Current scenario of Indian Agriculture
- Indian agriculture is characterised by low scale and low productivity.
- About 85% of the operational landholdings in the country are below 5 acres and 67% farm households survive on an average landholding of one acre.
- More than 50% of area under cultivation does not have access to irrigation.
- Agriculture income generated is not adequate to meet farmers’ needs.
- Free power and farm loan waivers cannot be a permanent solution to the problems in the agriculture sector : Vice-President Venkaiah Naidu
- “We have a clamour for populism to win over people during elections. That is not going to solve the problem.”
Increasing trends of debt burden
- The share of institutional loans disbursed to agriculture and allied sectors has risen from 9% in 2000-01 to 31.4% in 2015-16.
- The amount of short-term institutional loans for agriculture exceeds the total cost of inputs including hired labour. This indicates that a part of crop loans is spent on non-agricultural purposes.
- According to NSS surveys on Investment and Debt (NSS-I&D), loans taken by cultivators from non-institutional sources is rising faster than from institutional sources.
- Much of the growth in household demand in rural India has been debt-ridden and not supported by growth in income.
- Modern agriculture requires investment in farm machinery and inputs like seed, fertiliser, agri-chemicals, diesel and hired labour.
- Savings generated from unremunerative crop enterprise are inadequate for such investments.
- Rising expenses on health, education, social ceremonies and non-food items put additional financial demand on farm families.
Loan waiver scheme
- States like Uttar Pradesh, Maharashtra, Punjab and Karnataka have rolled out farm loan waiver schemes for immediate relief to farmers.
- The demand for such measures is spreading to other States too.
- Ultimate goal is to lessen the debt burden of distressed and vulnerable farmers and help them qualify for fresh loans.
- The success of the loan waiver lies on the extent to which the benefits reach the needy farmers.
Drawbacks of loan waiver scheme
- It covers only a tiny fraction of farmers. According to 2012-13 NSS-SAS, 48% of the agricultural households did not have any outstanding loan.
- Out of the indebted agricultural households, about 39% borrowed only from non-institutional sources.
- The farmers investing from their own savings and borrowing from non-institutional sources are equally vulnerable, but are outside the purview of loan waiver.
- Provides only a partial relief because half of the institutional borrowing of a cultivator is for non-farm purposes.
- Many household has multiple loans either from different sources or in the name of different family members, which entitles it to multiple loan waiving.
- Loan waiving excludes agricultural labourers who are weaker than cultivators in bearing the economic distress.
- It severely erodes the credit culture, with dire long-run consequences to the banking business.
- Scheme is prone to serious exclusion and inclusion errors, as evidenced by the Comptroller and Auditor General’s findings in the Agricultural Debt Waiver and Debt Relief Scheme, 2008.
- According to the CAG report, 13.46% of the accounts, eligible for the benefits under the scheme were not considered by the lending institutes while preparing the list of eligible farmers.
- In 8.5% of the cases, the beneficiaries were not eligible for either debt waiver or debt relief but were granted the benefits.
- Around 28% of the beneficiaries were not issued debt relief certificates which would have entitled them to fresh loans.
Other issues with loan waiver scheme:
- Implications for other developmental expenditure, having a much larger multiplier effect on the economy.
- A similar amount spent on improvement of agriculture infrastructure and other developmental activities would create a base for future growth and development of the sector.
- Loan waiving can provide a short-term relief to a limited section of farmers;
- It has a meagre chance of bringing farmers out of the vicious cycle of indebtedness.
- There is no concrete evidence on reduction in agrarian distress following the first spell of all-India farm loan waiver in 2008.
- More inclusive alternative approach is to identify the vulnerable farmers based on certain criteria and give an equal amount as financial relief to the vulnerable and distressed families.
- Raise income from agricultural activities and enhance access to non-farm sources of income
- Strengthen the repayment capacity of the farmers by improving and stabilising their income.
- Improved technology, expansion of irrigation coverage, and crop diversification towards high-value crops are appropriate measures for raising productivity and farmers’ income.
- Another major source of increase in farmers’ income is remunerative prices for farm produce.
- More public funding and support
- Removal of old regulations and restrictions on agriculture to enable creation of a liberalised environment for investment, trading and marketing.
- States must undertake and sincerely implement long-pending reforms in the agriculture sector with urgency.