Distressed farmers starved of credit

Following the suicide of a farmer at an AAP rally, Prime Minister Narendra Modi responded to a debate in the Lok Sabha by calling for the views of all stakeholders and the Opposition to resolve the problems afflicting farmers.

Agriculture and allied activities are an important aspect of the Indian economy, accounting for over 15 per cent of the nation’s GDP, about 11 per cent of its exports, engaging and employing 150 million rural households directly and indirectly, constituting 60 per cent of the population. It is a source of raw material for a large number of industries.

Agriculture is constitutionally a State subject, but, in practice, all policy decisions in its activity chain are in the domain of the Union government. Consequently, the Indian farmer and the entire value chain in the farming sector is strangulated by regulations of over 12 Union ministries and at least six ministries of State governments.

Farmers get extension support and weather forecasts on mobile phones, but fail to secure the right prices for their produce. As a result, the last one-and-a-half decades has seen the suicide of some 3 lakh farmers.

This year, the weather gods too have deserted them. Whenever issues relating to farmers are discussed, the questions of credit surfaces.

This is because the farmer has his liquidity locked up either in the soil or silos, when he actually needs cash most for consumption.

Priority sector definitions underwent another change with the April 23 guidelines of the RBI. Small and marginal farmers and micro enterprises get specific credit allocations: 7 per cent by March 2016 and 8 per cent by March 2017 of adjusted net bank credit, and in the case of micro enterprises 7 per cent by March 2016 and 7.5 per cent by March 2017.

Although this is significant in itself, adequacy is still not addressed. Nearly 80 per cent of holdings are small. If the RBI had remained true to the financial inclusion goals and stipulated that the number of farm accounts belonging to small and marginal farmers and leaseholders should reach 50 per cent of the number of total farmers in 2015, with an increment of 10 per cent over the next four years, statistical mirages in achievements would have been minimised.

Removing ‘indirect agricultural credit’ would have been in order, had the RBI reclassified the newly included sectors with a cap on the credit limit. For example, any loan of ₹25 lakh and above for any activity has to be on a project basis standing the test of financial viability and economic feasibility.

Produce loans beyond the ₹10 lakh limit and that too up to one year, could be channelised towards hoarding.

It is surprising that corporate farmers qualify for the priority sector. This is a commercial lending activity and does not deserve any special dispensations.

Urban and metro branches are well poised to take it up with or without assigning priority, as they also hold deposit and export credit accounts of such farmers.

Lending to weaker sections at 10 per cent includes lending to small and marginal farmers. This would leave 3 per cent for the other categories indicated in the weaker sections.

If the banks enlarge their farm credit portfolio, the Rural Infrastructure Development Fund window becomes irrelevant.

Kisan Credit Cards also figure as a separate classification. All the farmers eligible for institutional credit should qualify for the issuance of KCC. The RBI should issue guidelines to ensure that every farmer-borrower gets a chip embedded KCC, with sub-limits for various activities, and a debit card for meeting consumption needs. Within the KCC limit, the farmer can ideally access his inputs at a shop and time most convenient to him. This would have substituted the money lender.

The RBI should reformulate its directives relating to farm loan adjustments in situations affected by natural calamities.

Institutional frailties also need immediate attention. Nabard, fully-owned by the government, regional rural banks, cooperative banks and primary agriculture credit societies have failed the nation.

It is time to restructure Nabard to meet the farm sectors’ requirements more effectively.

The writer is a retired banker and risk management specialist

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