Lend a hand

Punjab feeds the nation, but it is unable to uplift the socio-economic status of its farmers. Overexploitation of land and underground water are adversely affecting the agricultural income of the farmer. Prices of agricultural inputs are on a constant rise, but farmers are not getting remunerative prices for their crops. The government does raise minimum support prices (MSPs) of crops, but the hikes are incremental and politically motivated. Thus, farm income is stagnating and expenses of the farmers are rising. As a result of these factors, farmers of the state are forced to borrow. The scope of institutional lending is limited; therefore, farmers resort to informal borrowings at exorbitant interest rates. Because income is dwindling, they are unable to serve the debt and land into a debt trap. 

Rural indebtedness is, therefore, one of the main reasons for farmers suicide. According to experts, the demand for capital has increased with the transformation of traditional agricultural practices. Now, cultivation requires various inputs, implements and technology and they are not cheap. The credit supply through cooperative institutions, regional rural banks and public-sector banks does help, but they require lengthy scrutiny and paperwork. Farmers, mostly illiterate, find it easy to borrow from private moneylenders, who are mostly unscrupulous.  

Even the government's policies are lopsided. Due to assured MSP, most of the farmers depend on paddy and wheat crops. Hence, oversupply situation prevails. All these factors slow down agricultural growth, which has already reached a point of saturation, from where any substantial increase in production or productivity is difficult.

Farmers in the state are indebted to both institutional and non-institutional sources of credit. Farm loan from institutional sources is pegged at Rs 80,000 crore as on September 2018. However, no such data is available for money borrowed from moneylenders or arhtiyas. Experts estimate it to be around Rs 30,000 crore. Farmers have to pay as high as 24 per cent per annum interest for loan taken from these unscrupulous elements.

According to the draft policy conceptualised by the Punjab State Farmers and Farm Workers Commission, the state has about 10 million acres of cultivated land and the total short-term credit required  is about Rs 24,000 crore per season whereas the crop loan outstanding of all banks is averaged around Rs 60,000 crore per person. There are around 26 lakh farmers in the state whereas all banks together have issued more than 40 lakh 'kisan credit cards'. In over 11 years (2004-05 to 2015-16), the credit offtake has increased by around eight times whereas production has increased only 1.11 times. This raises concerns about the quality and use of credit and the inadequacy of the monitoring system.

Loan waivers were mainly led by the governments of Telangana and Andhra Pradesh. Later, Punjab, Uttar Pradesh and Maharashtra joined the bandwagon. According to experts, since a significant proportion of farmers depend on non-institutional source, particularly arhtiyas or private moneylenders for loans, they remain outside the ambit of a loan waiver policies. Increased expenditure on account of loan waiver has been a major challenge for the cash-strapped Punjab. The waiver is likely to cost the state exchequer to the tune of Rs 9,500 crore. 

Loan waivers may, at best, be a short-term remedy for farmers' distress, and cannot be regarded as a long-term solution for the problems in agriculture. The need of the hour is sustainable and long-term resolution of the farmer community. For that, it requires urgent reforms in the areas of agricultural marketing, pricing, credit and extension systems and an open trading regime.

While such waivers may benefit banks in the shortrun as the government takes over the debt, they may be detrimental in the longrun as waivers hamper credit discipline, leading to reduced credit flows. Recently in Punjab, banks were left high and dry even after robust income of cultivators in the backdrop of a bumper paddy season as the farmers were consciously depositing their income in different accounts and avoiding showing real incomes to the lending banks.

Bankers suspect the intent of the farmers and fear a further spike in non-performing assets (NPAs). Since September 2017, the NPAs of various banks under the agriculture sector have increased to Rs 8,319 crore in Punjab.

 vijay.roy@tribunemail.com

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