15 August 2009

An Independence Day Thought for Farmers

Today, on 15 August 2009, we commemorate 62 years independence, the 63rd independence day. The first one after the new government has taken office in May 2009 (see Congress Comeback and Expectations), the first one after the global financial crisis that started in the latter half of 2008 (see Financial Crisis, Mental Health and ..., Economics Needs a Scientific Revolution: A comment, and Surviving the Recession), the first one after the terror attack in Mumbai (see Mumbai...Lives On), the first one after Indian is exposed to the global pandemic of A (H1N1) influenza (see Swine Flu in India), and also happens to be a year when the country is facing a severe drought. The latter is particularly worrisome because the state of Indian agriculture is already under stress (see Indian Agriculture in Doldrums, Agrarian Crisis and Farmers' Suicides in India, Agrarian Crisis in India, and Hunger and Undernutrition). Some of these concerns have been raised in the Prime Minister's speech (see its Highlights) and I would leave it at that. However, with the looming drought-like scenario, I would like to raise some issues with regard to the farmers.

Debt waiver or for that matter postponing the date of payment is not the answer. Debt waiver is a book-keeping exercise that helps the banks reduce their Non-Performing Assets (NPAs); for the farmers, at the most, it reduces a mental burden and makes them eligible for fresh loans. The moot question is that there are no mechanisms to address risks in non-repayment that arise because of reasons that are beyond the control of the farmers, that is, for non-willful default. Rather, a blanket waiver clubs the wilfull default with the non-wilfull ones.

More over, debt waiver is a temporary measure. The global financial crisis saw a lot of money being pumped in by different governments in the name of stimulus, and hence, there is nothing wrong in providing stimulus for the Indian farm sectory. However, it has to go beyond the debt waiver and address more fundamental issues so that it enhances returns to cultivation and improves livelihood (including education and health requirements) of those dependent on agriculture.

Another limitation of the debt waiver exercise is that it did not address the loan burden of farmers from the informal sources. These loans are likely to have a greater interest burden. What is more, the small and marginal farmers have a greater dependence on them.

Delaying repayment of current loans does not provide much solace. It will rather add to the interest burden, as it has to be paid for a longer time period. There is no appraisal done on whether loans for two sucessive crops can be paid from returns from a single crop. A reasoanable guestimate sugests that it is not possible, that is, if there will be a good monsoon/crop the next year/season it will not be possible for the farmer to repay the loans. The repayment will still be non-wilfull, but even then he/she will still be a defaulter who would be denied access to future loans from formal sources. Thus, increasing his reliance on the informal sources. With the kind of information and communication technology that we have today, the government and banks should come up with a system to identify wilfull from non-wilfull and devise mechanisms to mitigate risks for the latter group.

A note of caution. In providing risk mitigation they should avoid the plethora of products that claim financial innovation, which in practice add rather than reduce risks from a farmers point of view.

There has been a goal of four per cent annual growth in agriculture. This, one presumes, is with regard to gross value addition. However, if one has to plan for an increase in value addition, it becomes dificult becasuse we are not aware of the future prices. Thus, in practise the planning boils down to increase in production and perhaps giving emphasis on crops with a greater value addition. The latter increases the vulnerability to price fluctuations and also compromises the farmer's ability to meet food security requirements during years of crisis. More importantly such targets forces upon the planning mechanism a top-down approach, which is totally contrary to the bottom-up approach being envisaged through the district agricultural plans.

Getting back to drought, one feels that the National Rural Employment Guarantee Scheme (NREGS) can play a great role, both in building assets as also providing employment. This is the least that we can do for the risk-taking enterprising farmer. Jai Kissan! Jai Ho!

No comments:

Post a Comment