SUMMARY :
The Background Government of India, Ministry of Finance, vide its order dated August 10, 2006, decided to constitute an Expert Group to look into the problems of agricultural indebtedness in its totality and suggest measures to provide relief to farmers across the country. The Expert Group submitted its report to Government of India in July 2007.

The Report has sought to address the subject of agricultural indebtedness against the backdrop of the current agrarian crisis. The Expert Group has perceived the crisis in its twin dimensions: an agricultural crisis and an agrarian crisis – the deep crisis reflected in low growth and declining productivity, on the one hand, and the persistently high dependence of population on agriculture and the consequent marginalisation of holdings, on the other. The crises, attributable to the neglect of agriculture in the planning process, has been in the making now for over two decades and they are deep-rooted.

One of the tragic manifestations of the above crisis has been the large numbers of suicides committed by farmers in some parts of the country. After some analysis and wide-ranging consultations, the Expert Group has come to believe that the root cause of the crisis is not indebtedness alone – indebtedness has been just a symptom. The underlying causes are: stagnation in agriculture, increasing production and marketing risks, collapse of the extension system and growing institutional vacuum, and lack of alternative livelihood opportunities.

The data presented and analysed in this report suggest that the average household borrowings by themselves, measured by any yardstick, have not been excessive. In fact, the credit needs of the agricultural sector have vastly expanded following its modernisation and commercialisation.

Issues relating to agricultural credit include the poor performance of credit cooperatives and regional rural banks, the inability of commercial banks to meet their targets for rural lending, and the high cost of rural banking. The result has been the continued dependence of farmers on non-institutional credit and the inability of small farmers to obtain timely and adequate institutional credit. Recent suicides by farmers in many parts of India are linked with their indebtedness to non-institutional sources.

This report focuses on institutions and instruments that would strengthen the credit delivery mechanism for the farm community in particular and for rural India in general. While doing so, it takes cognisance of the imperatives of addressing the credit absorption and demand-side issues. Policy interventions and institutional reforms essential for resolving the farm crisis, which go beyond the credit delivery system, also form part of this report. In the long-term interest of the financial system, a positive repayment culture for bank loans deserves to be actively promoted. There should be a sound system of incentives for prompt repayment.

The Government of India has responded to the agrarian crisis through a package of relief measures for 31 distress affected districts and though these packages have been comprehensive in terms of coverage and problems addressed, they have suffered from some deficiencies in design as well as implementation. The Expert Group feels that the implementation and monitoring of relief measures for distressed farmers envisaged in the Prime Minister’s package needs to be addressed carefully.  It recommends that the needs of individual households should be taken into account with necessary flexibility and further that follow-up steps should be taken to relieve the families from distress on an enduring basis.

The Expert Group has recommended rescheduling of loans and waiving of interest burden up to two years as well as grant of fresh loans in respect of farmers affected by natural calamities.  The burden of interest waived should be shared equally between the central and state governments.  Some similar action has been recommended in the event of crop failures in rainfed areas.

For the rainfed areas, the Expert Group has recommended the introduction of a new instrument called ‘cyclical credit’ – a system of treating crop loans as a weather-cycle long intervention rather than as an annual feature.  It could be initiated on a pilot basis in 100 rainfed districts.

With a view to mitigating farmers’ indebtedness to moneylenders at exorbitant rates of interest, the Expert group has recommended a one-time measure of providing long-term loans by banks to farmers to enable them to repay their debt to the money lenders.  The cost of operationalising the scheme in the distressed districts should be met by creating a Rs.100 crore “Moneylenders Debt Redemption Fund”.

More than one-half of farm households – 45.91 million or 51.4 per cent – do not borrow either from institutional or non-institutional sources.  Their coverage by institutional agencies should be placed on a mission mode.

One of the key components of the Expert Group recommendations has been to revitalise the rural financial architecture.  Further spread of rural branch networks manned by qualified personnel combined with the involvement of agency banking, mobile banking, credit counselling, integration of microfinance institutions with mainstream banking and reforming the lead bank scheme, is the recommended institutional component of the financial architecture.  As for its financial instruments, introduction of a comprehensive Bharat Kisan Card (BKC) by using information technology including biometrics is an important measure.

A revealing aspect of the Expert Group Report is the data provided on the number of banks and the amount involved in the short-fall from the targeted lending of 18 per cent for agriculture.  The shortfall has been huge, and in each year, there has been a gap of over Rs 20,000 crore even after the RIDF allocations.

The Expert Group has recommended that the unutilised portion of banks’ obligation towards priority sector lending to agriculture should be fully transferred directly to NABARD or to central government by issuing non-transferable Rural Development Bonds (RDBs) for financing agricultural development programmes. Top priority should be given to underdeveloped states. To being with, the Expert Group has recommended the implementation of the programmes in the 100 identified agriculturally backward districts, for which a list of 100 backward districts have been provided. A sum of Rs 10,000 crore should be earmarked for agricultural development programmes in these districts.

These are a number of public programmes for the delivery of  credit and non-credit services for the farmers, but the absence of  farmers’ own organisationns has hindered their bargaining strength and prevented them from fully participating in the benefits of public programmes.  The Expert Group has recommended that state governments should make efforts in the formation of such Farmer Federations in all distressed districts of the country and provide them with technical support and training for capacity building, social security, and establishing market linkages.

With a view to expanding the livelihood opportunities, particularly for small and marginal farmers, the Expert Group has recommended that income diversification opportunities should be created by promoting allied agricultural, agro-processing and other rural non-farm enterprises.

Considering the multiplicity of risks that agriculturists face, the Expert Group has made a number of recommendations for risk mitigation.  Proper evaluation of crop insurance, rainfall insurance and insurance based on moisture stress indices derived from satellite imagery data, has been stressed with the help of high-level committees.  In this respect, a few further specific recommendations have been made for strengthening the uses of satellite imagery produced by the National Remote Sensing Agency (NRSA) for diversified purposes.

Expenditure on health is an unforeseen burden leading to heavy borrowing, largely from informal sources, by affected families. The Expert Group has recommended the implementation of a health scheme for all rural people on the lines of  Karnataka state’s Yashaswini rural healthcare scheme.

There are a number of other incidental recommendations in the Expert Group Report such as, strengthening of the extension system, creation of facilities for mortgage of land against which banks can provide loans, and simplification of procedures for introducing transparency and reducing transaction costs.