Since In­de­pen­dence, one of the pri­mary ob­jec­tives of In­dia’s agri­cul­tural pol­icy has been to im­prove farm­ers’ ac­cess to in­sti­tu­tional credit and re­duce their de­pen­dence on in­for­mal credit. As in­for­mal sources of credit are mostly usu­ri­ous, the gov­ern­ment has im­proved the low of ad­e­quate credit through the na­tion­al­i­sa­tion of com­mer­cial banks, and the es­tab­lish­ment of Re­gional Ru­ral Banks and the Na­tional Bank for Agri­cul­ture and Ru­ral Devel­op­ment. It has also launched var­i­ous farm credit pro­grammes over the years such as the Kisan Credit Card scheme in 1998, the Agri­cul­tural Debt Waiver and Debt Re­lief Scheme in 2008, the In­ter­est Sub­ven­tion Scheme in 2010-11, and the Prad­han Mantri Jan-dhan Yo­jana in 2014.

It is en­cour­ag­ing to see a ro­bust in­crease in in­sti­tu­tional credit from Rs 8 lakh crore in 2014-15 to Rs 10 lakh crore in 2017-18. Of this, Rs 3.15 lakh crore is meant for cap­i­tal in­vest­ment, while the re­main­ing is for crop loans, ac­cord­ing to the Min­istry of Agri­cul­ture and Farm­ers Wel­fare. Ac­tual credit low has con­sid­er­ably ex­ceeded the tar­get. The re­sult is that the share of in­sti­tu­tional credit to agri­cul­tural gross do­mes­tic prod­uct has in­creased from 10% in 1999-2000 to nearly 41% in 2015-16.


While the low of in­sti­tu­tional farm credit has gone up, the rolling out of the farm waiver scheme in re­cent months may slow down its pace and pose a chal­lenge to in­creas­ing agri­cul­tural growth. The Ut­tar Pradesh gov­ern­ment has promised a Rs 0.36 lakh crore loan waiver cov­er­ing 87 lakh farm­ers, whereas the Ma­ha­rash­tra gov­ern­ment has an­nounced it’s writ­ing off Rs 0.34 lakh crore cov­er­ing more than 89 lakh farm­ers. The de­mand for a loan waiver is es­ca­lat­ing in Pun­jab, Kar­nataka, and other States. This clam­our is only poised to in­crease as the 2019 gen­eral elec­tion comes closer.

There is a se­ri­ous de­bate on whether pro­vid­ing loans to farm­ers at a sub­sidised rate of in­ter­est or their waiver would ac­cel­er­ate farm­ers’ wel­fare. At the global level, stud­ies in­di­cate that ac­cess to for­mal credit con­trib­utes to an in­crease in agri­cul­tural pro­duc­tiv­ity and house­hold in­come. How­ever, such links have not been well doc­u­mented in In­dia, where emo­tional per­cep­tions dom­i­nate the po­lit­i­cal de­ci­sion quite of­ten. A re­cent study by the In­ter­na­tional Food Pol­icy Re­search In­sti­tute re­veals that at the na­tional level, 48% of agri­cul­tural house­holds do not avail a loan from any source. Among the bor­row­ing house­holds, 36% take credit from in­for­mal sources, es­pe­cially from money­len­ders who charge ex­or­bi­tant rates of in­ter­est in the 25%-70% range per an­num. More im­por­tantly, the study us­ing the 2012-13 Na­tional Sam­ple Sur­vey-sit­u­a­tion As­sess­ment Sur­vey (sched­ule 33) inds that com­pared to non-in­sti­tu­tional bor­row­ers, in­sti­tu­tional bor­row­ers earn a much higher re­turn from farm­ing (17%). The net re­turn from farm­ing of for­mal bor­row­ers is es­ti­mated at Rs 43,740/ha, which is sig­ni­icantly greater than that of in­for­mal sec­tor bor­row­ers at Rs 33,734/ha. Sim­i­larly, ac­cess to in­sti­tu­tional credit is as­so­ci­ated with higher per capita monthly con­sump­tion ex­pen­di­tures.

A neg­a­tive re­la­tion­ship be­tween the size of farm and per capita con­sump­tion ex­pen­di­ture (a proxy for in­come) fur­ther un­der­scores the im­por­tance of for­mal credit in as­sist­ing mar­ginal and poor farm house­holds in re­duc­ing poverty. In­deed, ac­cess to for­mal in­sti­tu­tional credit also tends to en­hance farm­ers’ risk-bear­ing abil­ity and may in­duce them to take up risky ven­tures and in­vest­ments that could yield higher in­comes.

Go­ing by the NSS sched­ule 18.2 (debt and in­vest­ment), ru­ral house­holds’ in­vest­ments in agri­cul­ture grew at a high rate of 9.15% per an­num be­tween 2002 and 2012. While 63.4% of agri­cul­tural in­vest­ments are done through in­sti­tu­tional credit, land­less, mar­ginal and small farm­ers’ in­vest­ment de­mand is met through in­for­mal sources to the tune of 40.6%, 52.1%, and 30.8%, re­spec­tively. Statis­tics show that nearly 82% of all in­debted farm house­holds (384 lakh) pos­sess less than two hectares of land com­pared to other land hold­ers num­ber­ing 84 lakh house­holds. Those re­sid­ing in the less de­vel­oped States are more vul­ner­a­ble and hence re­main debt rid­den.


Clearly, a ma­jor pro­por­tion of farm­ers re­main out­side the am­bit of a pol­icy of a sub­sidised rate of in­ter­est, and, for that mat­ter, of loan waiver schemes an­nounced by re­spec­tive State gov­ern­ments. In other words, this sop pro­vides re­lief to the rel­a­tively bet­ter off and lesser-in-num­ber medium and large farm­ers with­out hav­ing much im­pact on their in­come and con­sump­tion.

This anom­aly can be rectiied only if the credit mar­ket is ex­panded to in­clude agri­cul­tural labour­ers, mar­ginal and small land hold­ers. It is, there­fore, im­por­tant to re­visit the credit pol­icy with a fo­cus on the out­reach of banks and inan­cial in­clu­sion.

Se­cond, the gov­ern­ment along with the farm­ers’ lobby should de­sist from clam­our­ing for loan waivers as it pro­vides in­stant tem­po­rary re­lief from debt but largely fails to con­trib­ute to farm­ers’ wel­fare in the long run. To what ex­tent this re­lief mea­sure can help bring farm­ers out of in­debt­ed­ness and dis­tress re­mains a ques­tion.

This is be­cause farm­ers’ loan re­quire­ment is for non-agri­cul­tural pur­poses as well, and of­ten goes up at the time of calamity when the state of­fers min­i­mal help. If gov­ern­ments are se­ri­ously will­ing to com­pen­sate farm­ers, they must di­rect sin­cere ef­forts to pro­tect them from in­ces­sant nat­u­ral dis­as­ters and price volatil­ity through crop in­sur­ance and bet­ter mar­ket­ing sys­tems.

Third, it should be un­der­stood that writ­ing off loans would not only put pres­sure on al­ready con­strained is­cal re­sources but also bring in the chal­lenge of iden­ti­fy­ing el­i­gi­ble bene­i­cia­ries and dis­tribut­ing the amount.

The re­port of the Com­mit­tee on Dou­bling of Farm­ers’ In­come, Min­istry of Agri­cul­ture and Farm­ers Wel­fare, has rightly­sug­gestedac­cel­er­ating­in­vest­ments in agri­cul­ture re­search and tech­nol­ogy, ir­ri­ga­tion and ru­ral en­ergy, with a con­certed fo­cus in the less de­vel­oped eastern and rain-fed States for faster in­crease in crop pro­duc­tiv­ity and ru­ral poverty re­duc­tion. Ad­di­tional cap­i­tal re­quire­ments es­ti­mated for 20 In­dian States are Rs 2.55 lakh crore (Rs 1.9 lakh crore on ir­ri­ga­tion and ru­ral in­fra­struc­ture by State gov­ern­ments and Rs 0.645 lakh crore by the farm­ers) at 2015-16 prices by 2022-23. Pub­lic and pri­vate in­vest­ments are re­quired to grow at an an­nual rate of 14.8% and 10.9% in the next seven years. A di­ver­sion of money to­wards debt re­lief, whichis­in­fac­tun­pro­duc­tive,willad­versely im­pinge on state inances, may dis­suade lend­ing by the banks, and hence prove coun­ter­pro­duc­tive to the gov­ern­ment’s broader man­date of dou­bling farm­ers’ in­come by 2022-23.

A ma­jor pro­por­tion of farm­ers re­main out­side the am­bit of a pol­icy of a sub­sidised rate of in­ter­est, and, for that mat­ter, of loan waiver schemes an­nounced by re­spec­tive State gov­ern­ments. We need to re­visit the credit pol­icy with a fo­cus on the out­reach of banks and fi­nan­cial in­clu­sion.

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