Agriculture Distress in India
11th May, 2022
National Bank for Agriculture and Rural Development (NABARD) is planning to formulate a farmer distress index (FDI) to track, identify and support the real needy and distressed farmers.
- As the small and marginal farmers getting a raw deal in farm loan waivers and the government schemes unable to support them under such distress situations.
- Loan waivers for loans taken by farmers are unique to India.
- Economists have generally regarded this to be a populist and fiscally risky measure that can cause long term problems.
- The Loan Waivers can constitute a significant fraction of the GDP.
- The first nation-wide farm loan waiver was implemented in 1990 by Janata Partygovernment led by then Prime Minister P. Singhand cost the government Rs 10,000 crores.
- A number of agitations by farmers have been held demanding loan waivers, and the political parties have capitulated or competed by announcing Loan waivers for farmers.
- On 29 February 2008, Chidambaram, at the time Finance Minister of India, announced a relief package for beastility farmers which included the complete waiver of loans given to small and marginal farmers.
- In 2014, Telangana waived Rs. 17,000 crore in loans to 3.6 million beneficiaries.
- In 2017, at least four states Uttar Pradesh, Maharashtra, Punjab and Karnataka, announced farmer loan waivers, with estimated cost of about US$13.6 billion. Experts project that if the loan waivers are implemented nationally will cost about 2–2.6% of GDP.
- The RBI opposes the loan waivers. The waivers hurt India's public sector banks which are already under stress. Many farmers in other states have stopped paying loans and are withdrawing deposits from banks in anticipation of waivers.
What is Farmer distress Index?
- The index will measure the level of distress, by which the government and the financial institutions can decide on an appropriate package of support instead of the current practice of doling out distress package to all the farmers across the board.
- This index won’t be uniform across the country as it changes from place to pace depending on the stress levels.
- It will also help the entire financial sector, government departments and insurance companies.
- While the distress of a farmer is usually measured by the extent of his crop damage, this leaves way too many distressed farmers in other areas out of the beneficiary ambit.
- Advantages: This farmer distress index can integrate the available high-frequency data on key agricultural variables like
- deviation of monsoon rains,
- excessive rainfall, drought and dry spells;
- variations in temperature and soil moisture,
- yield of major crops in the district, proportion of area under irrigation,
- Depth of underground water,
- Unusual frost and
- Marketing opportunities available to the farmer that may include the proportion of wheat, paddy, chana, tur, groundnut, soybean etc. produced and procured at MSP.
Need of identifying distressed beneficiaries in India
- Agriculture in India has been facing several issues such as fragmented land holding, depleting water table, deteriorating soil quality, increasing input costs, low productivity etc.
- Output prices may not be remunerative as farmers are often forced to borrow to manage expenses.
- According to a study jointly conducted by Nabard and Bharat KrishakSamaj (BKS), a farmers producers’ organization, in Punjab, more than 60 per cent of the ‘very high’ and ‘high’ distress small and marginal farmers (SMFs) did not receive farm loan waiver (FLW) benefits.
- In Maharashtra also, close to 42 per cent of the SMF whose distress category was ‘very high’ did not receive FLW benefits.
- Thus indebtedness is the key reason for several farmer suicides in India.
- Loan waivers can provide some relief to farmers in such situations.
What is a farm loan waiver?
- · Farm loans are either crop loans or investment loans taken from banks to buy inputs or agricultural equipment.
- · When there is a poor monsoon or natural calamity, farmers could not be able to repay their loans.
- · So the centre or the state government take over the liability of farmers and repay the banks.
- · Waivers are mostly selective, that is, only particular loan types, particular categories of farmers, or loan sources may qualify.
- · For example, in 2008, crop and investment loans were completely waived for marginal and small farmers (those with less than 2 hectares of land ownership) and other farmers were only given a 25% reduction.
- In recent years, the Central government has taken various measures like the PM FasalBimaYojana (PMFBY), PM KrishiSinchaiYojana (PMKSY), electronic National Agricultural market (e-NAM), Soil health card, Neem-coated urea etc.
- PM FASAL BimaYojana (PMFBY): The scheme was conceived as a milestone initiative to provide a comprehensive risk solutionat the lowest uniform premium across the country for farmers.
- It provides an insurance cover against failure of the crop thus helping in stabilising the income of the farmers.
- Scope: All food & oilseed crops and annual commercial/horticultural crops for which past yield data is available.
- Premium: The prescribed premium is 2% to be paid by farmers for all Kharif crops and 1.5% for all rabi crops. In the case of annual commercial and horticultural crops, the premium is 5%.
- Premium cost over and above the farmer share was equally subsidized by States and GoI.
- However, GoI shared 90% of the premium subsidy for North Eastern States to promote the uptake in the region.
- The scheme was compulsory for loanee farmers availing Crop Loan/Kisan Credit Card (KCC) account for notified crops and voluntary for others.
- PM Krishi Sinchai Yojana (PMKSY): PMKSY is a Centrally Sponsored Scheme (Core Scheme) launched in 2015. Centre- States will be 75:25 per cent. In the case of the north-eastern region and hilly states, it will be 90:10.
- Its objectives are:
- Convergence of investments in irrigation at the field level,
- To expand the cultivable area under assured irrigation (HarKhetko pani),
- To improve on-farm water use efficiency to reduce wastage of water,
- To enhance the adoption of precision-irrigation and other water saving technologies (More crop per drop),
- To enhance recharge of aquifers and introduce sustainable water conservation practices by exploring the feasibility of reusing treated municipal based water for peri-urban agriculture and attract greater private investment in a precision irrigation system.
- Agriculture is a major component of Priority Sector Lending (PSL), and the target for bank lending to agriculture has been revised upwards every year.
- In addition to food subsidy under PDS, the government also provides fertilizer subsidy year after year.
Is the situation satisfying in India?
- Farm loan waivers are just a temporary solution. They might help the government buy peace with farmers in the short run, however, they are unlikely to change much on the ground. It is a relief only for one season with the farmers going back to distress in the next season.
- Studies reveal that loan waivers do not lead to a high investment or better labour market outcomes.
- No improvement in farm productivity for households qualifying for loan waivers reveals the failure of the programmes to achieve its desired goals.
- Loan waivers can also negatively impact the credit flow because it creates distortions in the credit market since repeated waivers encourage default among the farmers. It also increases the NPAs (Non-Performing Assets) of banks.
- For the government, loan waivers not only increase the fiscal deficit and interest burden but also limit its ability to undertake productive capital expenditure in the agriculture sector affect the long-term growth in the sector.
- Loan waivers encourage farmers to reduce productive investments and spend more on consumption. Thus in the expectation of waiver, those farmers who can afford to pay, will not pay.
- Providing loan waivers in some states encourage farmers from other states to demand loan waiver even if they don’t need them.
- Loan waivers = Govt’s borrowing increases = Crowding out private borrowers = increase in the cost of borrowing for others.
- Loan waivers cost taxpayers. For instance, about Rs. 525 billion was spent on the loan waiver of 2008.
- Loan waivers are just a tool for politicians to gain vote banks = prevent them from coming up with a long-term solution.
What should be the solution for it?
- Land fragmentation: Long-term leasing of farmland without withdrawing the land ownership can be implemented. This is in line with Niti Aayog’s Model Land Leasing Acte., no change in ownership, no tenancy rights, and the land reverts back to the owner on the expiry of the lease.
- Long-term leasing can also facilitate the entry of the private sector into agriculture. The private sector can bring in crop diversification, the introduction of high-value crops, mechanization, new farming techniques and technologies, investment in post-harvest management and processing, and more employment opportunities.
- Increase Input cost: The government policies should encourage integrated pest management that combines, biological, chemical, mechanical and physical means to combat pests with a target to eliminate/considerably reduce the need for pesticides.
- The local fertilizer industry requires support and the timely delivery of subsidies would improve their capital needs, allowing them to manage costs through internal sources instead of external loans.
- State seed policies should encourage contract farming, identification of new genotypes for treating pest and disease syndromes, as well as adverse weather conditions. Precision farming techniques such as Systematic Rice Intensification (SRI) can help increase seed production in this respect.
- Via institutional credit:
- Ensure that institutional financing is available and accessible.
- Village-wise lists of deeply indebted farmers must be prepared annually to identify farmers on the path to potential suicide.
- NABARD, along with local administration, should come up with local policy interventions and also devise timely loan restructuring initiatives, insurance claim settlements, and better counselling.
- Nationalised banks need to change their way of functioning in order to expand rural outreach.
- Creating other job opportunities: The focus has to be shifted from farm income to farmers’ income i.e., boosting farmers’ earnings through expansion of job opportunities in and around rural areas.
- Promoting the lucrative allied activities of agriculture such as horticulture and floriculture also helps boost farm incomes.
- GobardhanYojana can be implemented all over the country. It aims at keeping the villages clean and also generate energy while improving the income of farmers and cattle herders.
The need of the hour is to make a comprehensive plan for identifying the distressed beneficiaries and integrating the governmental and financial institutional initiatives for the betterment of Agricultural situation in India.
Q1. What is the purpose of Farmer Distress Index? Do you think it can help in plugging support package loopholes and rationalise subsidies to farmers? Substantiate your answer.
Q2. “The agriculture sector is critical for India from a consistent growth and food security perspective”. Discuss the measures needed to revitalise the agricultural sector.