The Rs 60,000-crore farm debt relief package may also be extended to wipe off the bad assets of banks arising out of non farm loans as well.
This comes on the backdrop of financial institutions realising that to cut farmers indebtedness, the package must also be spread to non-farm credit. Finance minister P Chidambaram had said, while announcing the Union Budget 2008-09 that the package was aimed at settling non performing asset (NPA) arising out of farm loan.
It is of the view that, the package under the present scheme, may not benefit farmers, growing plantation crops like coffee and engaging in agriculture-allied activities like weaving, processing of food materials and floriculture. The package would benefit farmers engaged only in farm crops.
Sources pointed out that large number of farmers avail credit for non farm activities to supplement their livelihood. ?Farmers? indebtedness would continue until this issue is sorted out and the finance ministry must take a decision on this at the earliest,? a banking industry source said.
Long-duration crops, including plantation crops, are covered under investment credit and are not eligible for the 7% subsidised interest rate. They attract normal rate of interest, of about 10-11%. ?Wiping off NPAs arising out of crop loans alone would not be a complete solution to the problem of farmer indebtedness. This needs to be looked into in totality,? the source added.
Importantly more than 50% of the total farmers in the country have no access to institutional credit. They avail loans from non institutional channels, especially the money lenders, where the interest rates are significantly higher than the rates charged by the banks. ?In any case, these farmers would be outside the net of the debt waiver package and thereby continue to reel under the debt trap,? industry analysts said.
According to National Sample Survey Organisation figures, the total outstanding amount could be as high as Rs 40,000 crore. A Reserve Bank of India study indicates that of every Rs 1,000 outstanding of farmer households in the country, Rs 257 has been sourced from moneylenders.
In addition, banking industry officials also said that collection of data on indebtedness would be time consuming, which in turn could create further problems. There are reports that states are already in war to get substantial shares of the loan.