. This should be backed by an Aadhaar-linked mechanism for credit eligibility certificates to prevent misuse. The information should be shared with credit information companies [CICs] to enhance stability of the credit system and improve access. This will not only help in identifying multiple accounts, but will also help mitigate the overall indebtedness of individuals who are often lured into multiple borrowings without being aware of the consequences.
The committee has recommended replacing interest subvention on agriculture loans with affordable technology-aided universal crop insurance scheme to end agrarian distress. It has stressed on heavy use of technology, like satellite images for crop mapping and assessing damage to make the scheme more efficient.
The government has already launched Pradhan Mantri Phasal Bima Yojna [PMPBY] early this year to provide insurance cover to farmers for miniscule premium of 1.5/2% for kharif/rabi crops, the excess of actual premium paid to insurance company over this to be subsidized by the center and state in equal measure.
However, the interest subvention must be retained which should be credited to account of cultivators instead of extant system of giving loan at concessional rate. The cost should be borne by state exchequer [instead of loading on banks]. Apart from plugging leakages, this will reduce stress on banks and help in reducing the cost of credit to industry and services as the need for cross-subsidy is obviated.
Is Modi – government geared to take on board recommendations of the committee? The successful implementation of direct cash transfer of LPG subsidy, may give us confidence that this could be replicated in fertilizers, irrigation and interest.
But, this is easier said than done.
It would be a daunting task to cope up with logistics and administrative challenges. Given his dynamism, zeal and determination, Modi may still get this done. But, whether or not, he can pierce through the wall of vested interest [patronized by their political heavy weights] to implement these bold decisions, only time will tell.