Even as elections in India have turned into a day-in-day-out affair, two issues that political parties invariably focus on are (i) alleviating farmers distress and (ii) promoting inclusive development taking all sections of farming community on board.
Yet, what is happening on the ground is the reverse of what is proclaimed. The more parties promise addressing farmers’ plight, the more the latter end up getting further impoverished. The more they harp on ameliorating the conditions of farmers from backward classes, the more they get entrenched in backwardness.
A vivid manifestation of this dichotomy between what is preached and what is in practice is available from a research paper by Chirala Shankar Rao [an assistant professor at the Council for Social Development, Hyderabad] published in leading journal Economic and Political Weekly [EPW]. The paper is based on calculations using unit-level data on credit from the 2013 All India Debt and Investment Survey of the National Sample Survey Office [NSSO].
It analyses credit from three main sources viz. (i) scheduled commercial banks [SCBs] and (ii) cooperatives among ‘formal’ sources; (iii) private money lenders (PMLs) among ‘informal’ sources; by caste and class [by size-class of operated land] among Indian farmers. These three sources account for more than 2/3rd of all loans to farmers.
Almost half [45.8%] of India’s farmers are from Other Backward Classes [OBCs]. Scheduled Tribes [ST] and Scheduled Castes [SC] comprise of another 14.5% and 13.5% respectively. In short, nearly 3/4th of the farmers belong to OBCs, ST and SC. Others [mainly upper castes] have a share of 26.1%.
As regards distribution by size of land holding, more than 85% of India’s farmers are either marginal [0.1 to 1 hectare] or small [1.1 to 2 hectares]. The share of semi-medium [2.1 to 4 hectares], medium [4.1 to 10 hectares] and large [greater than 10 hectares] farmers is 10%, 4.2% and 0.6%, respectively.
Thus, there is preponderance of small and marginal farmers [85%] and predominance of SCs/STs and OBCs [nearly 75%] on the Indian agricultural landscape. The study also reveals that the nature of land ownership follows caste-hierarchies. In other words, farmers hailing from backward class have less land whereas upper caste farmers invariably have large tracts of land.
In 2013, more than a fourth of the total credit taken by Indian farmers came at interest rates of 36% per annum (pa). This is because these loans had been taken from private money lenders (PMLs) instead of formal financial institutions [FFIs] such as SCBs and cooperatives. These loans were mostly taken by farmers with low land ownership or small/marginal farmers.
Since, SCs/STs/OBCs have the biggest share of such farmers [read: low land size], they are also the ones who draw most of their credit requirements from PMLs. They were forced to approach PMLs because they did not have land – the most commonly used collateral – insisted by FFIs as a pre-condition for extending farm-credit. On the other hand, large farmers were better positioned to avail of loans from FFIs as they could easily arrange the collateral.
Agriculture being a priority sector in the RBI [Reserve Bank of India] schemes of things, the FFIs – mostly owned by the government – give crop loans to farmers at concessional interest rate @7%. A further concession of 3% is available to those who repay in time. So, for a non-defaulting farmer, the effective cost comes to 4%. In short, the large farmers have access to institutional finance at a mere 4%.
The above leads to an anomalous situation. A vast majority of poor farmers who deserve credit at low interest rate are forced to pay exorbitant rates 36% on their borrowing from PMLs [which forms major chunk of their portfolio] whereas large farmers who can afford to pay more get it at 4% from FFIs.
Given this huge differential in rates, some large farmers may be thriving on taking loans from banks/cooperatives at low rate and on-lending to small/marginal farmers at higher rates. An RBI committee on medium – term path on financial inclusion [July, 2015] thus noted that “actual cultivators are not always land owners and hence subventions do not even reach them. The land owners, being the recipients of subventions, turn into moneylenders”.
The discrimination goes much beyond what is dictated by land ownership. Thus, even among poorer farmers, upper caste farmers have greater access to FFIs. They hold a lot of influence in cooperative banks at the district level, which is where crucial decisions about loan distribution are made. However, in areas where OBCs dominated, the upper caste lose the advantage in accessing cooperative credit.
Clearly, within the FFIs framework through which government proclaims to help farmers avail of credit at concessional rates [a humongous Rs 1000,000 crores of credit is given annually: provision for 2017-18], there is an inherent bias against 75% of the farmers who belong to OBCs/ST/SC and have low land ownership. They are the ones who desperately need state assistance and yet left high and dry to be exploited by PMLs.
The real beneficiaries of this largesse are large and upper caste farmers many of them may even be using this money for on-lending [masquerading as PMLs] to majority of poor farmers at high interest rates and pocketing the difference. They are also the ones who benefit mostly from farm loan waivers which has become a routine affair before every election.
The overwhelming dependence of majority of poor/backward class farmers on money lenders leads to high production cost even as they are made to pay prohibitive interest rate on the loan. In normal times [read: weather], this keeps their income low. In abnormal times such as drought, this plays havoc with their fortunes leading many farmers to commit suicide as they are unable to repay the debt.
To conclude, even as parties of all political hues unequivocally commit themselves to improve the lot poor farmers especially those from backward classes [some even win elections on such promises], the way credit distribution mechanisms work on the ground level is leading to their persistent discrimination.
The powers that be should go for a complete overhauling of the mechanisms to ensure that credit institutions actually serve the intended purpose of helping poor farmers.