Most financial dailies and newspapers carried editorials or opinions on farmers’ loan waivers, following the anguish expressed by the Chairman of State Bank of India (SBI) on the scheme announced by the Uttar Pradesh (UP) government. The Reserve Bank of India (RBI) Governor, releasing the Monetary Policy for the second quarter of 2017, called the farmer loan waiver scheme “a farsighted policy of the politicians that would do harm to the borrowing discipline.” Even viewed in the backdrop of experiences of 1990, 2008 and 2014, the reports from the Comptroller and auditor general (CAG) tabled in Parliament and the legislatures exposed the weaknesses of the State adventures.
Farmer loan accounts of the banks are as perfect or as imperfect as the land records of the farmers, as has been noted in an evaluation study of the Telangana crop loan waiver programme conducted by Development and Research Services Pvt Ltd (DRS), at the behest of the Government of Telangana.
The questions requiring answers are:
Is lending to peasants a sovereign risk or credit risk?
Is the peasant by habit as much a defaulter as borrower?
Is the lender following discipline in extending credit to the farmer? And
Will the lender’s discipline precede or succeed borrower’s discipline?
The Ten Myths in farm lending:
1. All farmers require loan waivers.
The fact is that they require loans equal to the flow of a live river. The reason is that their liquidity is always locked up in soil or silo.
2. All banks lend for farming, knowing the nuances of the activity, and lend in time and to the extent required.
Most of the banks lend to crops and activities mechanically as per norms of National Bank for Agriculture and Rural Development (NABARD). Lending to farming is just arithmetic and neither related to the exact needs of farmers nor in time.
3. Farm Credit is supervised credit.
Several field officers/ rural development officers cannot identify the farmer with the farm cultivated – owned vs leased, extent, save exceptions and they rarely have time to step out to the farms and villages.
4. Banks invariably meet all the credit requirements of farmers.
Rarely. Banks distinguish production credit and consumption credit, but the latter is left for the moneylender to take care of.
5. Banks are meeting the targets under crop loans assigned to them and even exceeding them.
Banks make book adjustments, barring exceptions.
6. Banks issue Kisan Credit Cards (KCC), which are like credit cards for the farmers.
KCC is not like the normal credit card that can be swiped by the farmer to the extent of the assigned limit at will and repay as and when crop harvest is sold.
7. Group Loans (Joint Liability Groups-JLGs), Rythu Mithra Groups, Self Help Groups (SHGs) are effective means to deliver credit to lease-hold farmers.
Though SBI did it in the initial years of lending for agriculture, it abandoned group loaning. NABARD tried to push JLGs but did not find favour with banks.
8. All farmers are willing to pay for insurance.
Farmers are apprehensive of all insurance schemes as, at no point of time, farmers get all their claims responded to with a sense of urgency.
9. Farm credit is insured.
The obverse is true. Even the worst disasters never got the claims of farmers settled to the extent claimed, on one score or other.
10. All big farmers are honest.
They have other businesses and they invariably have surplus, as agricultural income is not taxed.
The above myths should be adequate to say that the borrower discipline is as strong or weak as the lenders’ discipline.
The decision to write-off should vest with Parliament only in cases of acute natural calamities. This is in conformity with Chanakya’ Arthashastra principle that advocated loan write-off of farmers in such events.
Political parties should be barred from making farm loan waiver as electoral promise. Though loan waiver per se is not an undue favour to the distressed farmers deprived of his source of income, the Election Commission should treat it as largesse on par with corrupting the voter.
It is income and not credit that should be ensured for farmers. Whenever farmers do not get adequate price for their produce (minimum support price -MSP) or, in the event of loss of production, the State shall compensate the farmers the gap in income and the loss of income due to loss of production. Markets and credit institutions should work for better insurance mechanisms, when there will be no need for either the political parties to give bonanza or the banks to worry over the sovereign risk of write off that could decimate the credit discipline.