Climate is changing for the worse- Care for the Earth

Compiled by: K. Ramasubba Reddy
“Take care of your earth, Look after its creatures. Don’t leave your children, A planet that’s dead.” Lakshmi Shree, India, age 12 
 UN Climate Change Conference Starts at Copenhagen on 7th Dec In December weeks of talks in Copenhagen aimed at establishing a new global treaty on climate change. The main points of contention at Copenhagen summit will be the extent to which industrialised countries will cut their greenhouse gas emissions and by when; the amount of money they will pay to developing countries to deal with climate change; and how green technologies will be transferred.
“We have evidence that by 2025 in some parts of the world including India, parts of Asia and parts of Africa, crop yields will drop from anything between 20 and 40 per cent from rise in temperatures. Large parts of land will become so bad that it would no longer be good for agriculture and new diseases and pests would come up. Unless we have new varieties of crops that can adapt to extremes of weather, we will have difficulty in feeding the world population. Shortage of water resources is one of the greatest problems the world is going face because of climate change” IFAD.TH 301109
India is voluntarily ready to reduce emission intensity (non- legally binding) by 20-25 per cent within 2020. China had claimed that it would cut carbon emissions up to 45 percent by 2020. 
Climate Change affects Development Societies have always depended on the climate but are only now coming to grips with the fact that the climate depends on their actions. The steep increase in green¬house gases since the Industrial Revolution has transformed the relationship between people and the environment. In other words, not only does climate affect develop¬ment but development affects the climate (Please see Notes at the bottom).
Left unmanaged, climate change will reverse development progress and compro¬mise the well-being of current and future generations. It is certain that the earth will get warmer on average, at unprecedented speed. Impacts will be felt everywhere, but much of the damage will be in developing countries. The hastening disappearance of the Himalayan glaciers which regulate river flow, generate hydropower, and supply clean water for over a billion of people on farms and in cities—will threaten rural liveli¬hoods and major food markets. WDR 10
India’s post-1980 deceleration in the increase of rice productivity (from the Green Revolution in the 1960s) is attrib¬utable not only to falling rice prices and deteriorating irrigation infrastructure, as previously postulated, but also to adverse climate phenomena from local pollution and global warming. Extrapolating from past year-to-year variations in climate and agricultural outcomes, yields of major crops in India are projected to decline by 4.5 to 9 percent within the next three decades, even allowing for short-term adaptations. The implications of such climate change for poverty—and GDP—could be enor¬mous given projected population growth and the evidence that one percentage point of agricultural GDP growth in developing countries increases the consumption of the poorest third of the population by four to six percentage points. WDR 10
A third of India’s geographical area, undergoing desertification, ISRO A host of reasons are responsible for this phenomenon, including changes in rainfall pattern and over-exploitation of natural resources. At least eight processes were at work, of which water erosion is the most pronounced (affecting 10.21 per cent of the total geographical area), followed by reducing vegetation cover (9.63 per cent) and wind erosion (5.34 per cent). Together 32.07 per cent of the total geographic area is being transformed by land degradation. State-wise, Rajasthan has the largest area (21.77 per cent of the total geographical area) undergoing land degradation, followed by Jammu and Kashmir (12.79 per cent), Maharashtra (12.66 per cent) and Gujarat (12.72 per cent).
Worsening Greenhouse gas Pollution Since an agreement to reduce greenhouse gas pollution was signed in Kyoto, in 1997, the level of CO2 in the air has increased 6.5 per cent. From 1997 to 2008, world CO2 emissions from the burning of fossil fuels have increased 31 per cent; U.S. emissions of this greenhouse gas rose 3.7 per cent. With the Copenhagen Climate Change Conference less than a week away, global leaders are urging Governments to meet the biggest challenge this generation faces by paving a way for a legally binding agreement. Speaking from Capetown, Nobel laureate Archbishop Desmond Tutu said the stakes for humanity were too high for the international community to fail at Copenhagen.“The final measure of a generation’s courage is the memory of what they have done,” Tutu said in a video-message.
Note1: In about 2200 bce a shift in the Medi¬terranean westerly winds and a reduc¬tion in the Indian monsoon produced 300 years of lower rainfall and colder temperatures that hit agriculture from the Aegean Sea to the Indus River. This change in climate brought down Egypt’s pyramid-building Old Kingdom and Sargon the Great’s empire in Mesopotamia. After only a few decades of lower rainfall, cities lin¬ing the northern reaches of the Euphrates, the breadbasket for the Akkadians, were deserted. At the city of Tell Leilan on the northern Euphrates, a monument was halted half-built. With the city abandoned, a thick layer of wind-blown dirt covered the ruins. Even intensively irrigated southern Meso¬potamia, with its sophisticated bureaucracy and elaborate rationing, could not react fast enough to the new conditions. Without the shipments of rainfed grain from the north, and faced with parched irrigation ditches and migrants from the devastated northern cities, the empire collapsed. WDR 10
Note2: Climate Ant-Climax “Warming of the climate system is unequivocal.” For nearly 1 million years before the Industrial Revolution, the carbon dioxide (CO2) concentration in the atmosphere ranged between 170 and 280 parts per million (ppm). Levels are now far above that range—387 ppm—higher than the highest point in at least the past 800,000 years, and the rate of increase may be accelerating. Under high-emissions scenarios, concentrations by the end of the 21st century could exceed those experienced on the planet for tens of millions of years. About 27 billion tonnes of pure CO2 are pumped into the atmosphere every year - equivalent to 7.3 billion tonnes of pure carbon. Total atmospheric concentrations of CO2 are now at 387 parts per million, up from an historic average of 180 to 280 ppm. Even if radical cuts were adopted by world governments in Copenhagen and adhered to, the lowest level at which they could be expected to stabilise is 450 ppm, according to scientists. To prevent a further temperature rise of more than 2C, emissions would need to be stabilised around that level. (ANI)

Agri  H1GDP Growth Down 1.7%- Urgent steps needed to boost Agri income growth: K. Ramasubba Reddy

1.The farm sector growth rate was down by 40% from 2.9% in H1 08 to 1.7% in H2 09, mainly due to the twin impact of drought and subsequent floods. The growth is estimated at 0.9 per cent in the July-September quarter. About 300 districts, which account for close to half of the country, were hit by drought, followed by floods in Andhra Pradesh, Karnataka and Maharashtra in a gap of three months

Agriculture, however, provides livelihood to over 60 per cent of the country's population.

Though drought hit summer-sown crops, the sector was able to achieve positive growth in the second quarter, as full impact of the estimated sharp fall in Kharif food grains production would only get reflected in the third quarter. The growth in agriculture will be negative in the third quarter and that will pull the growth rate for the quarter down.



According to the first advance estimates by the Agriculture Ministry, rice production is projected to fall by 17.9 per cent to 69 million tonnes during the Kharif 2009-10. The output of coarse cereals, pulses and oilseeds is estimated to fall by 19.7 per cent, 7.5 per cent and 14.8 per cent, respectively.



The Prime Minister's Economic Advisory Council had said the output of the agriculture and allied sectors will decline by two per cent in 2009-10 against growth of 1.6 per cent in the last fiscal. PTI/November 30, 2009

The December quarter will show agriculture declining, because that's when the harvest shortfall will get captured," said Rajeev Malik, economist at Macquarie in Singapore,

2. Mindset of Planners and Policy Makers coming in the way of Inclusive Growth and Sectoral Equity in income distribution

However, Dr C. Rangarajan, Chairman, PMEC said industrial and services growth will be stronger in the second half and will make up for the impact of the weak monsoon on agriculture in the third quarter. BL29110

It is pretty certain now that there is likely to be negative growth to the extent of about minus -2% in agri GDP growth and over 60% of the population are dependant on agri sector.

We are unable to understand how  growth in industrial and service sectors during the second half year will make up for the adverse impact of negative growth in agri GDP affecting adversely incomes of majority of the population. Will it improve incomes of 60%, agri dependant population; not directly any way. But it definitely improves the incomes of the 40% of the population earning livelihood from non-agri avocations. How will this ensure inclusive growth and equity to farmers and their dependants?

And to say that industrial and services growth will make up for the dip in agriculture  is unfair to majority of the populating eking out their subsistence from agri avocation. I t bespeaks of a mindset inconsiderate of the sufferings of farmers & their families and others dependant on agriculture. Many planners and policy makers have similar mind set and with this kind of attitude inclusive growth is a mirage (Please see NOTES1&32below).

Nothing can make up for fall in farm growth in real terms. Food is first priority. Growth elsewhere cannot provide food for us. How does industry recovery help rural masses? What is urgently needed is planning and making sustained efforts to improve the incomes of agri work force, not averaging GDP growth and exulting about growth in services  which gives false picture and covers up the plight of rural masses constituting 60% of the population. Due weight should be given to percentage of population depending on each sector to arrive at real Human GDP Index.

3. GDP growth H1 -7%

GDP growth rate is 7% during the first half the current fiscal, compared to GDP growth rate of 7% during the corresponding period last year. While growth rates of mining and electricity nearly doubled, growth rates of agriculture (-40%), construction (-25%), trade& hotels (-33%) declined sharply. Increase in growth rates of other sectors is around 20%.

Sectoral GDP H1 09-Growth Rates %

Sector	HY 08  %	HY 09 %
Agri	2.9	1.7
Mining	4.2	8.7
Manufacturing	5.3	6.3
Electricity, gas and water supply	3.3	6.8
Construction	9.0	6.8
Trade, hotels, transport and communication	12.5	8.3
financing, ins., real est. and Business services	6.6	7.9
Community, social and personal services	8.5	9.9
GDP at factor cost	7.8%	7.0%

Source: CSO-Computed

Quarterly GDP growth figures are given below:

4. Govt. Spending is mainly spurring GDP:

With the sharp deceleration in the growth of private final consumption expenditure (PFCE) in 2008-09, there was a shift in the contribution to growth from private consumption expenditure to government consumption expenditure.

Private Final Consumption Expenditure

In terms of GDP at market prices, the rates of PFCE at constant (1999-2000) prices during 2008-09 is estimated at 55.5 per cent, as against the corresponding rates of 57.2 per cent, respectively in 2007-08.

Government Final Consumption Expenditure

In terms of GDP at market prices, the rates of GFCE at constant (1999-2000) prices during 2008-09 is estimated at 11.1 (up by 1.3%) per cent as against the corresponding rate of 9.8 per cent in 2007-08 resulting in increase in fiscal deficit with inflationary potential. (Please see Note 3).

Pvt. and Govt. Final Consumption Expenditure

At constant Prices	Mar 08	Sep 08	Sep 09
Pvt. Final Consumption Exp	57.2%	56.7%	55.2%
Govt Final Consumption Exp	9.8%	8.9%	9.9%

Similar trend is visible in H1 09 too, less sharply though.  Private final consumption expenditure (PFCE) declined from 56.7% (H1 08) to 55.2% in H1 09 while government consumption expenditure was high at 9.9% in H1 09, up by 1% from 8.9% in H1 08 resulting in increase in fiscal deficit facilitating actualization of inflationary potential.

“We shouldn’t ignore the fact that it (recovery)is still currently being driven substantially by public spending ... a recovery will only be sustained if private sector through consumption, investment and exports starts to stabilise” Subir Gokarn, Dy Governor, RBI, told. TH301109

“The central bank and the chief economic advisor are right. There is too much of purchasing power in the system and a liquidity overhang, and it makes it difficult to fight inflation.” Yoginder Alagh FE 301109

"In fact, some of the strength in the GDP data is due to a sharp increase of over 25 per cent in government spending during this quarter," CII secretary general Chandrajeet Banerjee said.

India's fiscal deficit for April to October was Rs 2.45 lakh crore, or 61

percent of the full-year target. Tax receipts were Rs 2.14 lakh crore and total expenditure was Rs 5.37 lakh crore for the first seven months of 2009/10 fiscal year. In July, the government forecast a fiscal deficit of Rs 4 lakh crore, or 6.8 percent of gross domestic product, for 2009/10.  ET 301109

Comments » Govt. Spending is mainly spurring GDP

Posted by K.R.S.Reddy on 2009-11-30

From last December through March 2009, the Centre had cut excise duty by six per cent and service tax by two per cent, besides stepping up plan expenditure to generate demand, which slowed down.

With the sharp deceleration in the growth of private final consumption expenditure (PFCE) in 2008-09, there was a shift in the contribution to growth from private consumption expenditure to government consumption expenditure. . Private final consumption expenditure (PFCE) declined from 56.7% (H1 08) to 55.2% in H1 09 while government consumption expenditure was high at 9.9% in H1 09, up by 1% from 8.9% in H1 08 resulting in increase in fiscal deficit facilitating actualization of inflationary potential.

This phenomenon of swelling govt. consumption for the past one year without leading to creation of productive assets or products or services has led to inflammatory swelling of GDP powered by monetary growth, with consumer price inflation in double digits and food inflation at 15%. RBI is duty bound to act now to reduce the liquidity overhand with a view to reigning in the raging inflation. FE

NOTES:

NOTE 1:Drought may restrict growth rate to 5.5%: Plan panel : Agricultural growth closely follows monsoon. Monsoon deviations have a major impact on agricultural output.. There is a direct relationship between agricultural GDP growth and the deviation of rainfall from normal. A severe drought has the potential to restrict the country's economic growth to 5.5 per cent, the Planning Commission has said. "In the worst case scenario of farm sector GDP declining by 6.0 per cent, overall GDP could be limited to 5.5 per cent." The Planning Commission said growth in the second and third quarter may not be as good as the first quarter. “I am glad that the worst may be over”: Said Planning Commission Deputy Chairman Montek Singh Ahluwalia “and we expect to see improved performance in the subsequent quarters. The (GDP) numbers are very good, it is consistent with what we are hoping for,” told reporters after the GDP data were released. Asked about the Planning Commission's note on inflation and whether it will rise above the comfort zone of 4-5 per cent by the end of this fiscal, Ahluwalia said, "If drought is managed well and there is good Rabi crop as well as fiscal consolidation, inflation may well be contained within the comfort zone. Comments : ‘The euphoria of July also saw Montek Singh Ahluwalia declare that the “worst is behind us.” (Though it must be conceded that he said that even in June and, possibly, earlier.) That’s good. I only wish he had told us when the worst was upon us. It would have been nice to know. Otherwise, it gets hard to appreciate improvement. A huge fall in farm incomes is in the offing. If the government wants to act on a war footing, it could start with a serious expansion of the NREGS (about the only lifejacket people in districts like Anantapur in Andhra Pradesh have at this point, for instance)’.P.Sainath Agriculture’s contribution to GDP is only around 18%- Chawla -F.S : Finance Secretary Ashok Chawla while conceding that the poor rainfall would affect agricultural output, he allayed concern that it would impact growth, as agriculture’s contribution to GDP is only around 18%. Chawla said the manufacturing and service sectors would take up any slack. COMMENTS : There are reports in financial newspapers that the ongoing drought affecting nearly 200 districts in the country may not have much effect on GDP, since the farmers in the drought-affected areas contribute hardly 3 per cent to GDP. It is sad that such a measure of the impact of drought on the lives and livelihoods of millions of rural families is even considered. It is this mindset that is responsible for our country being the home of the largest number of poor and malnourished people in the world. P. Sainath’s article in The Hindu. Agriculture is not just a food producing machine but the backbone of the livelihood of 60 per cent of Indians. The extensive drought spotlights a situation of mass rural deprivation and a mindset that is insensitive to it. “In a country where 60 per cent of people depend on agriculture for their livelihood, it is better to become an agricultural force based on food security rather than a nuclear force.”  Prof.M.S Swaminathan NOTE 3: From last December through March 2009, the Centre had cut excise duty by six per cent and service tax by two per cent, besides stepping up plan expenditure to generate demand, which slowed down. These stimulus measures raised internal demand as the Government injected Rs 1.86-lakh crore into the system since October 2008 through three stimulus package. With the sharp deceleration in the growth of private final consumption expenditure (PFCE) in 2008-09, there was a shift in the contribution to growth from private consumption expenditure to government consumption expenditure.  Private final consumption expenditure (PFCE) declined from 56.7% (H1 08) to 55.2% in H1 09 while government consumption expenditure was high at 9.9% in H1 09, up by 1% from 8.9% in H1 08 resulting in increase in fiscal deficit facilitating actualization of inflationary potential. On quarterly basis, higher consumption expenditure from the government in the form of pay arrears given to its employees contributed to a high GDP growth of 7.9 per cent in July-September, while gross capital formation slowed to a seven-year low of 1.6 per cent. Private sector consumption also showed a 5.6 per cent increase. Consumption expenditure and capital formation are two components of expenditure on GDP. Public consumption increased by 27 per cent in the second quarter of 2009-10 from 10.2 per cent in the April-June quarter and private consumption also went by 5.6 per cent from a low growth of 1.6 per cent in April-June this year. CII also accorded the growth in GDP to the sharp increase of over 25 per cent in government consumption spending during the second quarter. This phenomenon of swelling govt. consumption for the past one year without leading to creation of productive assets or products or services has led  to inflammatory swelling of GDP powered by monetary growth, with consumer price inflation in double digits and food inflation at 15%. India Inc. is clamoring, as usual, for continuation of fiscal and monetary stimulus measures and cheap interest rate regime which benefits them, but at the cost of the vast consumers and public in general. RBI is duty bound to act now to reduce the liquidity overhand with a view to reigning in the raging inflation. Note 3: Even though agriculture share in GDP is18 per cent and policymakers are dismissive of its impact on GDP prospects due weightage should be given to the fact that two-thirds of India’s population is dependent on its fortunes and they have never fared well precisely because of official neglect over the years. With 65% of the population dependant on the rural sector, a slowdown here has ramifications, not only in terms of rural demand but, more important, human distress. Especially when juxtaposed with the rise in price of food articles (15%).  The key to long-term sustained growth must lie in a revival in agriculture and manufacturing. While the first depends on reforms to rain-proof Indian agriculture, the second is linked to revival of the global economy.

FARMERS’ AGENDA FOR ECONOMIC EQUITY
K. Ramasubba Reddy 

“Food Security can be ensured only with Assured Income Security for Farmers”

*Whoever makes two ears of corn, or two blades of grass to grow where only one grew before, deserves better of mankind, and does more essential service to his country than the whole race of politicians put together. Jonathan Swift, (1667-1745) 

When tillage begins, other arts follow. The farmers, therefore, are the founders of human civilization. Daniel Webster 

*I know of no pursuit in which more real and important services can be rendered to any country than by improving its agriculture, its breed of useful animals, and other branches of a husbandman's cares. George Washington 

1* Farmers till the soil, toil in the scorching sun and produce food and fiber to feed and cloth the nation’s teeming millions and thus fulfill the basic needs of the population. They are the suppliers of life sustaining food. Others think that it is their duty to work the farms, toil under the merciless sun and move their harvest to their kitchen.
Many think that farmers are merely unavoidable link between the soil and their dinner plates.
Government unhesitatingly imposes ban on the export of rice and wheat etc, at will. Farmers will get what Government and bureaucrats think they should get, and no more.
Farmers cannot seek what they want. But the government can get what it wants. Others have the right to determine the prices of their products and services. But farmers’ freedom to sell what they produce at a price they choose to can be curtailed at will.

Agriculture is seen as a passage to poverty, indebtedness and suicides.

Lands can be and will be forcibly acquired by the government. The price paid for their lands will not have to reflect the future cash inflows to the new owners. Farmers do not have the freedom to offer their lands to the highest bidders. Farmers do not have the right to hold on to their lands.

Farmers are the Orphans of the Mother Land! 

2* Farmers and agriculture are the source of all wealth multiplication. ‘If a farmer sows one seed the crop is hundred- or even a thousand-fold’. How come the one industry where there is an actual physical multiplication suffers from the most serious deprivations?
Everyone says that agriculture is the noblest of all professions; industry, trade and services come next in that order. But in reality a service job, particularly in government service, is the most prestigious and they get holidays& paid leave, annual increments, DA hike, periodical time scale promotions and pay revisions, medical benefits, pension& gratuity, including the ‘right to strike’. But farmers are seldom given any of these rights. They are India’s second-class citizens.
They are merely a component of the framework of essential commodities. They are here to serve others. 
Farmers buy inputs at the highest possible prices. Farmers sell output at the lowest possible prices. 
The children of farmers who had the good fortune of getting higher education do not go back to cultivate the land. Daughters of non-farming families do not prefer to be married into agricultural families. The life of a farmer housewife is continuous misery, comparable to life imprisonment. Farmers’ daughters prefer grooms engaged in non-agricultural professions.
3* How farmers became paupers? 
*Until as late as the 1960s, the Government imposed a compulsory levy on foodgrains produced by farmers. All transport, storage, trade, processing and export of agricultural produce were severely restricted, if not totally banned. This was done by raising the bogey of consumers’ interest and the obligation on the part of the government to ensure food security (at farmers’ cost).
*The government fixes the MSPs of agri crops which do not even cover costs of cultivation, what to say of covering entrepreneurial risks. The government could depress the agricultural economy in general and keep the farmers permanently poor, by depressing artificially prices of agri commodities.
These anti-farmer policies were sought to be justified by various arguments: the need to promote industry by keeping prices of wage goods and raw materials low and the need for comprehensive consumer protection. Public investment and expenditure for Agriculture and Bank credit to small farmers; all these are drastically reduced.
The result is ever increasing Rural Urban inequalities in incomes. The Eleventh Plan candidly confesses: GDP per agricultural worker is only about 75% higher in real terms than in 1950 compared to 400% increase in overall real per capita GDP. IS THIS INCLUSIVE GROWTH?
Thus State policy on agriculture has essentially been one of exploiting the farmers to benefit others and making farmers paupers in the process.
FARMERS AGENDA: THIS MUST CHANGE AND FARMERS CAN MAKE THE CHANGE HAPPEN BY: 
* BECOMING AWARE OF THE CAUSES OF THEIR POVERTY AND DEPRIVATION, 
* ORGANISE THEMSELVES AS FARMERS’ ASSOCOATIONS, 
*VOICE THEIR GRIEVANCES RELENTLESSLY, 
*PARTICIPATE IN ADVOCACY FOR REDRESSAL OF THEIR GRIEVANCES (through their associations), AND 
* ACHIEVE ECONOMIC FREEDOM OF DETERMINING THE PRICES OF THEIR PRODUCE, *INSIST ON INCREASED SHARE UPTO 18% IN PUBLIC INVESTMENT, AND PLAN ALLOTMENTS FOR AGRICULTURE, 
*DEMAND AND GET 18% OF DIRECT BANK CREDIT AS MANDATED WITH 10% OF BANK CREDIT RESERVED FOR SMALL AND TENANT FARMERS, 
*UNIVERSAL CROP INSURANCE FOR ALL FARMERS, AND 
*REMOVAL OF ALL RESTRICTIONS ON AGRI EXPORTS 
“When those who plough the fields stand idly with folded arms, Even completely desireless ascetics will not subsist.” Kural
QUTOTES ON AGRICULTURE *He who would look with contempt upon the farmer's pursuit is not worthy the name of a man. Henry Ward Beecher, ( 1813-1887) 
*The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays the freight both ways. John F. Kennedy (1917-1963) Thirty-fifth President of the USA 
Agriculturists are (as it were) the linch-pin of the world for they support all other workers who cannot till the soil. Kural *“
Advances in medicine and agriculture have saved vastly more lives than have been lost in all the wars in history.” Dr. Carl Sagan 
*Security for agriculture merits serious concern by not only the agricultural community but our nation as a whole. The risk to the U.S (read India) food supply and overall economy is real. Pat Roberts 
*Trade increases the wealth and glory of a country; but its real strength and stamina are to be looked for among the cultivators of the land. William Pitt, 1st Earl of Chatham, ( 1708 - 1778 ) Krsr/281109

Watering down Priority Sectors Advances -Depriving credit due to small farmers and Tenant Farmers

K. Ramasubba Reddy

Abstract: Banks are directed to extend mandatory 40% of net bank credit to priority sectors which was initially focused on hitherto needy and neglected sections especially to small land holders and small enterprises. Ever-since reforms have started in 90s the definitions of priority sectors have been periodically widened to include other sections with relatively high credit worthiness and deepened to include big loans. Thus the coverage under priority sector lending has increasingly been diluted, crowding out small borrowers and opening gates for big borrowers. The present paper details how the initial objective has been diluted and defeated over a period. CIFA urges that the original objective of giving priority to small loans be restored by doing away with the concept of indirect finance, and to fix sub-targets for small farmers and small enterprises so as to sub-serve the original objective.

Index:                                                                  Page

1.Introduction                                                         

2. Observations in the XI Plan Document

3.Arjun Sengupta Commission Report made trenchant observations

4. The National Commission for Agriculture-observations

5. How the dilution and denial of credit to the poor is done? By expanding the definition of Priority sector advances.

6. ADVERSE IMPACT ON CREDIT TO POOR FARMERS

A) Percentage of non-institutional credit, with very high rate of interest, is taken more by Marginal and Small Farmers

Bi) Continuous decline in the share in amount of small Agri. Loans

Bii) Share of Agri advances of Rs.1 Crore and above increased by 5 times ( 500%)                                                    

Biii) Decline in loan accounts of credit limits of Rs 25,000 and less

Ci)  DECLINING RURAL CREDIT/DEPOSIT RATIO

Cii) Regional Disparities

7. Diversion of Rural Deposits to Metros

8. Decline in rural branches Ratio

9. Adverse effects of RBI discriminatory rural credit policy

10. CIFA’s observations& Suggestions

1. Introduction

With a view to extend credit to hitherto neglected sectors  with higher employment elasticity and potential,  it was decided in 1985 that Banks should  extend credit  to an extent of 40% of net bank credit to priority sectors like agriculture and Small Scale Industries. Sub-targets were also fixed details of which are given below.

	Domestic banks (both public sector and private sector banks)	Foreign banks operating in India
Total Priority Sector advances	40 percent of NBC	32 percent of NBC
Total agricultural advances	18 percent of NBC	No target
SSI advances	No target	10 percent of NBC
Export credit	Export credit does not form part of priority sector	12 percent of NBC
Advances to weaker sections	10 percent of NBC	No target

{note: NBC denotes net bank credit}

Priority sectors initially comprised of:

(i) Agriculture (Direct and Indirect finance)

(ii) Small Enterprises (Direct and Indirect Finance)

(iii) Retail Trade

 (iv) Micro Credit:

1b)Subsequently, relatively high credit worthy activities like housing, education, transportation and loans to professionals have been included in the priority sector diluting the spirit of financing hitherto neglected and needy sectors for productive purposes

Widening definition of indirect Agri finance 1990s further diluting the scheme:

From the 1990s onwards, the definition of what constitutes indirect finance to agriculture has been widened and diluted drastically by the RBI. This enabled banks to show higher level of growth of indirect finance from the mid-1990s. The major changes introduced in the definition of indirect finance are as follows:

 Up to 1993, only direct finance to agriculture was considered as a part of the priority sector target of 18 per cent for agriculture and allied activities. From October 1993, direct and indirect finances have been added in the priority sector target. It was stipulated that indirect finance to agriculture only up to one-fourth of the total agricultural advances would be considered while meeting the priority sector target of 18 per cent for agriculture. However, the indirect finance over and above one-fourth of total agricultural advances was allowed to be reckoned while meeting the overall target of 40 per cent for priority sector advances.

2. Observations in the XI Plan Document

 “At present direct finance to agriculture under priority sector lending includes credit for the purchase of trucks, mini-trucks, jeeps, pick-up vans, bullock carts, and other transport equipment to assist the transport of agricultural inputs and farm produce.

Direct finance also includes credit for the construction and running of cold storage facilities, warehouses and godowns. As alternate formal sources of finance are available for these activities, their inclusion under direct finance for agriculture needs to be reconsidered.”

3.Arjun Sengupta Commission Report made trenchant observations:

A close look at RBI guide lines/directives to banks, reveal that apathy either deliberately or by mistake also exists at the top and policy planning level…as the credit system operating under the existing guidelines of RBI. It emerges that small borrowers are competing with large and strong borrowers. The coverage under priority sector lending has increasingly been diluted, enabling big borrower loans at the direct expense of small borrower loans.

As part of the so-called process of” aligning  bank credit to the changing needs of the society”, the scope and definition of the priority sector, once dominated by small farm related loans ,were fine-tuned by including new items and enhancing credit limits of constituent sub-sectors to more than Rs.40 lakh. Over the years particularly after the mid-nineties, relatively high credit worthy activities like housing, education, transportation and loans to professionals have been included in the priority sector. This has affected unfavourably the credit flow to the needy sector.

4. The National Commission on Farmers, headed by Dr M.S. Swaminathan, also pointed out that removal of the lending facilities and concessions of banks during the post-reform period have accelerated the crisis in agriculture.

5. How the dilution and denial of credit to the poor is done?

In 2004, the Finance Minister announced that extension of agricultural credit was neglected in the past and declared that farm credit will now be doubled in three years.

 Doubling of credit in three years since 2004 is achieved quantitatively but without any increase in credit to small farmers and tenant farmers. Up to 1993, only direct finance to agriculture was considered as a part of the priority sector target of 18 per cent for agriculture and allied activities. From October 1993, direct and indirect finances have been considered together for meeting the priority sector target. About one-third of the increase in credit flow to agriculture between 2000 and 2008 was on account of the increase in indirect finance. The sharp growth in indirect finance in the 2000s was mostly a result of changes in definitions effected since late 1990s. These changes broadly involved:

 (a) The addition of new forms of financing commercial, export-oriented and capital-intensive agriculture; and

(b) Raising the credit limit of many existing forms of indirect financing. Indeed, meeting the task of doubling agricultural credit appears to have become much easier for banks as a result of these definitional changes.

The entire growth of indirect finance to agriculture in the 2000s originated from a major expansion of loans with a credit limit of more than Rs 10 crore, and particularly, more than Rs 25 crore. In the year 2000, indirect finance with credit limit above Rs 25 crore accounted for less than one-third of the total indirect advances to agriculture. However, in 2008, indirect finance with credit limit above Rs 25 crore accounted for nearly 55% per cent of the total indirect advances to agriculture.

c. There was a major rise in the share of direct advances with a credit limit of more than Rs 1 crore between 2000 and 2008. The amount of direct advances with a credit limit of more than Rs 1 crore formed 5 per cent of total direct advances in 2000; the share more than doubled by 2008 at 11 per cent. The share of direct advances with credit limits “between Rs 10 crore and Rs 25 crore” as well as “above Rs 25 crore” more than doubled between 2000 and 2008.

d. Further, the most important beneficiaries of the increase in direct advances since the late 1990s were the big borrowers. The share of number of loans outstanding to big borrowers under direct finance increased between the mid-1990s and 2007-08, and the loan per account increased phenomenally since the late 1990s.All this happened at the cost of reducing credit to small farmers.

6. ADVERSE IMPACT ONCREDIT TO POOR FARMERS

These changes in definition which either widened or hiked the limits of loans, made it easy for banks to show that there is big hike in loaning since 2004 and the task of banks to follow the government’s directive in 2004 to double agricultural credit in three years is made easier.

A) Percentage of non-institutional credit (Mostly from money lenders), with very high rate of interest, is taken more by Marginal and Small Farmers than by other farmers with larger land holdings whose share in institutional credit, with normal interest, is more.

                                                                                              

                                  Size of land holding (Ha)                 

Sources of loans	Less than 0.4	0.41-1.00	1.01-2.00	Above 2.00
Institutional	42.4	52.8	57.6	66.8
Non-Institutional	57.6	47.2	42.4	33.2

  b) RICH FAMERS ARE PREFERRED AGAINIST POOR FARMERS FINANCE AND AGRICULTURE-DECLINING TREND EVERSINCE REFORMS ARE INITIATED FROM 1990s

 Bi) Continuous decline in the share in amount of small Agri. loans (Rs.25,000 and less) from 59% in 1990 to 10% in 2008.

Year	1985	1990	1995	2003	2006	2008
Share in Agri credit %	49.60	58.70	52.00	23.60	13.30	10

About 80% Small and marginal farmers own 40% of land but small loans account for on 10% of the total agri advances.

Bii) yet, share of Agri advances of Rs.1 Crore and above increased by 5 times ( 500%)                                                    

Amount of agri loans (Rs.in Crores) (Accounts ,000s)

Agri Loans	M2006 Accounts	M2008Accounts	M2006 Amount	M2008 Amount
Small loans up to Rs 25,000	1,78,00	1,96,20	22,979	27,987
Loans One crore and above	7	10.4	50.969	73,331

Source: RBI-BSR

Biii) Decline in loan accounts of credit limits of Rs 25,000 and less.

No. of year	A/C in lakhs A/Cs
1992-93	267
2005-06 2007-08	178 196**

   AGRICULTURE

 ** Decline by 1/4^th (27%) over 92-93

Ci)  DECLINING RURAL CREDIT/DEPOSIT RATIO

C-D ratio of All Scheduled Commercial Banks in metropolitan centres was the highest (87per cent), followed distantly by rural centres (57 per cent) and urban centres (56 per cent). The semi-urban centres recorded the lowest CD ratio at 50 per cent. As of Mar 09, the credit-deposit (C-D) ratio of All Scheduled Commercial Banks stood at 73 per cent. During the FY 2009, the growth of deposits and advances in metro areas was the same rate at about 20%. In rural areas growth rate of deposits growth was 21%. Advances grew by only 14%. In semi-urban areas while deposits grew by 24%, and advances growth rate was only 16% and in urban areas while deposits grew by 25%, advances grew by only 20%. Percentage of credit given out of deposits collected from rural and semi-Urban areas continues to be less than the percentage of credit deployed in metro areas, indicating continued diversion of deposits from rural and semi-urban areas for giving credit in Metro areas. Cii) Regional Disparities Western and southern Regions top the list with C/D Ratio of over 85%. North-Eastern, Eastern and Central Regions are having low C/D Ratio of less than 50%. N1.Regon-wise Credit/Deposit Ratio as per Sanction- As on March 09-(%) All India 72.6 Northern Region 68.5 North-Eastern Region 35.8 Eastern Region 48.9 Central Region 44.8 Western Region 85.2 Southern Region 88.4 Source: RBI-TPB March 2009 There seems to be correlation between State Credit/Deposit Ratio and State Per capita Income as the figures in the table below indicate. N2.State-wise variations in Bank Credit and Per Capita Income S no 1 State 2 3 *C/D Ratio %  Per capita Income Rs. @ 4 % Share in credit*5 1 Bihar 27 11,000 0.8 2 Jharkhand 32 19,000 0.6 3 N.E States 36 21,000 0.8 4 U P 42 16.000 3.9 5 Orissa 51 23.000 1.3 6 Chattisgargh 53 23,000 0.7 7 M P 57 18,000 2.0 8 W B 61 32,000 4.9 9 Kerala 60 42,000 2.9 10 Gujarat 63 38,000 4.0 11 Haryana 66 59,000 1.9 12 Punjab 66 45,000 2.8 13 Karnataka 77 36,000 6.9 14 Rajasthan 80 23,000 2.6 15 Maharastra 91 47,000 31.9 16 A P 98 34,000  7.4 17 T N 109 41,000 9.4 * Data as on March 09, @Data as on March 08  Sources: RBI Qtly Dep Credit, CSO NAS 2009 6.Diversion of Rural Deposits to Metros As of Mar 09, rural deposits were Rs 3.65 lakh crore where as credit extended was only Rs 2.09 lakh crore. If the same Metro C/D ratio of 87% C/D ratio were maintained in rural branches, the rural advances would have been Rs 3.18 lakh crore instead of Rs 2.09 lakh crore. Thus a huge chunk of rural deposits to the extent of over Rs 1 lakh crore was diverted rural area to give loans in metro areas. Deposits from semi urban areas were Rs 5.32 lakh crore where as credit extended was only Rs 2.66 lakh crore (53% of deposits). If the average C/D ratio of 73% were to be maintained credit in semi-urban areas would have been Rs3.88 lakh crore instead of Rs 2.66 lakh crore and an additional amount of Rs 1.22 lakh crore could have been extended in semi-urban areas for agriculture and micro and small enterprises which have higher employment potential than big enterprises and trade. This trend has been continuing for decades. This is inequitable and rural advances should be at least in the same C/D ratio of Metros. The farmers could have been saved from the clutches of the moneylenders charging high interest rate of 24% to 36% per annum. The additional Rs 1 lakh crore loans that could have been given for farming and running rural enterprises would have generated twice the income and more employment opportunities than when the same loan amount given to traders, realtors and NBFCs in Metros.

7. Decline in rural branches Ratio

As of Mar 09, number of Rural Branches was 31,489, semi-urban 18,764, urban 15,325, Metro 13.478 and total number of branches 79,056. Percentage of rural branches to total branches declined from 58% in1991 to 40% by Mar 09. Had at least 50% of the branches are opened in rural areas, the number of rural branches would have been 39,500; about 8,000 more branches would have been catering to the banking needs of the rural people.

All the above data reveals that agricultural credit for poor farmers is neglected even since 2004 also.  The claim that farm credit has doubled in three years since 2004 is also proved to be qualitatively wrong as credit to poor farmers and rural artisans has dwindled.

8. Adverse effects of RBI discriminatory rural credit policy

 The metro areas account for 57 per cent of total deposits as against just 9 per cent from the rural areas. As for the distribution of credit, metropolitan group gets 57 per cent of bank credit. Combined with the 16 per cent for the urban sector, this means that 83 per cent of bank credit goes to miniscule metro/urban borrowers with the rural borrowers getting just 7 per cent. The regional distribution of bank centres is no better with seven north-eastern States together (Assam included) trailing a single State, Uttar Pradesh, by nearly a fourth.

One example starving credit to rural and semi-urban areas is given below.

Deposits and Credit of Scheduled Commercial Banks- MAHARASTRA STATE- March 2009 (Rs. in crore)

	No. of Offices	% share in the total	Credit-Amount	% share in the total
Rural	2118	29%	14 301	1.56%
Semi-Urban	1397	19%	18 599	2.04%
Uraban/Metro	3879	52%	879 468	96.40%
Total	7494	100	912,368	100

Source: RBI –Qtly Dep -Credit-Mar 09-Computed

NOTE: Major chunk of credit to the extent of 96% of the total credit in the State is given in Metro/urban agglomerations. A megre 4 % of the total credit is given in the rest of the vast track of Maharastra.

The inevitable conclusion is that all wealth and prosperity is concentrated in metro. Other areas of Maharastra State are starved of credit and are left HIGH AND DRY.

The vast rural belt has only 29% of the bank branches, compared to All India average of 40% rural branches in total branches. Metro has more than 50% of the total branches.

Regional Disparities in Credit Dispensation are given in the Note at the bottom.

9 .CIFA’s observations: In post reform era, there has been studied indifference of financing priority sectors. Neither the Government nor the RBI, bothered to reverse the trend. The RBI also very silently re-defined definition of priority sectors and allowed loans given to big borrowers also to be included under this category. It is very clear that during the decade commencing from 1993, the successive governments neglected loaning to agriculture sector, the RBI was a party to this, wittingly or unwittingly, and banks took cue from this and decelerated the small loans to priority sectors.

SUGGESTIONS: Provide 10% of total credit to small farmers and twnant farmers

i) The recommendations of NCEUS that 10% of bank credit should be given to poor farmers should be implemented forthwith to better the lot of Marginal and Small Farmers, who constitute 84% of all the farmers. Presently their share in agri credit is only 4%.

ii) Indirect finance should not be included in 18% target for agricultural credit. Finance to the extent of 18% of bank credit should be made available as direct agricultural finance for production and investment purposes as was the position obtaining up to 1993. Credit limits not exceeding Rs 25 lakh should be reckoned under this category.

Higher credit limits exceeding Rs 25 lakh should be categorised as agri business loans and extended as part of other business loans.

iii) Constant effective monitoring of agricultural credit should be made by the RBI to ensure that mandated 18% of net bank credit does reach the farmers.

iv) As of March 2009, while Statutory Liquidity Ratio requirement is only 24%, Investment-Deposit Ratio was 28%. Thus a whopping sum of Rs 1.70 lakh crore is excessively invested in government securities, instead of lending to agriculture and small enterprises which so far received only half the mandatory credit. This shows that all the money recently released by reducing CRR/SLR is invested in govt securities, thus defeating the purpose of infusing additional liquidity of nearly Rs1.70 lakh crore. This money should be used to enhance credit to priority sectors and industry.