Bank numbers on agriculture credit growth paint a rosy picture but the truth on the ground is far from it
In Budget FY16, the finance minister provided R8.5 lakh crore for agriculture credit—much more than the year before. In a survey, on being asked what this amount meant, farmers said it meant the new loans to be given to farmers this year. It actually is the net outstanding (including interest, penalties, etc) to the agriculture sector, some loans possibly pre-dating Independence. It is expected that the next Budget would be more transparent if the finance minister gathered more information by ordering an examination of incriminating evidence indicating a different conclusion. Otherwise, his numbers won’t mean what the public thinks they mean.
After nearly 70 years of Independence, financial inclusion for cultivators has remained a pipe dream and farmers are increasingly being forced to turn to informal sources for credit. As per the latest All-India Debt and Investment Survey, the share of cultivator households indebted and share of debt outstanding in the informal sector from moneylenders have nearly doubled in the last 20 years.
Before economic liberalisation happened (in the 1990s), the rural population per bank branch stood at 13,665. Between then and 2004, before the UPA in 2004 announced a doubling of agricultural credit, over 900 rural bank branches had closed down. The UPA did open 5,710 new rural bank branches between 2005 and 2012, but the rural population per bank branch was over 15,000; way higher than in 1990. This happened primarily because commercial banks were given precedence over rural cooperative banks to provide credit to rural areas, and as a result, banking failed to keep pace with the rising population. For the Budget wishlist, we had suggested that capital infusion into state and central cooperative banks be carried out to enable them to meet the new minimum capital adequacy norms. However, the Budget did not address this, and it will lead to the collapse of the cooperative banks and credit to the farmers will be further hit.
A large part of the agriculture credit announced every year never reaches the farmers. The UPA failed to translate its good intentions into productive outcomes and, as a result, got routed. The 2004 announcement was never what it had appeared as the government continued with the policy of diluting the definition of agriculture credit by expanding the classification of direct and indirect agriculture credit. Such dilution was recommended by committees staffed by retired public sector bank officials or their associates. Without the dilutions, direct credit would have meant a loan given directly to the cultivators and indirect credit would be for support activities.
Agriculture credit’s many shades of grey are best explained by R Ramakumar, professor, School of Development Studies, Tata Institute of Social Sciences, Mumbai. Over three-fourths of the landholdings are too small for cultivators to need a loan for farm operations of more than R2 lakh. Therefore, it can be considered as an upper limit of a typical agricultural loan. The total amount of loans of sums less than R2 lakh has halved since 1990. Even after all the additions to what constitutes direct agricultural credit, within the direct agriculture credit portfolio, loans of less than R2 lakh have also nearly halved. Even as farmers couldn’t avail of credit, the share of large corporates with loans of sums of R25-crore-plus increased from 5.7% in 1990 to 17.7% in 2011. The FY10 agriculture loans in Chandigarh and Delhi amounted to more than what was given to farmers in Uttar Pradesh, Bihar, West Bengal and Jharkhand. The Report of the Task Force on Credit-Related Issues of Farmers holds that window-dressing by banks to meet government targets on credit, deposits, and recovery is so rampant that a closer look at who is termed a “farmer” is also needed.
How data gets generated and is falsified can be understood from this example: A farmer with 12 acres of land, for a farm loan of R1 lakh, provides a bank guarantee of his land. For the R1-lakh loan, the farmer will need to hypothecate not more than 2 acres of land. Thus, the bank accepts documents for 2 acres of land and records the transaction as a loan to a marginal farmer (less than 2.5 acres) even when the farmer actually is a large farmer. Presuming the same farmer goes to three different banks (a common practice), data will show three loans of less than R2 lakh each for three different marginal farmers. No crime is committed but misinterpretations follow; the government pats itself for meeting financial inclusion targets and the bank heads get feted. It is dangerous if policies are formulated on such blatant deceit.
If we continue to accept data from public sector banks at face value, then we would falsely conclude that Indian farmers live in cities. In former finance minister P Chidambaram’s home state of Tamil Nadu, the share of direct agricultural credit from urban or metropolitan branches was about 29%, followed by 41% in Maharashtra. I presume, 53% in West Bengal is lent to companies like ITC & conveniently gets designated as agriculture credit. It gets worse, over 46% of annual agriculture loans are disbursed in the last quarter of the financial year by commercial banks. Over 50% of that is disbursed in the month of March itself. Even the ministry of agriculture, which remains irrelevant in such matters, will agree that the last quarter of a financial year or the month of March is not the normal period of borrowing by farmers.
Agriculture loans are not as cheap as made out to be. When the farmer does reach a bank for example for a loan of over R1 lakh, he is forced to spend more than R3,000 on arranging documentation. This effectively means an expenditure of 3% of the loan value even before the loan is disbursed. Add different kinds of fine-print charges on desperate farmers once the loan is sanctioned. At no stage here am I referring to the bribes of 5-10% of the total loan amount that is required to be paid at most places.
The information available is so inadequate and pathetic that the establishment can’t provide credible all-India agriculture credit data which annually shows new loans to farmers, categorised by size of land-holding, loan amount, default status, etc. Some may choose to look the other way but the reality is, as J Paul Getty said, “Money is like manure. You have to spread it around or it smells”.
The author is chairman, Bharat Krishak Samaj