Farm Loan Waivers (FLW) – Need for De Novo Review - G B Reddy Sir

 

Farm Loan Waivers (FLW) – Need for De Novo Review

 

Farmers' protests with trailers turned AC chambers, Fans, and food stocked for six months called for a de novo (starting from the beginning) review of farm loans and demand for “FLW”. At the outset let me highlight that FLW must be restricted only for “Crop Loans” and “Livestock Loans” only.  Surely, not for converting agricultural equipment into AC homes to use them for long duration protests.

 

Originally, the FLW schemes were supposed to provide relief to extreme plight like drought or flood. However, by universalizing its distribution that is mostly unconnected to levels of farmer distress, the credit culture in the country has worsened.

 

Let me explain the key issues of farm loans. None can deny that credit is an indirect input in agricultural production to enable farmers to adopt modern production technology and encourage private investments in farm infrastructure. There are different types of loans to include: 1. Crop Loans, known as Kisan Credit Card and Agriculture Gold Loan, are specifically designed to meet the short-term financial requirements of farmers; 2. Farm Mechanization Loans (offered for a longer duration) with repayment tenure aligned to the expected lifespan of the machinery; 3. Land purchase loan aim to facilitate the acquisition of agricultural land by landless, sharecroppers, small and marginal farmers; 4. Livestock loans for animal husbandry, poultry farming, or dairy farming -  flexible repayment schedules; 5. Warehouse receipt loan; and 6. Solar Pump Set Loan is extended for a tenure of 10 years.

 

Several policy measures are in place to improve the accessibility of farmers to the institutional sources of credit – Scheduled Commercial Banks, Regional Rural Banks (RRBs), and Cooperative Banks and others.

 

The Kisan Credit Card (KCC) Scheme is meant to ensure uniform adoption by the banks, so that farmers may use them to readily purchase agriculture inputs such as seeds, fertilizers, pesticides etc. and draw cash for their production needs. Under the KCC Scheme, the effective interest rate is 7 per cent. Additionally, farmers who repay their dues on time get an additional 3 per cent interest subsidy. Therefore, a small or marginal farmer who takes a loan of up to ₹3 lakh under a KCC effectively pays an interest of 4 per cent if he repays on time. Besides, no collateral is required for a loan up to ₹1.60 lakh under KCC. Banks can waive margin/security requirements of agricultural loans upto Rs.1,00,000/-. No due certificate has also been dispensed with for small loans up to Rs.50,000 to small and marginal farmers, share-croppers and the like. Instead, only a self-declaration from the borrower is required. Also, under the KCC Scheme, a flexible limit of Rs. 10,000 to Rs. 50,000 has been provided to marginal farmers (Flexi KCC) based on the land holding and crops grown.

 

Most important it is to note that “Crop Loans” constitute short term credit and their share of credit decreased significantly from 69.71 per cent in 2008-09 to 59.25 per cent in 2019-20. The share of long term credit which stood at 22.48 per cent in 2011-12 has increased to 40.75 per cent in 2019-20.

 

During the debates by experts, those favoring FLW question the rationale of waiver of loans to large industrial houses, whilst denying waiver of loans to farmers. So, farmer leaders are highlighting that banks in the past five years have written off nearly Rs 10.6 lakh crore, out of which nearly 50% belong to large industrial houses and services sector. In financial year 2022-23, scheduled commercial banks alone waived loans worth Rs 2.09 lakh crore, of which 52.3% or Rs 1.9 crore was for large industries and services sector.

 

So, what is the real state of “FLW”? Hardly, there is informed discussion or debate over FLW of large farm owners in comparison with small and marginal farm owners. Let me outline the extension of FLW. The first FLW at the national level was announced in 1990 when then Prime Minister VP Singh waived off ₹10,000 each. The second country-wide scheme came in 2009 by the UPA I government. After 2009, when UPA announced ₹52,000 crore FLW, 13 states announced schemes waiving off about ₹2.51 lakh crore.

 

According to a report, over 13 States have cumulatively written off a whopping Rs 4.7 lakh crore of farm loans in the past one decade, which is 82% of the industry-level bad loans to include: Punjab,  Tamil Nadu, Karnataka, Kerala, Telangana, Andhra Pradesh,  MP, Rajasthan, Maharashtra,  U.P., Chattisgarh, Puducherry, and Haryana. What about other States? Ironic but true that States announce FLWs as pre-poll promises but on gaining power drag their feet over loan waivers or shift the blame to the Central Government.

 

In FY19, farm loan NPAs jumped to 12.4 per cent or at 1.1 lakh crore of the Rs 8,79,000 crore of total bad loans in the system, up from Rs 48,800 crore or 8.6 per cent of the total NPAs of Rs 5,66,620 crore in FY16, a report by SBI Research said.

 

Next, the issue of disparities of borrowings of an average marginal farmer also requires review.  In Punjab, marginal farmers borrows a much larger amount of about ₹3.4 lakh per year against ₹84,000 and ₹62,000 in UP and Maharashtra, respectively. Surely, crop loans do not require such large loans with Pradhan Mantri Kisan Samman Nidhi that gives farmers up to ₹6,000 per year as minimum income support and also Pradhan Mantri Pradhan Mantri Fasal Bima Yojana besides some States providing “Rythu Bandu” income support.

 

In retrospect, FLW must be restricted to “Crop Loans including technology diversification” and “Livestock Loans” only since all other category of loans generate incomes on a regular basis and their loans are to be paid over extended period except during the incubation period.

 

Also, a study released on April 22, found that more than 40% of the “very highly” distressed surveyed farmers in Maharashtra, Punjab and U.P., which implemented FLW in 2017-18, did not receive any waiver benefits. It also noted that the interest rates on non-institutional loans were found between 9.5% and 21%, as against 5.9-7.7% from institutional sources.

 

Let me highlight that due to the proactive policies, agricultural credit disbursement has increased from Rs.46,268 crore in 1999-2000 to Rs.18,63,363 crore in 2021-22 at an annual growth of 19.5%.  The GLC disbursement grew at the rate of 19.81 per cent per annum with the highest growth rate of 22.93 per cent registered by the RRBs, followed by Commercial Banks (21.84%) and Cooperative Banks (12.97%).

 

There are exhaustive studies available highlighting disparities. Less known is the credit region-wise credit flow disparities: For example, the data of 2019-20 includes: North – Rs.28,3945 (20.39%); NE - Rs. 11,809 (0.85%); East -  131668 (9.45%); Central – Rs. 1,97,015 (14.15%); West – Rs. 1,56,206 (11.21%); and South – 6,12,087 (43.95%). It is out of total of Rs. 13,92,729 (100%). Not only there exist wide inter-State disparities but also wide wide inter-district disparities. Therefore, it warrants attention of the policy makers for mitigating regional and inter-district disparities. Incidentally, the share of Southern Region in the total agriculture credit flow has increased continuously from the year 2016-17 whereas the share of other regions except Eastern and NE Region has decreased from 2013-14 to 2019-20.

 

Agricultural credit to gross value added from agriculture ratio was quite high in case of Kerala (324%), Tamil Nadu (267%), and Telangana (129 %) while it was very low in the States of Madhya Pradesh (28%), West Bengal (40%), Chhattisgarh (42%) and Uttar Pradesh (47%).

 

Furthermore, there exists significant regional disparities in credit intensity — Rs.21,756 per hectare in NE region to Rs.2,59,554 per hectare in southern region.

 

About 52 percent of the agricultural households in the country were estimated to be indebted. At all India level, about 60 percent of the outstanding loans were taken from institutional sources which included Government (2.1 percent), Co-operative society (14.8 percent) and Banks (42.9 percent).

 

To sum up, the demand for FWL needs a de novo review. In retrospect, only small and marginal farmers should be eligible for FLW in respect of “Crop”, “Live Stock” and “Solar Pump Set” loans only. “Big Farmers” should be ineligible for “Crop” and “Live Stock” loans. There should be no waiver of loans taken for “Farm Machinery” and other loans.

 

In retrospect, “Big Farmers” should be eligible for loans for major technology innovations to include: Farm Automation, Robotics and Artificial Intelligence, Digital Agriculture, Precision Agriculture, Plant Breeding, Modern Greenhouses, Indoor Vertical Farming, Solar, Water Management Technology, Laser Scarecrow, Bees, Block chain and Livestock technology.

 

Otherwise, the issue of demand for “FLW” by the farmers is the worst fraud committed on the honest taxpayers.

 

PS: Having done active for over 25-years after shedding my uniform in 1993, let me share advice given by my Sarpanch to take a farm loan which I summarily dismissed. But, the Sarpanch, a big landlord, highlighted the advantages of taking farm loans: gets waived off whenever elections are held or droughts; and also legally upholds ownership rights.