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Thursday, 18 June 2015 00:00
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That’s what a new report suggests farmers are doing

 

The UPA’s stunning victory in 2009 is largely attributed to the 2008 farm waivers and various policies like subsidised loans, but as a recent ICRIER report on agricultural credit by Anwarul Hoda and Prerna Terway points out, such policies may have worsened matters. The first decision on mass loan waivers across the country was taken in 1990, and the ICRIER study points to loan recoveries by rural cooperatives in Karnataka falling from 75% in 1987-88 to 41% in 1992 as a result. And after the next big loan waiver in 2008, which cost Rs 52,500 crore, bank NPAs rose four-fold, from Rs 7,149 crore in FY09 to Rs 30,200 crore in FY13, which is a rise from 1.05% of outstanding farm loans to 4.77%. Not surprisingly then, that while agriculture loans have risen steadily since the government has a mandated farm-lending policy—18% of all loans have to go to the farm sector—the share of non-institutional credit, which includes money lenders, is also up sharply, from 36% of all rural credit in 1991 to 44% in 2013.

What needs to be seen within this picture of growing agricultural credit—this grew from Rs 53,000 crore in FY02 to Rs 607,000 crore in FY13—is whether such credit is actually being used for what it is meant. In FY07, the authors note, the government brought back subsidised loans, initially at 2 percentage points, and later raised this to 5 percentage points. The cost of the subvention in FY16 is estimated at Rs 13,000 crore, a figure which may not seem too large to give to poor farmers. But that’s provided they need it, and the analysis shows, they don’t. In most crops, the cost of interest is under 2% of the total cost of production, so it doesn’t appear that farmers really need the subsidy. This is not all. ICRIER’s study totals up the cost of agricultural inputs, including labour, in various years and finds the proportion funded by short-term bank credit rose from 16.8% in FY98 to 84% in FY12 and to a mind-boggling 100% in FY13. If all agriculture’s short-term credit needs are taken care of by banks, how can 44% of loans to agriculture (mostly short-term) also be coming from the non-institutional sector? In other words, it is likely that a large part of subsidised short-term credit is simply being deposited by farmers in fixed deposits to get the interest arbitrage. Analysis by R Ramakumar and Pallavi Chavan found that, for instance, as much as 46% of the annual disbursement in short-term credit in FY09 was made after the rabi sowing had ended; a similar pattern was seen in FY14.

Given how the benefits of most government schemes don’t reach the target audience or are misused—R200,000 crore of annual fertiliser and power subsidies, for instance, are mostly used by large farmers—the government would do well to stop all input subsidies and just give the money directly to the JanDhan accounts of farmers. If this is coupled with cash transfers in place of subsidised wheat/rice, this would also remove the policy distortion that compels farmers to overgrow crops like wheat and (water-guzzling) rice instead of more suitable crops. Not surprisingly, the Hoda-Terway study was part of a larger ICRIER project called Supporting Indian Farms the Smart Way.

 
 

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