It has been three years since the UPA government announced a massive loan waiver on agricultural credit as a measure to stem a rising spate of farmer suicides across the countryside. It would not be an exaggeration to say, however, that this has hardly made a dent in the number of farmers taking their own lives due to indebtedness. Last week alone, at least five farmers in Madhya Pradesh districts like Damoh and Narsinghpur killed themselves as they could no longer deal with the pressure of indebtedness and the harassment they faced from lenders.
So, what does this mean? Nothing except that Rs 70,000 crore of the taxpayers? money has acted only as effectively as a band aid on an amputated limb. Let us be clear, the taxpayer has not grudged a single penny of this money to the Indian farmer, but it is a cause of worry if this proves to be a futile exercise.
Let us look at the numbers provided by the government. According to the data provided by the ministry of finance, nearly 36.9 million marginal and small farmers and over 5.9 million other farmers (those who have more than two hectare holdings) have been provided relief by the above-mentioned loan waiver. Impressive figures indeed, but they do not stand scrutiny after another set of data is revealed. The same ministry?s figures reveal that only 23% of farmers, especially small and marginal, have access to institutional credit. Therefore, private money lenders remain the largest providers of agricultural credit for our farmers. The only group that benefited as a whole from the loan waiver scheme was the banking sector, which saw a slew of its bad loans written off in one go.
A closer look at the suicides in Madhya Pradesh will show that most of the concerned farmers owed money to private money lenders at usurious rates of interest. And they were being harassed almost daily by private goons hired as recovery agents. Madhya Pradesh chief minister Shivraj Singh Chouhan, almost as a reflex action, announced that agricultural credit interest rates would be brought down to as little as 1% in the future. All honourable intentions but again ill-placed.
Reducing interest rates or waivers needs to be accompanied by a genuine effort at promoting institutional finance. A study by the ministry for social justice and empowerment had shown that there were varying figures of success as far as promoting Self Help Groups (SHGs) in rural areas was concerned. States like Tamil Nadu, where banks worked in tandem with local bodies, managed to disburse credit to SHGs and help them set up sustainable businesses. In other states like Uttar Pradesh, there appeared to be a mistrust between local banks, which received subsidies to disburse loans to SHGs and the groups themselves. Despite successfully fulfilling the criteria of lending money to each other and recovering it, SHGs found that banks were reluctant to help.
This seems to be the case with agricultural credit as well, with farmers relying more on traditional routes of credit and banks not exerting themselves to attract small farmers. The reluctance of banks is a little difficult to understand. Not only does corporate India default on loans more frequently than the Indian farmer, the high rates of suicides among farmers should convince them about the seriousness with which farmers treat the matter of returning loans. There are no commensurate suicide figures in the corporate sector. We have not heard of businessmen killing themselves over toxic loans.
One needs to first get as many farmers into the institutional credit fold as needed to effectively intervene at a governmental level. Efforts to do this in the past, through microfinance institutions (MFIs), have been crippled by the State?s own interference in terms of framing the rules by which the MFIs are governed.
The Indian farmer, long at the mercy of the weather and the local money lender, continues to be under the same rule in 2011. For the robust banking sector, as well as the aam aadmi?s advocates, that should be a wake-up call enough.