‘Incentives on input costs and better prices more effective than loan waiver’, NCAP Study
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Abstract: "Prior to the announcement of the waiver scheme, nearly 90% non-beneficiary farmers intended to repay their loans. But after the announcement, only 3% are interested to repay their future loans," |
Measures such as incentives on input costs including power supply, creation of non-farm employment opportunities and better pricing for agricultural produces can be more effective than waiving of farm loans to get farmers out of debt traps, according to a study. Researchers at the National Centre for Agricultural Economics and Policy Research (NCAP) have carried out the study among farmers of Haryana, more than a year after the UPA government’s decision to waive farm loans to the tune of Rs 71,000 crore.
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“Majority of the farmers felt that incentives on inputs, availability of power, off-farm employment availability and better price for their produces would help them increase productivity and repay the loans,” NCAP said in its draft report.
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According to the report, the prime cause of non-repayment of agricultural loans is loss of crop owing to natural calamities. So, there is an urgent need to restructure the crop insurance schemes available to farmers in the present form. Farmers are not happy with the present insurance structure and the methods of disbursing claims. There is a need to develop appropriate insurance products and educate farmers.
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As per the study, the government’s loan waiver scheme has an adverse impact on farmers’ intention to repay agricultural loans. "Prior to the announcement of the waiver scheme, nearly 90% non-beneficiary farmers intended to repay their loans. But after the announcement, only 3% are interested to repay their future loans," the study titled ‘Agricultural Debt Waiver and Debt Relief Scheme 2008: implications on farmers and rural credit institutions’ said NCAP. Instead of loan waiver, farmers want interest-free loans for a year provided one is regular in repaying his debts for two years.
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The government had announced the debt relief scheme for an estimated 4 crore small and marginal farmers. The scheme was applicable to short-term crop loans and investment credit for allied activities. It announced a complete waiver for small and marginal farmers and one-time settlement scheme with 25% rebate for others.
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The NCAP study is in conformity with the R Radhakrishna Committee Report on rural indebtedness. The committee, which submitted its report to the government in 2007, said that more than half of the farm households do not borrow from institutional sources and that they are paying usurious rates of interest to moneylenders. The committee wanted the banks to provide one-time term loans to such farmers to free themselves from clutches of moneylenders. The committee also mooted a Moneylenders Debt Redemption Fund with a corpus of Rs 100 crore to operationalise the scheme.
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The Radharkrishna Committee said that people who repay their loans promptly must be rewarded--the very section of farmers who got a raw deal in the farm debt waiver scheme announced last year. The committee also suggested expansion of the institutional sources for farmers.FE Sep 14, 2009 |
Highlights of the Report of the Expert Group on Agricultural Indebtedness :
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Rescheduling of loans and relieving of interest burden up to two years in the case of farmers affected by natural calamities, drought conditions in rainfed areas and farmers in distress due to production crisis resulting from a multitude of risks are essential one time measures. The amount of interest waived should be shared equally by the central and the respective state governments. |
In many parts of the country farmers are burdened with high proportion of indebtedness to high interest bearing informal sources like moneylenders. Formalisation of informal debt is an essential step. The Expert Group recommends the initiation of the process in the distressed districts by creating ‘Moneylenders Debt Redemption Fund’.
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In addition to strengthening existing institutions, agency banking, mobile banking, credit counseling and introduction of comprehensive Bharat Kisan Card (BKC) by using applications of information technology including biometrics, are some of the important ingredients of the recommended rural financial system.
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A major recommendation of the Group is improved deployment of Rural Infrastructure Development Fund (RIDF). The Group identified 100 ‘distressed districts’ and recommended deployment of Rs. 10,000 crore (of funds from the gap between shortfall of priority sector lending and the RIDF) for agricultural development programmes in these districts.
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One of the major institutional lacunae in agricultural credit system is the absence of farmers own organizations and participation in the financial delivery system. The state governments should make efforts to facilitate the formation of federations of SHGs for farmers, especially for small and marginal.
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The present day agriculture is exposed to growing weather, pest and market risks. The Expert Group recommends the effective utilization of developments in information and space technology in crop and weather surveillance and price monitoring in providing effective crop / weather insurance to farmers.
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Small and marginal farmers will not be in a position to improve their standard of living by depending solely on agricultural income. It recommends measures to improve diversification of their sources household income and promotion of access to off-farm and non-farm activities. |
Expenditure on health is one of the sources of farmers’ distress and the Group recommends farmers’ health insurance scheme.
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