A Reserve Bank of India-constituted committee has called for phasing out interest subsidy on short-term agricultural loans and for ploughing back the sums saved into an affordable universal crop insurance scheme for farmers. The recommendation makes sense for at least two reasons. First, for most farmers, it isn’t the cost but the availability of credit that is the real problem.
National Sample Survey data shows banks and cooperative societies account for only 57.7 per cent of outstanding loans of farming households, with the rest mainly representing borrowings from private moneylenders and traders, often at annual interest of 24 per cent or more. The dependence on informal credit sources is, moreover, progressively higher with a reduction in landholding size. Second, farming is increasingly being done by tenant cultivators/ sharecroppers. Since these are largely based on informal lease arrangements, the tillers in this case, too, are cut off from the formal credit system, which means it matters little whether crop loans from banks are being extended at 9 per cent or 4 per cent.
There is a strong case, then, to focus more on augmenting credit availability from the banking system, more so to cover small and marginal farmers as well as landless cultivators against tenancy/ lease certificates. Farmers, unlike salaried employees or most businessmen, receive no regular monthly income. They typically have lumpy revenue streams from the sale of one or two crops a year. Borrowings — that includes crop loans — are what sustains their consumption round the year. In such a scenario, access to timely credit at reasonable cost is what counts. When the formal banking system is unable to deliver that, the farmer is forced to go to the moneylender, leading to the familiar story of indebtedness.
There is no evidence that the Centre’s interest subvention scheme, in place since 2006-07, has reduced farmer indebtedness. The latter, if anything, has only gone up, especially in the last two years, with back-to-back monsoon failures and crash in crop prices impacting farm incomes. The starkest manifestation of it is in Maharashtra’s Marathwada region, which alone saw over 1,100 farmer suicides in 2015, capping what has been an annus horribilis for Indian agriculture.
That links up with the committee’s second recommendation to institute a universal crop insurance scheme starting with small and marginal farmers with a monetary ceiling of around Rs 2 lakh. The Rs 13,000 crore that the Centre is spending annually on interest subvention for crop loans can be redirected towards subsidy on insurance premium. If farmers have insurance protection against crop loss and price slumps — with prompt claims settlement enabled by satellite imagery, handheld GPS devices, drones and other technology-based solutions for assessing damage — and access to formal credit channels, they are less likely to be driven to despair and suicide.