Agriculture needs 1991-like reforms push

Much has been written about the problems of the farm sector. The new Finance Minister, Nirmala Sitharaman, will not be short on advice on what should be done for agriculture as part of Budget-making for July 5. The challenge will be to integrate these ideas into a viable action plan for India’s 14 crore farmers.

Having given enough evidence of her determination to initiate changes, the Finance Minister is not one who will baulk at problems. One vividly recalls her direct interaction with the agitated Okhi-hit fishermen of Kerala when even the State’s own ministers were booed away from the spot.

Agriculture is a State subject but it eagerly awaits its 1991 moment of comprehensive reforms which should involve the Centre, the States, banks and the RBI.

While many changes were brought about to deal with corporate sector woes in the last seven or eight years, agriculture has not received as much attention from the regulator. Those at the helm of RBI in recent times have not seen life in India’s villages at close quarters.

Governors like the legendary YV Reddy, D Subbarao, and the incumbent Shaktikanta Das started their careers in districts, dealing with the day-to-day problems of ordinary people including farmers. Booth School and Yale University are no match for this hands-on exposure.

At a recent lecture in Jaipur, Reddy stated that “we should recognise that agriculture is a nationwide problem, but it expresses itself differently in different parts of the country, requiring localised suitable measures. Hence, a national consensus involving both Union and States has to be built around a new approach”.

This should form the foundation of the “New Deal” for agriculture that should suffuse the Budget, and it should have a four-pillar structure. The first pillar will be in the form of “first aid” to the embattled sector, taking forward the income support scheme announced as part of PM Kisan Samman.

Four-pronged plan

A survey published by NABARD last year assessed the monthly income of an agricultural household at ₹8,931, using the same methodology of the NSSO. A household has not less than five members in a farmer’s family. Does anyone really know how with a monthly income of ₹8,900 a family of five survives?

Therefore, it is a necessary (but not sufficient) first step that some form of income support is given to farmers in addition to the other subsidies.

The amount of ₹87,000 crore that is estimated as the requirement for the PM Kisan Samman scheme should not be grudged. In a sense, it is a price that we have to pay for keeping inflation so low during Modi 1.0. The firm cap on inflation that Prime Minister Modi was able to achieve has not received the favourable attention that it deserves.

Part of this was owing to the subdued prices of food items in the CPI basket. Food, with a weightage of about 46 per cent in the CPI, contributed greatly to inflation being benign in the last five years. According to an OECD study, the level of support to producers (farmers) in India has been negative for all the years from 2000. This means that the annual monetary value of net transfers from consumers and taxpayers to agricultural producers has been negative. In other words, most of us have been having “free lunches” at the cost of the farmers ( see chart ).

To say this is not to be a “bleeding heart”. The short point is that shrill cries of “Oh, what about the fisc?” should not deter the new Finance Minister in her Budget. If you need to cut expenditures, let us cut it elsewhere.

Allocations for the kisan should be akin to the allocations for the jawan . Nobody ever talks about the “fisc’ when dwelling on defence expenditure.

The second pillar of this reform package should be to get the Centre and the States together on a common platform. Here, a GST-like council of agriculture ministers of the States and the Centre should be constituted and important changes like the adoption of the model APLM Act, abolition of the Essential Commodities Act of 1955 vintage (which was meant for times of shortages and not surpluses) and faster digitisation of land records should be implemented.

Banking sector approach

Third, the RBI has an important role to play in this reform architecture. In the last five years at least, there has not been any new RBI policy initiative for this sector. It may come as a surprise to many that the limit for collateral-free loans in the agricultural sector is ₹1.6 lakh. MSME borrowers get collateral-free loans of up to ₹10 lakh. For educational loans, this limit is ₹ 7.5 lakh.

There is definitely a case for immediately hiking this limit to ₹3 lakh for small and marginal farmers. It is high time the RBI came out with totally overhauled realistic norms for the agriculture sector, taking note of suggestions from other stakeholders as well. It would be ideal if the RBI were to come with some major steps in tandem with the July 5 Budget.

One remembers the series of announcements by the RBI which accompanied the radical July 24, 1991, Budget of Manmohan Singh. Will the RBI work in tandem? If not, we would have wasted one more opportunity for a new deal for the farm sector.

The fourth pillar will, of course, be the banks. Commercial banks must expand the attention bandwidth of both top and junior management for rural and inclusive business. The credit morality of the small borrower in our country is much better than those who borrow in crores and disappear in droves.

Generally, there has been no case of an “absconding” farmer even if there is default. While there is no doubt that the farmer should be “credit-worthy”, it may be time to look inward and see whether changes are required to make banks much more “rural-worthy or farmer-worthy”.

The writer is a senior bank executive. The views are personal

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