Some Decisive Actions that can Alleviate Agricultural Distress

Relevant For Sociology, Essay & GS 3:-

• That the rural sector is witnessing difficult times cannot be denied. The primary problem with Indian agriculture is that average size of land holding at 2.28 hectares (1970-71) has now halved to 1.08 hectares (2015-16), creating immense pressure on land with persons dependent on agriculture still at 43% of all Indians. Thus, most of the farmers are shifting to cash crops and or allied activities to survive. This problem has been further compounded by marketing interventions of agricultural produce that though being addressed through new initiatives like eNAM are still being inadequate.
• Against this background, the need for some decisive action by the government to alleviate farm distress has now been universally recognised. Since 2008, beginning with the pan-India waiver for farmers, the cumulative loan waiver is now close to Rs 3 lakh crore. However, this undermines an honest credit culture and impacts credit discipline.
• Furthermore, if the farm loan waiver amounts are given in yearly instalments, then the banks will not be able to give fresh crop loans to farmers as their existing Kisan Credit Card (KCC) accounts will continue to be NPA category till the date of final receipt of the waiver amount from the respective state governments. What is now disconcerting is that even states with relatively low debt are now announcing loan waivers, indicating that rural distress is all-encompassing and it is high time that we address this problem with greater force.

• There could be several solutions. First, a price or income support scheme. A price support scheme (gap between MSP and market prices getting reimbursed) like the one unveiled in MP comes with low cost but covers only limited farmers and has several challenges. The most common critique is trader groups might artificially depress prices to be paid to farmers, as they are getting compensated by the difference between MSP and sale price at mandis.
• The income support scheme is much better and possibly the ideal one as the payment is purely a cash transfer to farmers on a per acre basis – as Telangana is doing. As per our estimates, this scheme if implemented at pan-India level could cost more than Rs 2.5 lakh crore. One way to go forward is to implement a scaled down version, where marginal and small farmers are rewarded individually and the cost comes down dramatically to Rs 60,000-70,000 crore. This could be better than the per acre Telangana scheme which creates a regressive structure where everyone benefits, irrespective of him being a cultivator or not.
• There are also small tweaks that can extend a little helping hand to the rural sector. First, banks should be permitted to allow review/ renewal of the KCC facility annually upon farmers paying the interest alone. At present, RBI norms mandate repayment of both principal and interest for annual renewal of crop loans. Income from harvesting is mostly received in cash and anecdotal evidence points to these cash flows being used for payment for fertilisers, pesticides, dues to farm labourers and hire charges for tractors. This results in a situation where lumpy cash flows to enable full repayment of the KCC loan at the year end is not practically possible. In any case, such loans for small businesses are treated as standard even if the interest alone is serviced.
• Second, in the 2018-19 Union Budget it was announced that Niti Aayog in consultation with state governments will evolve a suitable mechanism to enable access for lessee cultivator to formal banking credit without compromising land owners’ rights. It is high time that Niti Aayog and/or the regulator comes out with clear instructions which banks can follow for financing tenant cultivators.
• Third, currently the hypothecation charge of crops needs to be registered with CERSAI under the relevant rules. This adds to banks’ hassles and adds to costs without any benefit. There has been no recorded instance of enforcement of the security of crops at least as far as the small and marginal farmers are concerned and hence can be done away with. The Pradhan Mantri Fasal Bima Yojana can also be tweaked by ensuring all crops are covered, timely notification and payments among others.