Agriculture credit has many shades of grey that help to gloss over the actual quantity of new loans, the beneficiaries and the palm greasing required to access the credit

In the union budget 2016, the finance minister provided ₹8.5 lakh crore for agriculture credit; much more than in the year before. Asked in a survey, what this number meant to them, farmers said that it meant new loans of that value would be to be given to farmers this year. It transpired, however, that this figure represented the net outstanding (including interest, penalties and such others) of the agriculture sector, with some loans possibly pre-dating Independence.

Hopefully, the next Budget would be more transparent with the finance minister gathering more information about the numbers by ordering an examination of incriminating evidence. The reality behind the figures is so different. Otherwise, his numbers will lost all credibility. After nearly 70 years of Independence, financial inclusion for cultivators has remained a pipe dream and farmers are increasingly being forced to turn to informal sources for credit.

As per the latest All-India Debt and Investment Survey, the share of cultivator household’s indebtedness and share of debt outstanding in the informal sector from moneylenders have nearly doubled in the last 20 years. Before the economic liberalisation of the 1990s, the rural population per bank branch stood at 13,665. Between then and 2004, before the UPA announced a doubling of agricultural credit in 2004, more than 900 rural bank branches had closed down.

The UPA did open 5,710 new rural bank branches between 2005 and 2012 but the rural population per bank branch was over 15,000; way higher than in 1990. This happened primarily because commercial banks were given precedence over rural co-operative banks to provide credit to rural areas. As a result, banking failed to keep pace with the rising population. Our budget wish list had proposed capital infusion into state and central co-operative banks to enable them to meet the new minimum capital adequacy norms. Since the budget did not address this, clearly several co-operative banks will collapse and credit to the farmers will be further hit.

A large part of the agriculture credit announced every year never reaches the farmers. The UPA failed to translate its good intentions into productive outcomes and got routed as a consequence. The 2004 announcement was never what it had appeared to be as the government continued with the policy of diluting the definition of agriculture credit by expanding the classification of direct and indirect agriculture credit. Such dilution was recommended by committees staffed by retired public sector bank officials or their associates. Without the dilutions, direct credit would have meant a loan given directly to the cultivators and indirect credit would be for support activities.

Agriculture credit’s many shades of grey are best explained by Prof. R. Ramakumar, of the School of Development Studies, Tata Institute of Social Sciences, Mumbai. Over three-fourths of the landholdings are too small for cultivators to need a loan for farm operations of more than ₹2 lakh. Therefore, it can be considered as an upper limit of a typical agricultural loan. The total amount of loans of under  ₹2 lakh has halved since 1990. Even after all the additions to what constitutes direct agricultural credit, within the direct agriculture credit portfolio, loans of less than  ₹2 lakh have also nearly halved.

Even as farmers couldn’t avail of credit, the share of large corporates with loans of sums of  ₹25 crore+ increased from 5.7 per cent in 1990 to 17.7 per cent 2011. The FY2010 agriculture loans in Chandigarh and Delhi were more than what was given to farmers in Uttar Pradesh, Bihar, West Bengal and Jharkhand. The Report of the Task Force on Credit-Related Issues of Farmers holds that window-dressing by banks to meet government targets on credit, deposits and recovery is so rampant that a closer look at who is termed a “farmer” is also needed.

How data gets generated and is falsified can be understood from this example: A farmer with 12 acres of land, seeking a farm loan of ₹1 lakh, provides a bank guarantee of his land. For the  ₹1 lakh loan, the farmer has to hypothecate not more than two acres of land. Thus, the bank accepts documents for two acres of land and records the transaction as a loan to a marginal farmer (less than 2.5 acres) even when the farmer actually is a large farmer. Presuming the same farmer goes to three different banks (a common practice), data will show three loans of less than  ₹2 lakh each for three different marginal farmers. No crime is committed but misinterpretations follow; the government pats itself for meeting financial inclusion targets and the bank heads get feted. It is dangerous if policies are formulated on such blatant deceit.

If data from public sector banks is accepted at face value, one would falsely conclude that Indian farmers live in cities. In former finance minister P. Chidambaram’s home state of Tamil Nadu, the share of direct agricultural credit from urban or metropolitan branches was about 29 per cent, followed by 41 per cent in Maharashtra. One would presume, the 53 per cent in West Bengal is lent to companies large corporates with interest in the farm sector and conveniently gets designated as agriculture credit.

It gets worse, over 46 per cent of annual agriculture loans are disbursed in the last quarter of the financial year by commercial banks. Over 50 per cent of that is disbursed in the month of March itself. Even the ministry of agriculture, which has no role to play in this, will agree that the last quarter of a financial year or the month of March is not the normal period of borrowing by farmers.

Agriculture loans are not as cheap as made out to be. A farmer reaching out to a bank for a loan of over ₹1 lakh for example, is forced to spend more than ₹3,000 on arranging documentation. This effectively means an expenditure of three per cent of the loan value even before the loan is disbursed. To this is added different kinds of fine-print charges on desperate farmers once the loan is sanctioned. One is not even referring to the bribes of between five per cent and 10 per cent of the total loan amount that is required to be paid at most places.

The information available is so inadequate and pathetic that the establishment cannot provide credible all-India agriculture credit data, which annually shows new loans to farmers, categorised by size of land-holding, loan amount, default status and such others. Some may choose to look the other way but the reality is, as J. Paul Getty said, “Money is like manure. You have to spread it around or it smells”.