June 20, 2004

THE BURDEN OF RELIEF PACKAGE FOR FARMERS
CMP MISUNDERSTOOD, FAULTY DIAGNOSIS OF THE DISEASE

The way the Ministers of the UPA government at the Centre are announcing various policies is indicative of the fact that the Common Minimum Programme (CMP) itself is widely misunderstood, what to talk about the proper diagnosis of the disease afflicting the people of this country. The case in point is the hasty announcement of the Relief Package announced for farmers. It may not only prove an extra burden for the government facing financial crunch, but also for the farmers, the very persons the relief is meant for.

The backdrop in which the CMP was prepared and announced should be kept in mind to understand the wordings it contains. The 13-crore strong farming community of this country have been undergoing great hardships due to vagaries of the nature and injustices done to them in our system, the past and the present. Their sufferings can be imagined from the high incidence of suicides in thousands-- right from the Punjab to Hyderabad. In the past three years 3000 farmers were said to have committed suicides in Andhra Pradesh alone. Farmers are still committing suicides in that state even when the new Congress government under the Chief Ministership of Y S Rajashekhar Reddy was swearing in. Suicides continued even after new government's promise to do something for them. The condition of agricultural labourers is worse. They account for 60 per cent of the 37 crore workers in the unorganised sector of the country.

The reasons for these suicides are many. Many theories have come out. But one fact in almost all the suicides is that the most of the farmers were heavily indebted and were unable to meet both their ends.

It is in this background the CMP was prepared and under the subheading “agriculture” we read: “ The rural cooperative credit system will be nursed back to health. The UPA government will ensure that the flow of rural credit is doubled in the next three years and that the coverage of small and marginal farmers by institutional lending is expanded substantially. The delivery system for rural credit will be reviewed. Immediate steps will be taken to ease the burden of debt and high interest of rates on farm loans.”

But while announcing the relief package for farmers, the government forgot the immediate promise for steps to ease the burden of debt and high interest rates on farm loans, which has been a major cause of woes of farmers triggering large-scale suicides by them. Instead, other measures were taken that does not address at all this disease requiring urgent remedy.

The greatest affliction the farmers are suffering is not the lack of opportunity of getting loans. They have been getting such loans at higher rate of interests from private individuals and government agencies like banks, and many of them found themselves entrapped in costly debts.

It may be mentioned here that even after a long battle, farming community in our country cannot get farm loans at less than prime lending rates of 10 -11 per cent charged by various banks, despite the fact that the NDA government at the fag end of its tenure assured them less than 9 per cent of interests through NABARD (Amendment) Bill. However, lowering the interest rates even up to this level was a great relief because they have been exploited by banks as well as private moneylenders, who were charging high much higher rates of interest.

But the promise of lower interest rates was not implemented in letter and spirit, and the agriculture sector does not get loans even now at the same rates applicable to several other sectors. NDA government had to give this promise because of political backlash which it could not avoid. Until the later half of 2003 the banks had been charging between 14 and 18 per cent interest from farmers. It was much higher than even the prime lending rates for industries.

Despite a mention of the promise of immediate steps for lowering high interest rate in the CMP, the Finance Minister P Chidambaram did nothing in this regard.

If we see the whole package for farmers as debt swapping mechanism, it is of course profitable for some of the big farmers. Despite the injustice in the interest rates, they may be able to pay back the banks the debt taken at much higher rates ranging from 11 to 18 per cent. The question is why should banks be allowed to collect inequitable rates charged from the farmers who have taken loan before the end of 2003 ?

Thus the comprehensive debt-restructuring package for the country's agricultural community, involving a rescheduling of loans (as opposed to write off even when we know that the heavy debt burden was mainly due to inequitable interest rates charged from farmers for years) extended by commercial banks, regional rural banks, and co-operatives, is more profitable for creditors than debtors.

It's painful that even this package is viewed by some people having industrial or urban bias as populist measure. They blamed the government of interfering with the so called present market driven interest rates. That is why, Mr Chidambaram had to deny that the measures taken implied a return to the earlier directed lending policy of the government. These forces are trying to create an impression that farmers are getting much as against other sectors of economy. However, the reality is otherwise.

When relief in interest rates to the farmers was announced last time in August 2003, the rich and the industrialists were quick to criticise the Government because they fear losing cheap loan money. They had alleged that the Government wants to revert to the controlled interest rate regime. The then Union Finance Minister Jaswant Singh, however, had to reply : “There in no question of reintroducing administered interest rates either through the backdoor, front door or side entrance.” Mr Singh had then admitted that 46.15 percent of the agriculture loans were being given in the 12-15 percent range, and 31.7 per cent loans, at the 15-18 per cent rate. Again, while 2.54 per cent per cent of the loans were in the range of 18-20 per cent, 0.82 per cent fell in the above 20 per cent range.

In this scenario, the UPA government needs to do something more than the announced package for farmers. Recasting the debt structure and enhancing the credit flow is profitable only for the government and the big farmers. Small and marginal farmers along with the farm workers cannot get benefited by this scheme only because of the bias against them prevalent among the bankers. They may enhance credit flow to meet the given target by only giving loans to the big farmers, whose lands may be a guarantee for perceived safe return of the loan amounts, but the small and marginal farmers along with farm workers cannot get a meagre share out of this package. (EOM)