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The crisis of indebtedness

An expert group headed by R. Radhakrishna has analysed the rising agricultural indebtedness in the country in its two dimensions: an agricultural crisis because of low growth and declining productivity and an agrarian crisis characterised by the rural population’s high dependence on farm income. The crises are deep-rooted and have been in the making for at least two decades. The group has concluded that rural indebtedness — commonly cited as the proximate cause for the disturbing phenomenon of farmer suicides, the most visible and tragic manifestation of the crisis — is more a symptom. The root causes included stagnation, increasing risks in production and marketing, collapse of the extension system, growing institutional vacuum, and lack of alternative livelihood opportunities. While the average household borrowing in rural India has not been excessive, the credit needs of agriculture have grown considerably following its commercialisation and modernisation. The institutional credit delivery network has not been able to meet them adequately. The poor performance of credit cooperatives and regional rural banks, the failure of commercial banks to meet their farm lending targets, and the high cost of rural banking have all been well documented by the group. While focussing on institutions and instruments that would strengthen the rural credit delivery system, it has made the point that a positive repayment culture should be actively promoted in the long-term interests of the financial system, with a rational scheme of incentives in place for prompt repayment.

For revamping the rural financial architecture, the group has recommended an expansion of the rural banking network (manned by qualified personnel), credit counselling, mobile banking, integrating microfinance with banking, and reforming the lead bank scheme. Many of these suggestions are by no means new. While some have been engaging the attention of policy-makers for decades, harnessing technology to overcome the problems in rural credit delivery is already being tried out in many areas. Since most banks have not met their targets for agricultural lending, the group has proposed that the unutilised portion be transferred to NABARD or the Central government by issuing non-transferable bonds for financing agricultural development programmes. One hundred districts identified as agriculturally backward should be taken up for development on a priority basis, it has said. The expert group has done a signal service by coming up with a comprehensive report on India’s agrarian crisis, both in its diagnostic and curative aspects.

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