Who cares for the small farmer?

Prime Minister Narendra Modi has often expressed his sense of anguish at the plight of farmers. In a recent statement in the Lok Sabha, he noted that the agriculture community’s problems were “old, deep-rooted and widespread”, and stated that farmers cannot be left to fend for themselves.

Implicit in that statement was the farmer’s need for the government’s support. But the Reserve Bank of India’s revamped Priority Sector Lending (PSL) norms are not in consonance with the Prime Minister’s reassurance.

The most worrisome of the new norms is the removal of the difference between the direct and indirect classifications in agricultural credit, although the stipulation of overall 18 per cent of bank loans (adjusted net bank credit or ANBC) going to agriculture was left unchanged.

So far, indirect finance was restricted to 4.5 per cent of ANBC, while at least 13.5 per cent of ANBC was mandated to be given directly to the farmers. Now that the restriction is lifted, banks may ignore farmers and liberally extend indirect loans to companies engaged in the agricultural sector, in the name of farm credit.

Also, agriculture credit has been classified into three categories: farm credit agriculture infrastructure and ancillary activities.

Under the farm credit category, individual farmers (including self-help groups and joint liability group) directly engaged in agriculture and allied activities will get loans for their short, medium and long-term production and investment requirement.

Similarly, loans will be given to corporate farmers, farmers’ producer organisations and companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in agriculture and allied activities, up to an aggregate limit of ₹2 crore per borrower.

The agriculture infrastructure category covers loans for construction of storage facilities including cold storage units, cold storage chains designed to store agriculture products, irrespective of their location; soil conservation and watershed development; plant tissue culture and agri-biotechnology, seed production, production of bio-pesticides and so on. An aggregate sanctioned limit of ₹100 crore per borrower from the banking system applies to these category of loans.

The activities covered under ancillary category are loans to co-operative societies of farmers for disposing of the produce of members with loan limit not exceeding ₹5 crore, loans to agri-clinics and agribusiness centres, food and agro-processing loans up to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system, loans to Primary Agricultural Credit Societies, Farmers’ Service Societies and Large-sized Adivasi Multi-Purpose Societies for on-lending to agriculture and to microfinance institutions for on-lending to agriculture sector and subject to certain conditions stipulated for the purpose.

This activity also covers the outstanding deposits under Rural Infrastructure Development Fund (RIDF) and the other eligible funds with Nabard on account of priority-sector shortfall.

It may be clarified here that the banks have been allowed to deposit the amount equivalent to their shortfall in meeting their priority sector target in the RIDF since 1996. So, the RIDF has turned out to be an easy escape route for banks. Instead of strictly enforcing the priority sector norm, the government and the RBI have shown the alternative route to the banks at the cost of the original goals of priority sector lending.

‘Social control’ on banks was introduced in December 1967, with a view to securing ‘a better alignment of the banking system to the needs of the economic policy’. A similar measure was the setting up of the National Credit Council around the same time. The goal of the NCC was to discuss and assess credit priorities on an all-India basis and to assist the RBI and government to allocate credit.

The NCC emphasised in 1968 that commercial banks should increase their involvement in financing priority sectors, that is, agriculture and small scale industries. The description of the priority sector was formalised in 1972. Banks were encouraged to liberally give loans to this sector although no target was fixed initially. A specific target of 33.33 per cent was fixed in 1974, when the banks were advised to reach that level by March 1979.

The limit was raised to 40 per cent from March 1980to be achieved by 1985. Subsequently, there have been several revisions in the norms based on the recommendations of many committees.

The present norm, in so far agricultural credit to the small and marginal farmers is concerned, says there should be a sub-target of 8 per cent credit to small and marginal farmers to be achieved in phases — 7 per cent by March, 2016 and 8 per cent by March, 2017. There is no guarantee that even these low targets will be achieved, going by the trends.

As per RBI data, as of March 2013, there were 5,00,92,771 small borrowal accounts (with limit less than ₹2 lakh) in the agriculture segment, with an outstanding credit of ₹2,81,120 crore. This works out to just 5 per cent of the total outstanding bank credit of ₹55,25,317 crore. These figures and the present targets compare poorly with the share of the small and marginal among the farming community. As per the agriculture census of 2010-11, there were 2.48 crore (17.93 per cent in total holdings) small farmer holdings and 9.28 crore (67.10 per cent) marginal farmer holdings. Together, the small and marginal farmers account for 85.03 per cent of the 3.83 crore agricultural holdings in the country.

The area operated by small farmers (3.59 crore hectares) and marginal farmers (3.52 crore hectares) accounts for 44.55 per cent of the total operated area of 15.96 crore hectares in the country. So, the small and marginal farmers’ share in the credit should be determined keeping in view their 85.03 per cent in terms of number of holdings and 44.5 per cent in terms of area operated. The present share, or the targeted 7 and 8 per cent, are nowhere near these numbers.

In fact, the overall bank credit to agriculture has been much below the 18 per cent norms. It was just 10.52 per cent by March 2013. Of this, the rural agriculture got only 4.49 per cent and the remaining went to the semi-urban, urban and metropolitan agriculture segments.

Removing the restrictions between direct and indirect credit will worsen the situation, and favour big farmers and corporates over small and marginal farmers. The government and the RBI need to revise them, keeping the small, marginal and the tenant farmer at the centre, if farmers’ welfare is really on their development agenda.

The writer is a member of the subcommittee on ‘Agriculture Investment, Credit Flow and Farmers Indebtedness’ of the Commission on Inclusive and Sustainable Agricultural Development of Andhra Pradesh. The views are personal