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Rural indebtedness: the burning issue

The Central Government constituted expert group headed by Prof. Radhakrishna has focussed on the present state of agricultural indebtedness in the country in its totality. Its report released recently is comprehensive.

The recommendations are highly relevant given the enormous interest the subject has invoked and its seemingly intractable nature. (Highlights of the report are excerpted alongside).

In his Independence Day speech this year, Prime Minister Manmohan Singh had reiterated his government’s commitment to agriculture. He had announced a special programme for the sector, entailing an investment of Rs. 25,000 crore, to be launched soon.

Against the backdrop of the agrarian crisis — in the making for at least two decades and brought about by the neglect of agriculture in the planning process — the expert group has analysed the problems in their entirety. There is an agricultural crisis, characterised by low growth and declining productivity, as well as an agrarian crisis, marked by persistently high dependence of the population on agriculture.

On the most obvious and tragic manifestation of the crisis — the large number of suicides by farmers in different parts of the country — the expert group has come to the conclusion that the root cause is not indebtedness alone and that suicides are only a symptom. Stagnation in agriculture, increasing production and marketing risks, collapse of the extension system and a growing institutional vacuum, and lack of livelihood opportunities are found to be the primary causes.

Some of its other interesting findings are:

(a) average household borrowings by themselves have not been excessive.

(b) In fact, in the wake of modernisation and expansion, the credit needs of agriculture have expanded enormously.

(c) The deficiencies in agricultural credit — on account of banks not meeting their targets, poor performance of co-operatives and regional rural banks — have been well documented.

(d) In the long term interests of the financial system, a positive repayment culture for bank loans should be encouraged. Those who repay promptly must be rewarded.

Immediate remedial measures recommended by the expert group include:

(a) better monitoring and implementation of the existing package of relief measures covering 31 distress affected districts;

(b) rescheduling of loans and waiver of interest burden up to two years as well as grant of fresh loans to farmers affected by natural calamities. The Centre and the States should share the burden equally; and

(c) an one time relief to farmers who are paying exorbitant interest to money lenders should be provided by banks through long-term loans. A special fund, to be called the Money Lenders Debt Redemption Fund with a corpus of Rs. 100 crore to operationalise the scheme must be created.

Finally, the committee finds that more than one half of the farm households do not borrow either from institutional or non-institutional sources. Institutional agencies should be placed on a ‘mission mode’ to extend coverage. The group has made some valuable suggestions to improve credit delivery in rural areas and enhance the quality of financial architecture.

C. R. L. NARASIMHAN

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