*articles

Progressive Weakening of lending to agriculture due to Liberalisation policies - Compiled by: K.Ramasubbareddy

Summary of Farm Debt Survey: 2004

* Liberalisation policies from 1992 have led to the progressive weakening of "priority" lending to agriculture and a substantial decline in the extension of institutional credit to cultivators,

*Moneylenders have emerged as the most significant source of credit for farmers, with 29 per cent accessing this source. The share of commercial banks fell from 35 per cent in 1991 fell to 26 per cent in 2002,

*  At all-India level, estimated number of rural households was 147.90 million, of whom 60.4% were farmer households.

*Out of 89.35 million farmer households, 43.42 million (48.6%) were reported to be indebted.

* The survey also showed that more than half of the indebted farmer households belonged to Uttar Pradesh, Andhra Pradesh, Maharashtra, West Bengal and Madhya Pradesh. Out of an estimated 43.4 million indebted farmer households, 6.9 million belonged to Uttar Pradesh, 4.9 million to Andhra Pradesh, 3.6 million to Maharashtra, 3.5 million to West Bengal and 3.2 million to Madhya Pradesh.

* Estimated prevalence of indebtedness among farmer households was highest in Andhra Pradesh (82.0%), followed by Tamil Nadu (74.5%) and Punjab (65.4%). Average outstanding loan per farmer household was highest in the state of Punjab, followed by Kerala, Haryana, Andhra Pradesh and Tamil Nadu.
·  Going by principal source of income, 57% farmer households were cultivators. Among them 48% were indebted.
·  Households with 1 hectare or less land accounted for 66% of all farmer households. About 45% of them were indebted.
·  More than 50% of indebted farmer households had taken loan for the purpose of capital or current expenditure in farm business.  Such loans accounted for Rs.584  out of every 1000 rupees of outstanding loan.

Marriages and ceremonies accounted for Rs. 111 per 1000 rupees of outstanding loans of farmer households. Among the states the proportion was highest in Bihar (229 rupees per 1000 rupees), followed by Rajasthan (176 rupees per 1000 rupees).
·  The most important source of loan in terms of percentage of outstanding loan amount was banks (36%), followed by moneylenders (26%).

Details of Farm Debt Survey -2004

The incidence of indebtedness was highest in Andhra Pradesh (82 per cent), followed by Tamil Nadu (74.5 per cent), Punjab (65.4 per cent), Kerala (64.4 per cent), Karnataka (61.6 per cent) and Maharashtra (54.8 per cent). Further, Haryana, Rajasthan, Gujarat, Madhya Pradesh and West Bengal each had about 50-53 per cent farmer households in debt. States with very low proportion of indebted farmer households were Meghalaya, Arunachal Pradesh and Uttaranchal.



Nearly half (48.6 per cent) of the farmer households were reported to be indebted. A similar survey by the NSS relating to 1991 found indebtedness among only 26 per cent of farmers. This is a very substantial extent of recorded debt, and also represents a significant increase over time.

The incidence of indebtedness was highest in Andhra Pradesh, where more than four-fifths of surveyed farmers were in debt, followed by Tamil Nadu with nearly three-fourths of farm households reporting indebtedness. In Punjab, Kerala and Karnataka the proportion was nearly two-thirds, and in Maharashtra, Haryana, Rajasthan, Gujarat, Madhya Pradesh and West Bengal more than half of the farmers surveyed were in debt. Some of the States where the agrarian distress is reported to be especially severe, such as Andhra Pradesh, Karnataka, Maharashtra, Punjab and Rajasthan, are also those which report high levels of indebtedness.

The main reason for taking loans was found to be for productive purposes. The two most important purposes of taking loans were stated to be "capital expenditure in farm business" and "current expenditure in farm business". At the all-India level, out of every 1000 rupees taken as loan, 584 rupees had been borrowed for these two purposes taken together.

The highest such proportion was in Maharashtra, where 75.4 per cent of loans were taken for the purposes of productive investment on farms, whether in the form of capital or current expenditure, followed by Karnataka with 68.2 per cent. In Punjab, Andhra Pradesh and Uttar Pradesh the proportion exceeded 60 per cent of the total amount of loans. T the problem in the recent past has been that even such loans have been difficult to repay because of changes in production conditions, leading to a vicious cycle of indebtedness. So cultivation itself has become less economically viable over time.

The next purpose of taking loans was for spending on "marriages and ceremonies", which accounted 11 per cent of the total loans. This purpose was high for farmer households of Bihar (22.9 per cent) followed by those in Rajasthan (17.6 per cent).
Consumption loans accounted for 8.8 per cent of all amounts borrowed by farmers at the all-India level, and as much as 13.8 per cent in Rajasthan.

Sources of loans

The basic purpose of bank nationalisation and the focus on agricultural credit co-operatives was to extend the reach of institutional credit, so as to minimise the stranglehold of traditional moneylenders and. However, financial liberalisation policies from 1992 have led to the progressive weakening of "priority" lending to agriculture and a substantial decline in the extension of institutional credit to cultivators per capita or in terms of production costs. Moneylenders have emerged as the most significant source of credit for farmers, with 29 per cent accessing this source.
The influence of moneylenders appears to be especially strong in Bihar (44 per cent) and Rajasthan (40 per cent). Traders — of both inputs and outputs — also have provided loans to 12 per cent of indebted farmers. However, institutional sources still remain significant, with more than half of farmers accessing government, co-operative societies and banks taken together.

Conclusions

(1) household debt and the number of households involved in Indebtedness has been on a rise,
(2) institutional agencies had steadily increased their share in total household debt from decade to decade up to 1991 in respect of rural households but thereafter this proportion fell,
(3)  the most worrying aspect is the re-emergence of moneylenders during the latter decade as a rising source of household indebtedness; their share in total indebtedness in respect of cultivator households has risen from 18 per cent in 1991 to 27 per cent in 2002; in fact, this deterioration has been steeper in respect of rural non-cultivator households.
(4) Institutional credit agencies have not fulfilled their responsibility of extending credit to the deserving poor
(v) the performances of institutional agencies in respect of urban households is better, their share has continuously increased.
(5)  there is a steady increase in the incidence of indebtedness   amongst rural households towards institutional agencies with the increase in size of assets. Contrariwise poorer households have higher share of debt from non-institutional agencies.
(6)A sharp rich-poor disparity prevailed with respect to the burden of debt defined by outstanding debt to asset ratio

Main source: NSSO -SAS