The Hindu Business Line : Waiving prudence

With the economy buffeted by raging inflation and inflationary expectations , the completion of four years of the UPA’s tenure on May 22 evoked little enthusiasm even among allies.

But that did not stop the ruling coalition from blowing its own trumpet, with the Prime Minister, Dr Manmohan Singh, and the UPA Chairperson, Ms Sonia Gandhi, complimenting each other on successfully steering the affairs of the nation through the chop py waters of coalition politics amid gloomy economic tidings over four successive years of heady growth with relatively low inflation.

As part of this strategy of wooing the aam aadmi, the UPA gave primacy to the farm sector in a serious bid to get an effective and credible response from the legions of rural poor so that, when the time came to call for a fresh mandate, it could count upon their support. So, right from the June 2004 Comprehensive Farm Credit Package to farmers to ensure enhanced credit flow, the UPA has left no stone unturned in its effort to highlight its concern for the plight of farmers.

The raft of measures it proposed to gain the confidence of the poor peasants culminated in the debt waiver scheme announced in the Union Budget 2008-09. Already, the Government has stipulated a target of Rs 2.80 lakh crore for agricultural credit flow by all the banks this fiscal and loans up to Rs 50,000 have been made free of collateral and margin with the requirement of the ‘No Dues Certificate’ being done away with.

Scheme’s details

The details of the implementation of the Agricultural Debt Waiver and Debt Relief Scheme 2008 were subsequently widely reported in the media with the remit extended to include “other farmers” with more than 5 acres, a one-time settlement (OTS) rebate of 25 per cent of overdue amount or Rs 20,000, whichever is higher, on the proviso of their paying the balance 75 per cent in not more than three instalments by June 30, 2009. The Cabinet approval to the debt waiver scheme encompasses all direct agricultural loans by banks to farmers disbursed between March 31, 1997 and March 31, 2007 and overdue as on December 31, 2007 and remaining unpaid until February 29, 2008. The beneficiaries now include ‘marginal and small’ and ‘other’ farmers with the former being those who cultivate up to 2.5 acres (marginal) or 5 acres (small) of land.

The marginal and small farmers qualifying for complete waiver of eligible loan amounts due and applicable interest are estimated at 3.69 crore, while the number of ‘other’ farmer accounts eligible for the OTS relief are estimated at 59.75 lakh. Self-help groups are covered, and so too are joint liability groups.

Under short-term production loans, all loans extended for the raising of crops where the repayment is 18 months are covered. Working capital loan up to Rs 1 lakh is covered. Loans that were restructured in 2004 and 2006 in the wake of widespread farmers’ suicides are also included.

Financial cost

While announcing the guidelines on how the entire scheme will be executed, Mr. Chidambaram said the cost of the scheme, originally estimated at about Rs 60,000 crore, is likely to be of the order of Rs 71,680 crore. Thus, he said, “both in terms of scope, coverage and the financial cost, this is the most ambitious scheme ever undertaken by any government in India”.

For the beleaguered banks that have to provide loans for competing claims on other productive segments of the economy, particularly the manufacturing sector, which has seen a distinct slowdown in recent months, the onus is on them to make available the list of beneficiaries under the debt waiver scheme.

The bankers must perforce ensure the accuracy and integrity of beneficiary lists, which would be subject to a concurrent audit, statutory audit and, if need be, a special audit; based on the audit, the claims of the banks on the Central government would be reimbursed to the banks.

It might be interesting to note that though the Management Information System of the RBI does not keep sector-wise data of amounts written off under the non-performing assets (NPA) accounts of the banking system, the Finance Minister, in a written reply in the Rajya Sabha on April 29, said that based on the data obtained from public sector banks on the amounts written off by them during the last five years, from 2002-03 to 2006-07, they aggregate Rs 20,532 crore for corporate sector, Rs 10,614 crore for the retail loan sector and a moderately low Rs 4,436 crore for the agriculture sector.

Considering that for the past five years the farm loan write-off by banks was relatively low-key, the banks now must provide more for such waivers by June 30, 2008, though they would be reimbursed over a span of three years, after due audit by the authorities.

Pvt sector banks cautious

Set against the responsibility of the scheduled banks in discharging the debt obligation of farmers, the loan record of private sector banks to farmers under the Special Agricultural Credit Plan has been impressive but business-like, tinged with circumspection in pricing risks.

From a level of Rs 16,224.64 crore in 2004-05, this went to Rs 31,199.22 crore in 2005-06 and to Rs 44,092.93 crore in 2006-07. But last fiscal, against a target of Rs 41,426.99 crore, the private banks’ loan provision to farmers was only Rs 26,605.83 crore up to February 2008, though this provisional figure is likely to increase in one month, the Minister of State for Finance, Mr Pawan Kumar Bansal, said in the Lok Sabha on April 25, 2008 in a written reply.

The point to ponder is that in one month the private sector banks would not have met the remaining close to Rs 15,000-crore loan target. The issue is that the private sector banks have been slowing down their loan exposure to the farm sector almost from the second half of last fiscal, when the word about agricultural package was doing the rounds.

As they are not in an enviable position, like the public sector banks whose exposures or NPAs in the farm sector would be recompensed by a government bent on populist policies to placate rural voters, they have become chary.

Following diktats

Moreover, the announcement of loan waiver by banks in the Budget on February 29, would have raised the hackles of the private sector banks too as they might have sensed that, in the prevalent milieu of loan defaulters being pampered by the government, they have scarcely any room for recovering their loan or interest from the farmers if they persist in doling out loans to them.

The contretemps over the State Bank of India’s tractor loan stoppage to farmers and its subsequent withdrawal shows that the public sector banks have little option other than to comply with the command of the government of the day. It is nobody’s case that the farmers should not be allowed to start on a clean slate, particularly when they deserve a decent deal from the rest of the community who are the consumers of their produce and owe their very sustenance and survival to them.

But the government could have still been fair in providing support to the farm sector in a different and transparent form instead of tweaking the banking system in the name of reminding the banks of their social obligations.

As it is, the waiver scheme for farmers has not satisfied the Left parties supporting the government from outside who say it bypasses a large number of farmers indebted to money-lenders. That way, every beleaguered section in the economy deserves subvention and there will be no end to the clamour for such succour.