The Hindu Business Line : ‘Small farmers must get their share of credit’

“If the price for robust agricultural sector is to pay a rupee more for a kg of food product, we must be prepared to pay that price.” – Mr B.Yerram Raju

Mr B.Yerram Raju

In agriculture, there is an unfinished agenda for the Finance Minister, says Mr B. Yerram Raju, Director (Projects and Research) in Development & Research Services (P) Ltd, Hyderabad.

“Small and marginal farmers particularly in the drought-prone areas still access only private debt. The flow of agricultural credit is concentrated only in 11 States,” he adds, during the course of an e-mail exchange with Business Line.

Although the National Commission on Agriculture (NCA) recommended credit at low rate of interest, we find the large farmers turning to money lending as a more viable profession than farming, rues Mr Raju.

“Commercial banks may show in their books that total agricultural credit outstanding has moved from Rs1,80,000 crore at the end of 2005-06 to Rs 2,24,000 crore, as indicated in the 2007-08 Budget. But what is important is to see who benefited from the credit.”

Excerpts from the interview, in which he also discusses the SME (small and medium enterprise) issues, and proposes a hike in STT (the securities transaction tax).

On the priorities in agriculture.

Three things have to be ensured. One, the small and marginal farmers should get their due share of credit. This can happen through monitoring of specific targets akin to what we did during 1970-80 when 50 per cent of direct agricultural credit was targeted to small and marginal farmers.

Second, it has been proved over and over that the farmers’ misfortune lay in markets and pricing. As the Finance Minister wrote in ‘A view from the outside: why good economics works for every one,’ the key to removal of rural poverty is agricultural prices. “A mature and civilised nation must cherish its agriculture and protect its farmers. If the price for robust agricultural sector is to pay a rupee more for a kilogram or litre of food products, we must be prepared to pay that price.”

The question is whether the Finance Minister will pay this additional rupee in the ensuing Budget and replace all subsidies with market intervention mechanism or price support mechanism for all major crops. Even the Radhakrishna Committee Report (the Expert Group on Agricultural Indebtedness) has recommended this.

Third, strengthen the insurance mechanism, again, as suggested by the Committee. This is required for drought-proofing and price-proofing the Indian farmer.

On the SME problems.

The 2005-06 Budget saw the Finance Minister making useful interventions in the SME sector, which have resulted in the growth of the SME sector. The recently-announced Asset Reconstruction Company as a subsidiary of SIDBI (the Small Industries Development Bank of India) for this sector could be another useful step.

But the banks seem to be good at meeting SME targets through MIS-greening mechanisms. The data on achievements of the financial institutions, in terms of new units financed (five units per branch per annum), deserve a careful look.

More importantly, cleaning up the SME sector is extremely important by bringing forth a bankruptcy law that is non-existent today. For, sickness is widespread.

One other important area is the delivery mechanism. DICs (the District Industries Centres) have become outmoded. This situation demands the attention of the Ministry of Micro, Small and Medium Enterprises.

On securities transaction tax.

A tax hike may sound unpopular, but let me refer to what the Finance Minister wrote in his book: “Investors will live with any policy. They will factor in that policy and rework their numbers.”

I see in this a clear window of opportunity for the Finance Minister: that of raising the STT to one per cent from the present level. Let’s not forget that tax collection is online, so that credit into the government’s kitty is without delay. Obviously, a rupee of tax earned today is better than what it is expected tomorrow.

Will one per cent tax on each transaction hurt the market sentiment? Doubtful. If necessary, the tax could be balanced by extending benefits under section 80C of the Income-Tax Act, to those who invest in infrastructure funds or to biotechnology/angel investors.

D. Murali

http://InterviewsInsights.

blogspot.com

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‘Small farmers must get their share of credit’