The Hindu Business Line : Need to address the root causes

The root cause of the farm crisis is not indebtedness alone; that is just a symptom. The Expert Group on Agricultural Indebtedness has suggested that rejuvenation of the farm sector lies in addressing basic structural, institutional and technological factors as much as restructuring public support systems in the face of growing exposure to local and global market forces, says S. D. NAIK

Fenced in by troubles.

The report of the Expert Group on Agricultural Indebtedness appointed by the Union Government under the chairmanship of Dr R. Radhakrishna, Director, Indira Gandhi Institute of Development Research, Mumbai, has rightly pointed out that the root cause of the current crisis is not indebtedness alone — indebtedness is just a symptom. The underlying causes are stagnation in agriculture, increasing production and marketing risks, institutional vacuum and lack of alternati ve livelihood opportunities.

The expert group has analysed the growing agricultural indebtedness and the worsening plight of majority of farmers in its two dimensions: An agricultural crisis because of low growth and declining productivity and an agrarian crisis characterised by the high dependence of rural population on farm income because of the failure of the planning process to expand their livelihood base.

PROLONGED NEGLECT

The expert group report attributes the current severe crisis in Indian agriculture to the prolonged neglect of the sector by policy-makers, more so in the post-reform period. It says, although some features of the crisis had started manifesting themselves in certain parts of India in the late 1980s, the crisis assumed serious dimensions since the middle of 1990s. One of the tragic manifestations of the crisis is the large number of suicides committed by farmers in some parts of the country.

The neglect of such an important sector of the economy is evident from the fact that the share of gross capital formation (GCF) in Indian agriculture in total GCF began to decline since the early 1980s and by 1995-96, it dropped to just 6.3 per cent from 16.1 per cent in 1980-81. The share of public sector GCF in the sector fell steeply to 17.3 per cent by 1999-2000 from a high of 43.2 per cent in 1980-81. Contrary to expectations, private sector investment failed to compensate for the drastic decline in public investment.

The big decline in the public investment and capital formation in the sector has led to a significant deceleration in farm growth in the post-reform period both in terms of gross product and output. More important, the growth rate of foodgrains output fell from 2.85 per cent per annum in the 1980s to 1.6 per cent in the 1990s — lower than the rate of growth of population of 1.9 per cent — endangering the country’s food security.

INSTITUTIONAL VACUUM

To compound the problems of the fund-starved sector, the decline in public spending and gross capital formation in agriculture has been accompanied by what the expert group terms as institutional vacuum. Over the years, there has been a steady decline in the performance of credit co-operatives, co-operative banks and the regional rural banks (RRBs) which have been assigned the role of providing timely and adequate credit to farmers. Even the public sector banks with their vast rural network have failed to meet their farm lending targets year after year.

Experts, including the Finance Minister and the Prime Minister, have repeatedly expressed concern over the sluggish growth of institutional credit to agriculture. The share of agriculture in institutional credit at about 10-11 per cent has remained way below the stipulated 18 per cent and about half the farmers in the country have had no access to institutional credit. The picture is much worse for small farmers.

Moreover, there are large regional variations in the disbursal of bank credit. For instance, the southern region accounted for nearly one-third of the total outstanding farm credit disbursed nationally, although it accounted for less than one-fifth of total farm households. On the other hand, the eastern region’s share in credit is much lower. In particular, Bihar accounted for just 2.4 per cent share of bank credit while its share in total number of farm households is 8 per cent.

The full potential of the Rural Infrastructure Development Fund (RIDF) and Nabard is not being utilised for the development of rural infrastructure and agriculture and there is inadequate flow of funds to less developed areas. The virtual collapse of Research and Development and Extension systems has also contributed to the escalation of agrarian distress.

KEY RECOMMENDATIONS

The expert group has made comprehensive recommendations for rejuvenating agriculture and suggested both short- and long-term measures.

Short-term measures include a special fund of Rs 10,000 crore earmarked for farm development in the 100 districts identified as agriculturally less-developed distressed districts (31 districts covered by the Prime Minister’s package and 69 other agriculturally less developed districts). With regard to immediate credit measures, it is recommended that:

loans of all affected families should be rescheduled;

families whose loans are rescheduled, should be eligible for fresh loans, and

the interest liability of borrowers for the extended period of up to two years (for both short- and long-term loans) should be waived and the financial burden equally shared by the Central and State governments.

The suggested risk mitigation measures include the strengthening and improving crop insurance, weather insurance and price risk mitigation along with expanding the livelihood opportunities in agro-processing and other rural non-farm enterprises.

Also, there is a need to strengthen R&D and extension system with emphasis on intensifying agricultural research in frontier areas such as bio-technology through increased investment.

There is an urgent need to arrest the trend degradation of common property resources such as water, pastures and forests as also land degradation because of serious soil erosion through ravine and gully formation, water logging and shifting cultivation.

An estimated 130 million hectares of land (more than the present cultivated area of 108 million hectares) is affected by this problem.

There is a consensus on the need to step up the annual increase in irrigated area as currently 60 per cent of the net sown area is rain-fed and characterised by low and fluctuating productivity levels, environmental degradation, seasonal migration of farmers, weak institutional network and heavy indebtedness.

A large number of projects continue to remain in pipeline for years because of thin spread of resources and poor governance.

It is suggested that in the long-run, rejuvenation of Indian agriculture lies in addressing basic structural, institutional and technological factors as much as restructuring public support systems in the face of growing exposure to local and global market forces.

In the context of rapid marginalisation of agricultural holdings, the focus of the strategy should be on the small farmer economy.

A time has come to encourage formation and institutionalisation of small farmers’ groups to enable them to overcome their disabilities. Also, there is a need to restructure subsidies towards facilities that are needed more by small and marginal farmers.

The real challenge lies in linking small farmers with high value agriculture by organising them as members of self-help groups (SHGs), co-operatives and producer association companies.

For revamping the rural financial architecture, the Group has recommended an expansion of the rural banking network, credit counseling, mobile banking, integrating microfinance with banking and reforming the Lead Bank Scheme.