FARMERS PRAISED AS HEROES, BUT INCREASE IN FUNDS ALLOTED FOR FARM SECTOR-ZERO
K. Ramasubba Reddy
SUMMARY
*Farmers praised as heroes for ensuring food security, but when it came to proposals for allocation of funds, farmers who are praised as heroes got zeroes in allotment of funds. Budget increases for agriculture and rural infra fund Zero in real terms. Continuous decline in the share of agriculture in plan outlays over the years
*Increases in MSPs do not cover even costs of cultivation. Important Recommendations of Alagh and Prof.M.S.Swaminathan, not accepted. This has resulted in underpricing of farm produce thus transferring, in part, farmers’ rightful income to non-farm segments. As a consequence, the disparity in rural and urban incomes widened to unconscionably high levels. The disparity between agri and non-agri sectoral GDP is going to increase from 1:3 in 2003 to 1:5 by 2012.
*The share of agriculture investment in the total investment has declined from 15% in 1970s, to 11% and 8% 80s and 90s respectively and further declined to 5.7% by 2005-06. The share of public sector in the total investment in Agriculture declined to 6%. Need to restore to 1970s level of 14%,
*Increase in credit flow to Agriculture much less than stated figures- Figures are padded. Growth in incremental direct agri advances (of loans less than Rs one crore) during 2004-08 was about 150%, where as aggregate incremental credit of banks increased by180% during the same period. Rate of increase in Agri loans less than rate of increase in aggregate loans.
*No real benefit to farmers due to Debt waiver and fertilizer subsidy schemes, fresh loans not given and majority of farmers left out of the scheme,
* Shortfalls in lendings to Agriculture, Weaker Sections and SME segment together add up to a whopping sum of about Rs 180,000 crore,
*CONCLUSION: CONSTITUTE FARM INCOME COMMISSION TO IMPROVE INCOMES OF FARMERS.
DETAILS
1* The Finance Minister (in-charge), while presenting the interim budget on the 16th Feb 2008, eulogized the services of farmers in the following words “real heroes of
The objective of ‘Inclusive Growth’ envisaged in the 11th Five Year Plan is ‘reduction of hunger and poverty, the improvement of rural livelihoods and human health and facilitating equitable socially, environmentally and economically sustainable development.’ But the programmes and the schemes planned for fulfilling these objectives are given paltry sums in farm sector.
2a* Continuous decline in the share of plan outlays
There has been continuous decline in the plan outlays for Agriculture. During 6th Five Year Plan the share was5.8%; the same declined to 4.9% during 9th Plan and further down to 3.9% during the 10th Plan. The share of expenditure on Research &Education was very low at 6% of the total development expenditure on Agriculture. The growth of public expenditure has slowed down since 1990s on Research and Extension, in constant terms. In the case of extension services the growth of expenditure was highest in the sixties resulting in acceleration in the agricultural growth. Thereafter the rate slowdown is very sharp. The rate of growth of expenditure on extension services has declined three-fold since 1990s.
The total expenditure on Agriculture fell from 13% in the 90s to 10% in the early part of the current decade. The growth of expenditure on irrigation declined from 14% from the first half of 1990s to 10% in the second half of 1990s and further to 4% in the subsequent period.
2b* Proposed allocations for Agriculture Zero in real terms
i* Proposed increase in budget allocation for Agriculture is a megre 1.6% which does not even take care of estimated price raise next year, which means that the budget allocation is less than the allocation in the current year in real terms. In contrast, allocation to NREGS is proposed to be doubled. Agriculture needs massive budget allocation to improve research and development efforts and soil conserving efforts to improve yields. Hence it is essential that fund allocation mach the needs for practical research in developing improved seeds, soil conservation methods and taking these results to field by dedicated extension staff. And funds required for this kind of long term work cannot be met by a megre allotment of Rs10,000 crore. It requires much more and the Government knows it. Yet the allotment is practically zero.
ii* There has been no increase in the fund allocated under Rural Infrastructure Development Fund (RIDF) when compared with the previous year. Redoubling of efforts in developing Rural Infrastructure is a crying need calling for doubling of fund allocation’. Same amount of Rs 14,000 crore fund allocation means lesser funding in real terms. So the benefit on account of the same amount of allocation to RIDF is minus zero in real terms.
3* Decline in public investment in Agriculture
The FM stated that “the gross capital formation in agriculture (GCFA) as a proportion of agriculture GDP improved from 11.1 per cent in 2003-04 to 14.2 per cent in 2007-08.” Comparing GCFA with Agri GDP is like begging the question. Agri GDP is less because of less GCFA in the past. Over the years there is a decline in the share of agriculture investment in the total investment from 15% in 1970s, to 11% and 8% 80s and 90s respectively and further fall to 5.7% by 2005-06. The share of public sector in total investment in agriculture has declined too more sharply during the 1990s (6.5%) as compared to the 1980s and 1970s (11.6% and 14.3% respectively). The average share of Public Sector investment during 2001-06 still remained below the level of 1990s. Hence there is a case for increasing public investment substantially to reach the level in 1970s i.e., 14% from the present level of 6%, to sustain higher Agri GDP growth. Private sector share in agriculture also showed a similar trend over the years. The decline in investment in agriculture is due to relatively lower shares of both public and private sector investments compared to their shares in the total investments in the economy. Moreover, the share of the agricultural sector investment in GDP declined from 2.2% in the late 1990s to 1.9% in 2003-04 and has remained unchanged upto 2003-06. This decline was partly due to stagnation or fall in public investment in irrigation, particularly since the mid 1990s.
The share of expenditure on Research &Education was very low at 6% of the total development expenditure on Agriculture. The growth of public expenditure has slowed down since 1990s on Research and Extension, in constant terms. In the case of extension services the growth of expenditure was highest in the sixties resulting in acceleration in the agricultural growth. Thereafter the rate slowdown is very sharp. The rate of growth of expenditure on extension services has declined three-fold since 1990s. Growth in Public Expenditure on Research and Extension (per cent)
| Year | Research & Education | Extension &Training |
| 1960s | 6.5 | 10.7 |
| 1970s | 9.5 | -0.1 |
| 1980s | 6.3 | 7.0 |
| 1990-2005 | 4.8 | 2.0 |
Investments should be made in research and development (R&D), rural infrastructure and extension. Even though spending on agricultural R&D is among the most effective types of investment for promoting growth and reducing poverty, such spending has stagnated since the mid-1990s.A recent study by IFPRI shows that if investments in public agricultural research trebled in South Asia from US$1(Rs 5,000 Crore) to US$3 billion (RS 15,000 Crore) from 2008 to 2013, agricultural output growth would increase by 2.4 percentage points (2008-20) and 12.5 crore people would emerge out of poverty. A very significant and important benefit indeed.
Inadequacy of farm credit continues to be one of the major bottlenecks hindering the growth in investment and growth in agriculture. The growth of direct finance to agriculture declined in 1990s (12%) as compared to 1980s (14%) and 1970s (around16%). The average share of long term credit also declined from over 38% to around 36%, adversely affecting capital formation in agriculture.
4* Increase in MSPs do not cover even costs of cultivation
Ai*The F.M said that “Our Government has ensured remunerative prices for the farmers for their crops. Since 2003-04, Minimum Support Price (MSP) for the common variety of paddy was increased from Rs.550 to Rs.900 per quintal for the crop year 2008-09. In case of wheat the increase was from Rs.630 in 2003-04 to Rs.1,080 per quintal for the year 2009.”
ii* The simple fact is that the increases in MSPs do not cover even cost of cultivation of various crops. Cost of cultivation plus 50% there on(C2+50%) for paddy and wheat is Rs1,500 each. But the MSPs are only Rs 900 and Rs 1,050 for paddy and wheat respectively. There was no increase in MSP of sugarcane of Rs 81 even after CACP recommended Rs125 per quintal. Consequently sugarcane cultivation dwindled with the result sugar mills are closing in Feb itself. In U P alone there is 50% reduction in sugar production. Gauging the shortage of sugarcane, the government pegged sugar output at 18 million tonnes for this season, down 32 per cent from the last year level of about 26.4 million tonnes. We are forced to import raw sugar, thanks to the refusal by Govt to hike MSP of sugarcane.
iii* Even though there was bumper harvest of wheat and rice, exports were banned with the result farmers were deprived of benefit of high international prices. Now the stocks are rotting in the silos and Government is thinking of allowing exports by providing subsidy as international prices have come down. Farmers are paying the price for the muddled policies of the Government. The carrying cost in FCI godowns is Rs 2,400 a tonne a Year. For each month of storage the cost gets pushed up by Rs 200 a tonne. In other words, a tonne of stored wheat would cost Rs 12,400 (at procurement price of Rs 10,000 a tonne plus a local tax of Rs 1,000 paid at the time of procurement. For 21 million tonnes of wheat that might remain in the FCI godowns for a year, government will have to incur a staggering Rs 10,000 crore just for storage. The Centre is now requesting States to lift wheat from the buffer stocks as it is still holding about 136 lakh tonnes from last year's procurement and there are no takers for the stored stock! Farmers are adversely affected by the anti-farmer market interventions and the restrictions on the futures market
iv*Though the difference between Minimum Support Price (MSP) and Wholesale Price (WSP) for essential commodities such as Moong, Urad, Gram, Arhar on an average was around 33% between December 2003 to January 2008, it has gone up beyond 60% in wholesale prices and retail prices in the same period, which shows that farmers and consumers remained hard hit due to huge difference in WSP and retail price, according to The Associated Chambers of Commerce and Industry of India
v* The recommendations of Alagh Committee to make CACP autonomous is rejected outright to retain Govt’s vice like grip on fixing prices of agri produce and the recommendations of Prof. M.S.Swaminathan Commission and those of Standing Committee on Agriculture on methodology to fix MSPs to defray costs and give 50% over C2 costs are also completely ignored. This has resulted in underpricing of farm produce thus transferring, in part, farmers’ rightful income to non-farm segmants. As a consequence, the disparity in rural and urban incomes widened to unconscionably high levels.
B*Underpricing of Agri produce resulted in depriving farmers of their rightful income
i* “Concentrate on the income of farmers and productivity will take care of itself” Says Prof. M.S.Swminathan, noted Agricultural scientist. He touched at the heart of the solution by saying that the objective of policy-makers and others in the field of agriculture should be to make farming profitable and remunerative rather than focusing on production and productivity alone.
ii* Mr Goriparti Narasimha Raju Yadav, the outstanding farmer from Krishna district (A.P) awarded the Padma Sri, feels that the Government should take steps to ensure remunerative prices to farm produce and need not give sops in the form of loan write-offs or subsidies. “The farmer does not need crumbs from anybody. He needs a fair price for what he has grown,” he said in an interview. “A nation cannot survive without farmers and many farmers nowadays are shifting to other fields as the returns on agriculture are not very encouraging. We will face a food crisis if remedial measures are not taken,” he said. Timely supply of inputs and a fair price for the farm produce should be ensured by the Government.
iii* Studies by the planning commission and others show that while the income ratio between agri workers and non-agri workers during 1951 was 1:1.8, it got widened to 1:2.8 by 1984, it further widened to 1:5.2 by 2004 and it is estimated by the Centre for Development Economics that whereas agricultural sectoral GDP stood at nearly Rs.3 lakh crore in 2002-03, it will rise to no more than Rs.4 lakh crore(+33%) a decade later in 2011-12 at the agricultural growth rate forecast for the Eleventh Plan. Meanwhile, the combined manufacturing and services sectors would have soared from Rs. 9 lakh crore to around Rs. 20 lakh crore(+120%), further widening the gap between the relatively stagnant sectors of the economy and the boom sectors from Rs.6 lakh crore to Rs.16 lakh crore. The disparity between agri and non-agri sectoral GDP is going to increase from 1:3 in 2003 to 1:5 by 2012.
The Eleventh Plan candidly confesses: “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold (400%) increase in overall real per capita GDP.” Is this what planned inclusive growth is planning to achieve!
5* Increase in credit flow to Agriculture much less than stated figures-Figures are padded
On increasing credit flow to agriculture, the F.M averred that “On June 18, 2004 our Government had announced a package for doubling the flow of credit to agriculture. The credit disbursements have already gone up from Rs 87 thousand crore in 2003-04 to about Rs.2.5 lakh crore in 2007-08 marking a three fold increase.”
This is a padded and window dressed figure.
i* Banks are directed to extend mandatory 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.
ii* Observations of NCEUS-Apathy at policy level
In the Report of National Commission for Enterprises in Un-organised Sector- NCEUS-2007, (Chairman: Arjun Sengupta) it is stated that:
‘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.’
iii* Doubling of growth in incremental credit in four years since 2004 was perhaps achieved quantitatively but without any increase in credit to small farmers and rural artisans. The extent of revival of credit flow to agriculture in the 2000s would have been far less in the absence of a sharp growth in indirect finance to agriculture. About one-third of the increase in credit flow to agriculture between 2000 and 2008 was on account of the increase in indirect finance. Even this growth did not originate from a growth in the traditional components of indirect finance, such as loans for the supply of inputs, power and credit to agriculture. 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 1 crore, and particularly, more than Rs 10 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 2007, indirect finance with credit limit above Rs 25 crore accounted for nearly 60% per cent of the total indirect advances to agriculture.
iv* There was a major rise in the share of direct advances with credit limits 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 corresponding share in 2008 was 12 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. 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 thereafter, and the loan per account increased phenomenally since the late 1990s.All this happened at the cost of reducing credit to small farmers.
v* Percentage share of small loans of Rs 25000 declined from 50% in 1990 to mere 11% in 2007. And loans of over Rs one crore skyrocketed by more than 400% during the same period. When all these factors are taken in to account the growth in incremental direct agri advances (of loans less than Rs one crore) during 2004-08 was about 150%, where as aggregate incremental credit of banks increased by180% during the same period. This means the rate of growth in direct agri advances was less than the rate of growth in total bank credit. And no special credit can be taken for the same by the government for this lesser rate of growth in agri advances vis-a-vis total bank advances. Rate of increase of Agri loans was less than rate of increase in aggregate loans. Thus the claim of the Government that there was doubling of incremental credit in four years is padded and window dressed.
Inadequacy of farm credit continues to be one of the major bottlenecks hindering the growth in investment and growth in agriculture. The growth of direct finance to agriculture declined in 1990s (12%) as compared to 1980s (14%) and 1970s (around16%). The average share of long term credit also declined from over 38% to around 36%, adversely affecting capital formation in agriculture.
6* No real benefit to farmers due to Debt waiver and fertilizer subsidy schemes
i* The Government announced the very ambitious Debt Relief & Loan Waiver (DRLW) scheme for farmers in Budget 2008-09. But despite the scheme, some 1,154 farmers have committed suicide in Vidarbha alone. The only result of debt waiver scheme is cleansing the balance sheets of the banks at the cost of the taxpayer. Of course it makes farmers eligible for fresh loans, but no fresh loans seem to have been given from this Rs.65,000 crore during khariff season thus defeating the very purpose of loan waiver scheme. Banks in
More over, the debt waiver scheme does not cover those who repaid loans honestly. Dry land farmers also did not get much benefit as there is no differential definition for eligibility under the scheme for dry land crops. Income from per acre dry land crop is much less than income from per acre irrigated crop. This fact was not taken into account while formulating the scheme. Loans taken from money lenders constituting half of the total farm debt were outside purview of the scheme. Hence the number of farmers who did not benefit from the scheme, though deserving being placed in similar circumstances, is more than those who got the benefit.
ii* The subsidy bill on fertilizers of Rs 96,000 crore, largely goes to the industry, and only indirectly to the farmers, that too for farmers growing irrigated crops using urea. It does not in any way benefit dry land farming which constitutes 60% of the aggregate farmland. So the benefit to dry land farmers who are in majority the benefit of fertilizer subsidy is zero.
7*Shortfall in extending credit support for weaker sections by Private sector banks
Financing of weaker section is at less than mandated credit. Private sector banks are the laggards details of which are given below. Banks are required to extend credit to weaker sections unto 10% of their net bank credit. Weaker sections comprise of SCs/STs, Small and Marginal farmers, Tenant Farmers, Agri. Labourers, Rural artisans, etc.
ii* Financing of Weaker Sections (Rs in Crore) Figures in brackets-loans given as % to net bank credit
| Year | Pub Loans | Sector shortfall | Pvt Loans | Sector shortfall | Total Loans | Total shortfall |
| 2004 | 41,589 (7.44%) | 14,310 | 1,495 (1.34%) | 9.661 | 43,084 (6.49%) | 23,971 |
| 2005 | 63,492 (8.85%) | 8,250 | 1,914 (1.20%) | 14,036 | 65.406 (7.52%) | 22,286 |
| 2006 | 78,374 (7.70%) | 23,410 | 3,909 (1.60%) | 20,522 | 82,283 (6.50%) | 43,932 |
| 2007 | 94,285 (7.20%) | 36,666 | 5,229 (1.55%) | 28,506 | 99,514 (6.02%) | 38,060 |
| 2008 | 1,26,934 (9.3%) | 9,554 | 7,228 (2.10%) | 27,191 | 1,34,162 | 36,745 |
Public sector banks have increased their lendings over a period to about 9% by 2008 from about 7% in 2004. Still as many as 12 out of 28 banks have lent less than 9%. IDBI Bank lendings were at a very low of 0.4% with a shortfall of Rs 5,200 crore. Private sector banks lendings continue to be very low at 2% with a very huge shortfall of Rs 27,000 crore. Out of 23 private Banks, as many as 7 banks lent even less than 2%.For example ICICI Bank which is the second biggest bank after SBI, the lendings work out to a mere 0.72%,with a whopping shortfall of Rs 11,870 crore. ICICI Bank and IDBI Bank together account for a huge shortfall of Rs 17,000 crore, more than one third of the aggregate shortfall of Rs 46,000 crore.
iii* Aggregate shortfall of all banks, taking each bank’s shortfall into account, works out to about Rs46,000 crore. Finance provided for weaker sections up to March 2008 was only about Rs 1,34.000 crore against a requirement of Rs1,80,000 crore. As many as 15 out of 28 public sector banks and ALL Private sector banks did not achieve the norm of 10% lending to weaker sections and the loaning by Private sector banks was megre at 2%. As many as 14 out of 28 public sector banks and 17 out of 23 private sector banks have not achieved the 18% target of agri credit. Shortfalls in both Agricultural and Weaker Section Loans is estimated at Rs 77,000 crore.
iv* Small and micro enterprises are neglected too in dispensing credit. The National Commission for Enterprises in the Unorganised Sector (NCEUS) has recommended that loans to Small and Micro Enterprises (SME) should be enhanced to 10%. Presently the actual achievement is a mere 4.5% of NBC. The shortfall works out to a huge amount of Rs 102,760 crore. These shortfalls in lendings to Agriculture, Weaker Sections and SME segment together add up to a whopping sum of about Rs 180,000 crore – roughly 8% of non-food credit outstanding as at the end of March 2008.
| Category | Percentage | Of | net | Bank Credit |
| | 2004 | 2005 | 2006 | 2007 |
| Small&Marginal Farmers | 2.5 | 3.4 | 3.3 | 3.1 |
| Micro Enterprises(Invest Upto Rs.5 lakh) Total Weaker Sections | 2.1 6.49 | 1.6 7.52 | 1.4 6.50 | 1.2 6.02 |
Of net bank credit, credit extended to small & marginal farmers was only 3.1% and credit to micro enterprises a mere 1.2%.
v* The recovery of loans advanced to weaker sections at 95% is excellent. By March 2009, banks have to extend loans to weaker sections to the tune of Rs 2,20,000 crore. If the present trend continues, there will be huge shortfall 0f Rs 50.000 crore in financing weaker sections resulting in loss of income generation , estimated at Rs 20,000 crore ,to the economically most vulnerable people. The Policy change recently announced by the RBI to deposit the default amount in RIDF makes it easy to avoid lending to weaker sections by banks thus the defeating the purpose of the scheme.
8* CONCLUSION- CONSTITUTE FARM INCOME COMMISSION- for ensuring a minimum take home income to farmers
The finance minister rightly quotes Amartya Sen while clubbing ‘down turn with security’ which is meant for providing safety nets that could arise because of market related risks. More importantly, such protective security should also address the poor returns to farmers. Prof.M.S.Swaminathan rightly pointed out that ‘recommendations of the 6th Central Pay Commission, which provide benefit to 4.5 million central government employees and 3.8 million pensioners, were not only accepted but were improved upon by government. I suggest that major political parties should commit themselves to establishing a Farm Income Commission which can go into the totality of the income of farmers from crop and animal husbandry, fisheries, agro-forestry and agro-processing, and suggest ways of ensuring a minimum take home income to farmers.’ He hoped that ‘the recommendations of the National Commission of Farmers on the steps needed for increasing the income of small producers, as well as the need for ensuring minimum support price not only for wheat and rice but for a wide range of millets, pulses, oil seeds and tuber crops will be implemented. Further, provision needs to be made for establishing a national grid of warehouses for grains and cold storage structures for perishable commodities. The prevailing mismatch between production and post-harvest technologies should be ended. The National Policy for Farmers presented in Parliament in November 2007 makes a commitment that government will try to ensure income and work security to farm families.
ii*“Farmers livelihood always under threat and continues to be the riskiest profession”- BL021208: Creation of two crore jobs in the non-farm sector in the rural areas over the next twenty years is necessary to achieve a nutrition secure
iii* The next budget should try to address the issue of converting this commitment into well defined programmes and resource allocation. Much has been done during the last five years to revitalise our agriculture and to reduce agrarian distress. Much, however, remains to be done to do justice to the genuine needs of the majority of our population who constitute the farming community.’ Pride of place would have to be given to agriculture and skill development — the first for raising productivity and the second for transferring workforce out of farms and traditional services into industry. These are the basics;
iv* Farmers thus get empty praises for ‘their hard work, and for ensuring food security for the country’, but bereft of needed raises in prices for their produce and adequate public funds for development of agriculture.
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