Farm sector loans: A reality check

Farm sector loans: A reality check

The govt’s promise of loans at 3 per cent interest if farmers repay them regularly is a cruel joke. 

The allocation of funds to the farm sector in the recent Union budget is being appreciated and lauded as a positive step in farmers’ interests. But mere allocation of funds without any evaluation process does not guarantee actual implementation. Past experience is indicative of the fact that unless implementation is guaranteed, grass root level farmers do not get the expected benefits and reliefs proclaimed in the budget.

The budget provides credit target of Rs 5,75,000 crore, interest subvention of 7 per cent for crop loans and an additional 3 per cent if the loans are promptly repaid. Prima facie the relief seems to be quite in keeping with farmers’ expectation. But the relief, if any, would have to be actually realised by farmers who are badly in need of credit facilities due to unsteady situations of farming operations.

The Union government should have announced formation of a commission or cell to evaluate what is actually carried out by financial institutions with quarterly reports so that the way farmers are treated at banks’ doorsteps may well be duly reported to the concerned authorities or both to the finance ministry and the Reserve Bank of India (RBI). 

Poor performance     
This is more so because a large number of complaints from various states in the country is indicative of the poor performance at the grass root level. While token amounts are disbursed, the declared facilities are not given. The interest subvention guaranteed earlier is not actually realised by farmers because banks have denied the interest concession of 7 or 4 per cent on the pretext that the government has not reimbursed the relevant amount and unless the amount is received by banks, the concerned concession cannot be given. Farmers have had to pay interest ranging from 10 to 14 per cent on loans taken from nationalised and co-operative banks with assurance that the concession amount will be given as soon as the reimbursement is received by the government.

Again, the nationalised and co-operative banks are included in the interest subvention scheme, while the private commercial banks are excluded. In fact, private banks (like Federal Bank, Kotak Mahindra Bank, Ratnakar Bank etc) which have considerable number of rural network as also farm sector clientele are not given the interest subvention facility. The IBA (Indian Banks Association) has already submitted a proposal to include around 25 private commercial banks in the interest concession scheme to farmers. But both the government and the RBI have not responded to the demand during the last four years. The loan waiver scheme announced four years ago is also reported to be haphazardly carried out with many complaints pouring in to the finance ministry about last year’s budget.

While all banks should be included in the interest subvention scheme, various products should also be prepared by banks and they should be as widely publicised as other consumer and industrial loan products are widely projected through the print and electronic media. Specific requirements of the rural areas need to be included. Climate fluctuations, market conditions and other relevant factors control the rural economy in general and agricultural produce in particular. Hence farm loan products should be prepared by banks which should be different from routine products. This is not even considered by policy makers or state and Union governments. The governments’ periodical announcements that farmers will get loan at 3 per cent interest rate if they repay it regularly is a cruel joke in this context.

This is because farm products do not get prices based on cost of production; sugarcane bills are not promptly paid by sugar factories which deduct some amount for various purposes including state chief ministers’ funds. If farmers are not getting the returns regularly as is the case of wage earners in the organized sector, how is it possible for them to repay loans in time and get the concession of 3 or 4 per cent interest? The farm sector should also be extended the loan restructuring facility which is being enjoyed by the corporate sector for the last several years.

These and similar expectations should be urgently considered by both the state and Union governments as agriculture is a state subject and needs to be a concurrent subject. It is imperative that members of all political parties in parliament should view the farm sector and relief to be given to farmers from a realistic point and issue instructions to the implementing agencies so that farmers would actually realise whatever is announced in the budget.