IE: After the farm loan waiver, farmers' problems remain: March 04, 2008 | Rural Development : News Articles

Band aid, in wrong place
After the farm loan waiver, farmers' problems remain......M.RAJIVLOCHAN

WITH its Rs 600 billion farm loan waiver in the current budget, the government has applied some band aid to the financial haemorrhaging of India's farmers. It is another matter that the hurt is at some other place. The farmer has difficulty in obtaining cheap and reliable credit; various laws prevent him from selling his produce at the most competitive prices in the open market; there is no reliable advice avail- able to him on how best to tend his fields in an eco- nomical manner; existing farming techniques, guided by corporate interests, continue to suck life out of the soil without replenishing it and there is no system of health security in the villages. On all these counts, the government has yet to show even minimal movement.

The farm loan waiver gives the impression that farmers do not wish to repay their loans. This is a serious misrepresentation of the ground reality. According to figures from the NABARD, only some 10 per cent of the farmers default on bank loans. And even then, it is rarely that farming assets are taken away by the banks for failure to pay back loans.
The problem for farmers lies in the loans taken from informal sources: moneylender and relatives. Often, the moneylender himself is a prosperous neighbourhood farmer. He gives large loans that are beyond the paying capacity of the borrower. These loans come with exorbitant rates of interest and severe penalties for default. The lender here does not falter in taking away farming assets, including land. Af- ter all, this could be a strategy for acquiring more land for himself. The advice of the agriculture minister a few days ago at Mumbai that farmers need not pay back loans taken from ‘unauthorised' moneylenders is al- most impossible to follow for someone who wants to live and work in the village.
The problem between farmers and the banks lies in the hesitation of bankers to give loans to farmers and the massive entry barriers due to the procedural re- quirements of banks. Admittedly, the amount of loans taken by farmers from banks has increased consider- ably. In Gujarat, where farm prosperity has grown over the past decade, loans taken from banks for farming purposes have seen a ten-fold increase. Yet much needs to be done to facilitate bank loans to farmers.
While regulatory norms insist that 18 per cent of the total credit advanced by banks should be to agriculture, in actual practice direct agricultural advances amount to just 11 per cent or less of the net public sector bank credit. In case of private sector banks, this figure is an abysmal six per cent. But the only official effort to rectify the situation has been in the form of the re port on the procedures of agricultural loans prepared by C.P. Swarnkar, chairman and managing director of Syndicate Bank, submitted to the government in April 2007. This report pointed out that bankers routinely made it difficult for farmers to take loans. The paper work, scrutiny of assets and procedures for investigations into previous loan records, remain cumbersome. Moreover, banks provided crop loans and insisted on the money being paid back with the next crop. So should the farmer need a loan for anything else or hope to defer the sale of his produce it would be almost impossible to access a bank. He, then, has no option but to take an informal loan on whatever terms it is available. Yet, beyond chiding the banks for their hesitation in advancing credit to farmers, the government has done little to help farmers obtain credit through formal sources.
The government also continues to keep the profitability of agriculture artificially low.
Few outside the farming sector realise the extent of laws that prevent farmers from selling their product directly in the market at the most competi tive prices. The FCI and various mandi boards between them have effectively denied the farmer access to the open market. Even the kisan unions, with their entire focus on increasing the MSP for various crops, become complicit in tying down the farmer. Perhaps it would be better that the government removes such shackles and allows the farmer to sell his product in the open market at a competitive price.
Finally, before exclaiming at the present one-time farm loan waiver of Rs 600 billion, recall that in 1997 the Fifth Pay Commission had given a Rs 170 billion per year increase in salaries to all government employees.
Surely farmers are more deserving than that.
The writer teaches history at Panjab University, Chandigarh. He is author of ‘Farmers suicide: facts and possible policy interventions' (Yashada, Pune)