By B Yerram Raju Omicron is unsympathetic to the small man and farmers are no exception. In the wake of the withdrawal of the three farm laws, the Finance Minister has challenges to provide resources to the farm sector. Investment of Rs 1 lakh crore was unlocked for agriculture in 2021, although the extent of, […]
By B Yerram Raju
Omicron is unsympathetic to the small man and farmers are no exception. In the wake of the withdrawal of the three farm laws, the Finance Minister has challenges to provide resources to the farm sector. Investment of Rs 1 lakh crore was unlocked for agriculture in 2021, although the extent of, and areas of investment, are still under wraps. This is the time to introduce a separate Budget for agriculture, both in the agriculturally intensive States and the union government.
MS Swaminathan in his foreword to my book on Agricultural Banking (2013) mentions: “Brain (that is, technology), brawn (that is, labour), and bank (that is, finance and other resources) are the three pillars of sustainable economic growth and agriculture and rural prosperity”.
While mentioning some of the key recommendations of the National Commission on Farmers, he agrees with me that a well-planned rural credit policy is essential. He also advocates for Kisan Credit Card (KCC) to women farmers, most of whom do not have titles to land. Women should be brought into the mainstream of farm lending programmes through an appropriate credit policy. Responsible credit is a necessary evil for farming to succeed.
Separate Contract Law
Another section of farmers who escaped formal credit is the large segment of tenant farmers. Recognising activity for retailing credit instead of the individual will rectify the position. This requires fresh thinking and approach from the RBI and Nabard. It is desirable to frame a separate contract law for the farm sector where the various contracts would be governed – like contract farming, tenant farming, engagement of women labour, etc.
The nexus between the politician and farmer can be broken only with technology. Majority of farmers have smartphones and are using them to access information on weather, receive direct cash benefits, interact with the knowledge hub of universities to have the right remedies for crop-related issues, etc.
Rainfed farming still occupies a large space in India and it is elusive in returns. The risks in rainfed farming can be managed with allied activities like animal husbandry, horticulture, pond-culture, beekeeping, poultry, etc. Some farmers do an ingenious combination of several of such activities to insulate themselves from crop failures. Income assurance schemes do good for most farmers.
Climate resilience assumes importance in the context of COP-26 Paris agreement and our commitment to reducing carbon emissions to zero by 2030. It is important for agricultural production to move in tandem and should merit incentives in the upcoming Budget.
Cooperative Credit
The Finance Minister should resist the temptation of announcing a crop loan target from banks as it does not form part of her budgetary resource. Banks did not so far fail the FM as there is no evidence of banks booking the crop loan disbursal while farmers invariably contested such an outcome. This is time to think of giving a boost to the rural cooperative credit structure by announcing reforms in its governance and management.
Farmers above 60 lose their physical abilities to work in the fields. They need a pension on a par with those employed in other sectors or some fund to fall back upon. The PM’s programme of direct cash transfer of Rs 6,000 makes a good beginning but is far from adequate to meet even the annual clothing requirements of a family.
Most farmers have Aadhaar and bank account. These two enable easy cash transfers directly into their bank accounts through UPI/BHIM. KCC assures them short term loans. Assessment of credit for farmers is more a science than mere risk management.
Disaster Management
Farmers invariably are victims of natural calamities, particularly in irrigated tracts. Every District Collector has a disaster management manual. But insofar as credit is concerned, the RBI has the final word based on the recommendation of the State government and the State level bankers’ committee.
The RBI, Nabard and the Government of India should not view such loans with a straitjacket solution. Floods bring silt and make the next crop double its yield while cyclone brings salinity and at least 3 years are needed to restore the soil to the original status. Tsunamis and large-scale pest infections require different treatment of credit. Chanakya in his Arthasastra argues for state stepping in full scale and providing for write- off from extra budgetary resources, where needed.
Restructuring farm loans in calamity situations needs rethinking and new solutions, particularly in the context of write-off demand coming from farmers. Often the demand originates from politicians than farmers. The farmer knows that he needs another loan for the next season, which will not come if he defaults on the previous loan.
Most politicians are money lenders. If institutional lending is effective, they will lose their business. If there is no write-off, their loans do not get repaid. It is this nexus that needs to be broken. Parliament or State legislature will hesitate to pass a law against granting write-off. It springs up mostly a year before general elections. How do we clean up the credit system to enable institutional credit to cover all risks?
US Farm Credit
Since we are moving into digital villages, it is worthwhile looking at the US systems of farm credit. There are three methods by which credit flows to farmers under the Commodity Support Provisions in the Farm Security and Rural Investment Act of 2002 (PL 107-171, the 2002 Farm Bill):
• Annual direct payments unrelated to production or prices,
• Counter-cyclical payments which are triggered when prices below a minimum are statutorily determined (In India, we call them Minimum Support Prices [MSP]) and
• Marketing assistance loans that offer interim financing and, if prices fall below MSP, additional income support.
KCC, agricultural term loans and insurance payments should be looked at afresh for making credit to farmers more meaningful. It is not the farmer as the owner of a farm who should matter so much as a cultivator and he may cultivate on land, water or animals or birds, when it comes to extending credit. It is the activity that matters to evaluate farm credit risk. Credit is a necessary but not sufficient condition for growth.
The Telangana government demonstrated a model of incentives at the right time for the right cause. Insurance and technology are the drivers of farm growth with the active participation of PJTSAU, the State Agricultural University. Leaders at the top, sincere to the cause of farmers, should learn from the model for replication with such modifications as the respective States need.
Crossholding of risks is very much necessary for a cultivator. When huge reforms that escaped the attention of the government for 20 years are contemplated, reforms in agricultural credit should also move in the direction of trusting the farmer, who enabled this country to keep its head above waters during the pandemic that is shaking the world.
(The author is an Economist and Risk Management Specialist)