Farm loans: High disbursal than crop value hints at diversion

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Published: December 21, 2018 3:11:44 AM

In 2015-16, the latest year for which state-wise value of crop output is available, farm loans of `1.05 lakh crore were disbursed in Tamil Nadu, 14% higher than the estimated value (at current prices) of the state’s crop in the year.

Farm loans: High disbursal than crop value hints at diversion

Even as farm loans waivers are the flavour of the season with political parties vying to outdo one another in write-offs, official data show that in many states fresh agricultural loans in a year were much higher than the estimated value of crop output in that year, clearly indicating that much of the funds don’t really go into agriculture.

In 2015-16, the latest year for which state-wise value of crop output is available, farm loans of `1.05 lakh crore were disbursed in Tamil Nadu, 14% higher than the estimated value (at current prices) of the state’s crop in the year.

Similarly, farm loans in Punjab and Kerala were 19% and 37%, respectively, higher than the value of their crop output in 2015-16.

Tamil Nadu’s share in the country’s farm loans (crop and term loans for farming equipment) was 12% in 2015-16, while the state’s share in India’s crop value was only 5.6%. Uttar Pradesh, which accounts for 13.5% of the country’s crop value, the largest share by any state, had a share of just 4% in farm loan disbursals in 2015-16 by commercial banks and cooperatives. Even the share of relatively small states like Punjab and Kerala in farm loans was much higher than UP as well as West Bengal and Odisha that are major players in farming.

“Clearly, farm loans in some states are being diverted for other consumption purposes,” NITI Aayog member Ramesh Chand told FE. More credit to saturated areas won’t contribute much to growth in agriculture and increase in productivity, Chand said. As a result of such imbalance, most poor farmers in Odisha, Chhattisgarh, Jharkhand and Bihar are deprived of credit for purchase of basic farming inputs.

Even though farm credit rose 16% in 2014-15 and 4% in 2015-16, the gross value added in agriculture and allied activities grew just (-)0.2% and 0.6%, respectively, partly due to bad monsoon.

Farm loans are pegged at `11 lakh crore in 2018-19, up 10% from the previous year.

According to an analysis by former Commission for Agricultural Costs and Prices (CACP) chairman Ashok Gulati, released in April 2016, 30-40% of the funds allocated under the interest subvention scheme for farm credit get diverted to non-agricultural usage.

The interest subvention scheme was introduced in 2006-07 with a view to helping farmers with cheaper credit for crop loans. Farmers are provided with a 3% interest subvention for short-term crop loans up to Rs 3 lakh on prompt repayment of the loan. Thus, farmers have to effectively pay only 4% as interest for the said crop loan.

Despite warning by many economists including former Reserve Bank of India governors Raghuram Rajan and Urjit Patel, that farm loan waivers don’t help alleviate farm sector distress, more states are taking such steps.

In FY18 and so far in FY19, nine states have unveiled farm loan waivers amounting to a total of Rs 1.84 lakh crore. The latest to join then bandwagon are MP (Rs 38,000 crore), Rajasthan (Rs 18,000 crore) and Chhattisgarh (Rs 6,000 crore). Analysts estimate that the current series of such waivers would approach Rs 2.7-3 lakh crore by the general elections in May next year.

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