The Hindu Business Line : Seven-step formula to save Vidarbha farmers

The NGOs seek a total farm debt cancellation, which the State government is reluctant to concede because of financial implications. The deadlock has to be broken — and quickly — to save precious farmers’ lives. R.C. MURTHY suggests a seven-step package that would keep the lending institutions afloat and would make no fresh demands on the farmer.

An innovative approach to farm debt is necessary to halt the ongoing farmer suicides in Maharashtra’s Vidarbha region and set the pace for transformation of rainfed farming, which accounts for two-thirds of Indian agriculture.

Several committees, constituted by the Union and State governments, of course, have identified rural debt but only as one of the many problems plaguing the farm sector. The latest study, an exhaustive one undertaken in July, is by the “Expert Group on Agricultural Indebtedness,” headed by Prof R. Radhakrishna, Director of Indira Gandhi Institute of Development Studies.

All these studies have either looked at the farm sector problems in a macro perspective or failed to prioritise correctly their action programmes. Look at the Prime Minister’s Rs 39-billion aid package, which is meant for four states, including Maharashtra’s Vidarbha.

Neither the Centre nor the Maharashtra Government has factored in the farmer’s inability to muster the required margin money. Also, the aid package doesn’t offer the farmer any tangible or immediate benefit.

The loan interest waiver has kept the banks afloat alright but is neutral insofar as the farmer is concerned. A Yawatmal cotton farmer who committed suicide on Diwali day was sanctioned a Rs 1-lakh bank loan but he had to borrow a matching amount from the local moneylender to supplement it. Irrigation schemes and other public works that are part of the aid package are necessary, but yield nothing to the farmer immediately.

The NGOs are asking for a total farm debt cancellation, which the State government is reluctant to concede because of its ramifications for State finances and the risk of Marathwada and Western Maharashtra demanding similar loan waivers.

This deadlock has to be broken – and quickly – to save precious farmers’ lives. The administration has to look for an innovative solution, one that inspires confidence in the farmer. First, it should be holistic and cover the farmer’s total debt — organised and unorganised to the local moneylender. Secondly, it should leave some cash for his immediate consumption and also to take care of margin money for inputs.

Seven-step exercise

Here is a seven-step formula that is not a hot potato for the Maharashtra government, that keeps the lending institutions afloat and that makes no fresh demands on the farmer. If sequenced properly, the alternative package should give a breather to the hapless farmer there. A successful implementation in Vidarbha will offer the Centre a chance to extend it to the rest of the country. In the second phase, the scheme should be put to test in 100 rainfed districts, as recommended by the Radhakrishna Committee, and later extended to the entire country.

Step 1: The Centre should suspend immediately the farmer debt recovery proceedings in Vidarbha and save them from the dreaded recovery agents.

Step 2: The Union Finance Ministry should institute a credit line for banks to extend a 20-year loan to Vidarbha farmer on the lines of land development loans in the 1950s. It should take care of the farmer’s consolidated debt, organised and unorganised, and cover three other components — the farmer’s consumption needs over the next 12 months, his investment on land development and his margin money for crop loan and insurance next year. The loan should be at three per cent interest, with a moratorium of five years for repayment. The Centre can access the IDA-blend from the World Bank to fund the term loans.

Price discovery

Step 3: As a follow-up to debt consolidation, the Maharashtra government should put in place a strategy to make farming in Vidarbha a viable proposition. Besides undertaking irrigation works and horticulture programmes, the key issues are farm products marketing and access to markets at a remunerative price. Of course, there are several others — like the farmer’s exposure to risks arising from rainfall variability, pests, weather changes and technology upgradation (Bt cotton, for instance) and, above all, input quality. These too have to be looked at simultaneously. The farmer is at the mercy of commodity traders who double as farm input retailers. Even in mandis set up ostensibly to protect the farmer, commission agents lead him up the garden path.

There are two ways of ensuring a better price to the farmer. First, put in place a transparent price discovery procedure. The other is to allow the organised retail to buy the produce directly from the farmer, a process that lends itself to verification and amenable to regulation.

A transparent price discovery is possible under the aggregator concept. The commodity for sale needs to be deposited in the warehouse upfront and the aggregator has to ensure the quality by pooling the produce of several farms correctly to reach a minimum trading lot. A job that should be handled by someone the farmer trusts – the cooperative or farmer self-help group (FSHG), assisted by a non-government organisation (NGO).

Then there is the coverage of risks. The national agricultural insurance scheme (NAIS), implemented by the Agricultural Insurance Corporation, should be in place in Vidarbha for 2008-09 kharif, taking the gram panchayat as a unit. The premium should be on actuarial basis with a 50 per cent subsidy, to be shared by the Centre and the State, as recommended by the Radhakrishna Committee. For small and marginal farmers, the subsidy should be 65 per cent. The small and marginal farmers are virtually bankrupt and on no account should there be fresh demands on them. The 35 per cent margin money for crop insurance in 2008-09 should also form part of the long-term loan.

Role of the NGO

Step 4: The Centre and the State should recognise the role of NGO and offer it full support, financial, logistic and organisational. For, the farmer reposes more confidence in the NGO than in an official. By helping the NGO, the government is helping avoid a catastrophe. Speed is of the essence. The government should shortlist the NGOs and designate at least two (or more, if possible) for each district and put them on the job in eight weeks flat.

The job of NGO is cut out. It should bring the Vidarbha farmers together under the farmer self-help group (FSHG) or a co-operative. Its immediate task is to sit with the farmers or their leaders to chalk out plans for kharif produce price discovery.

Step 5: The State Government should open up the six areas of Vidarbha district to the corporate sector, but with a rider. The organised retail should offer innovative engagement with the farmer, harnessing the existing supply chain.

It will be a tripartite arrangement between the FSHG/co-operative, the corporate partner and the designated NGO for what can be called ‘consensus farming’. The corporate partner will supply inputs to the farmer and pick up the harvest under the watchful eye of a NGO. Vidarbha is a challenge for the corporate sector to put its ingenuity to test.

The State Government may monitor the changes in the countryside with the entry of organised retail. New warehousing and cold storage facilities, to be set up by organised retail, will throw up employment opportunities in the countryside even as changes occur in the farm products supply-chain.

Why open up only Vidarbha to organised retail? The market-driven liberalisation in agriculture, if introduced State-wide, is bound to be strongly biased towards prosperous regions of the State and harm Vidarbha’s recovery.

Corporate partners

Step 6: In a scenario where the NGO-guided FSHG/co-operative and the corporate partner are collaborating, the farmer is expected to save substantially on the transaction costs (and the attendant corruption) and time. Deploying this saved time and energy gainfully is critical for the small and marginal farmer.

Apart from the traditional diversification to poultry and dairy, a new avenue is opening up in his own backyard: Carbon credits. Hilly Vidarbha is ideally suited to forestry, which helps cut carbon dioxide emissions and earn carbon credits under the Kyoto Protocol. The Maharashtra government should chip in with land, the corporates may provide the inputs and organisational wherewithal for greening, and the farmers the labour. The fruits may be shared by the three in an agreed proportion.

Step 7: As a prelude to throwing open Vidarbha’s agriculture to the corporate sector, the State Government may have to put in place a regulatory mechanism, which can be on the lines of the power sector. After all, the corporate sector will not do anything for charity. There has to be a mechanism for dispute settlement.

Since getting the enabling legislation through takes time, the State administration may designate the Amravati-based Relief Commissioner to ensure tripartite coordination in the interregnum and arbitrate in disputes between the farmers and the corporate sector.

(The author is a senior journalist based in Mumbai. Feedback can be sent to rc_murthy@yahoo.com)