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
19/11/09
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. Thusthe 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 financeare available for these activities, their inclusion
underdirect 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 1/4th (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 MaharastraState 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.
