- The rural sector is witnessing difficult times.
Small average size of land holding:
- The primary problem with Indian agriculture is that average size of land holding at 2.28 hectares (1970-71) has now halved to 1.08 hectares (2015-16).
- However, the number of persons dependent on agriculture is still at 43% of all Indians.
- This is creating immense pressure on land.
- Thus, most of the farmers are shifting to cash crops and or allied activities to survive.
- This problem has been further compounded by marketing interventions of agricultural produce.
- Though this is being addressed through new initiatives like eNAM, they are still being inadequate.
Need measures to alleviate farmer stress:
- The need for some decisive action by the government to alleviate farm distress has now been universally recognised.
Loan waivers were being offered as a way to relieve stress:
- Since 2008, beginning with the pan-India waiver for farmers, the cumulative loan waiver is now close to Rs 3 lakh crore.
Problems with this:
- Waivers undermine an honest credit culture and impacts credit discipline.
- Furthermore, if the farm loan waiver amounts are given in yearly instalments, then the banks will not be able to give fresh crop loans to farmers.
- This is because their existing Kisan Credit Card (KCC) accounts will continue to be NPA category till the date of final receipt of the waiver amount from the respective state governments.
There could be several solutions to agriculture distress
Price or Income support schemes
- Price support scheme:
- A price support scheme (gap between MSP and market prices getting reimbursed) like the one unveiled in MP comes with low cost but covers only limited farmers and has several challenges.
- The most common critique is trader groups might artificially depress prices to be paid to farmers, as they are getting compensated by the difference between MSP and sale price at mandis.
- Income support scheme:
- The income support scheme is much better and possibly the ideal one as the payment is purely a cash transfer to farmers on a per acre basis – as Telangana is doing.
- As per some estimates, this scheme if implemented at pan-India level could cost more than Rs 2.5 lakh crore.
Can implement scaled down version of this at a national level:
- One way to go forward is to implement a scaled down version, where marginal and small farmers are rewarded individually and the cost comes down dramatically to Rs 60,000-70,000 crore.
- This could be better than the per acre Telangana scheme which creates a regressive structure where everyone benefits, irrespective of him being a cultivator or not.
Other measures to extend a helping hand to the rural sector
- Make Interest servicing enough for KCC renewal:
- At present, RBI norms mandate repayment of both principal and interest for annual renewal of crop loans.
- Income from harvesting is mostly received in cash which is mostly used for payment for fertilisers, pesticides, dues to farm labourers and hire charges for tractors.
- This results in a situation where lumpy cash flows to enable full repayment of the KCC loan at the year end is not practically possible.
- To help agriculture, banks should be permitted to allow review/ renewal of the KCC facility annually upon farmers paying the interest alone.
- It is already normal that such loans for small businesses are treated as standard even if the interest alone is serviced.
- Access to credit for tenant farmer:
- In the 2018-19 Union Budget it was announced that Niti Aayog in consultation with state governments will evolve a suitable mechanism to enable access for lessee cultivator to formal banking credit without compromising land owners’ rights.
- It is high time that Niti Aayog and/or the regulator comes out with clear instructions which banks can follow for financing tenant cultivators.
- Removing hypothetion charge:
- Currently, the hypothecation charge of crops needs to be registered with CERSAI under the relevant rules.
- Hypothecation means offering an asset as collateral security to the lender.
- Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) is a central online security interest registry of India. It was primarily created to check frauds in lending against equitable mortgages, in which people would take multiple loans on the same asset from different banks.
- This adds to banks’ hassles and adds to costs without any benefit.
- There has been no recorded instance of enforcement of the security of crops at least as far as the small and marginal farmers are concerned and hence can be done away with.
- Crop Insurance execution:
- The Pradhan Mantri Fasal Bima Yojana can also be tweaked by ensuring all crops are covered, timely notification and payments among others.
GS Paper III: Economy