Punjab farmers borrow five times more than counterparts in Maharashtra, four times more than those in UP: Study

An average farmer of Punjab borrows four times the amount of his counterparts in Uttar Pradesh (UP) and over five times his counterparts in Maharashtra, showed a study conducted by the National Bank for Agriculture and Rural Development (NABARD) in collaboration with the Bharat Krishak Samaj on the recent farm loan waivers by the three state governments.

The study also revealed that a marginal farmer in Punjab borrows Rs 3.4 lakh annually, as compared to Rs 84,000 and Rs 62,000 in UP and Maharashtra, respectively. The study was officially released on Friday at 4 pm.

The study revealed that in all the three states together, more than 40 per cent of the “very highly” distressed surveyed farmers did not receive any farm loan waiver (FLW) benefits.

Among the three states, Punjab farmers borrowed the largest amounts per farmer category and their dependence on non-institutional sources was also the highest across all farmer categories (barring the landless farmer category).

For about one-fourth of their credit needs in a year, marginal and other category of farmers reached out to NIS??? in the state.

The average amount of borrowing by marginal farmers was about Rs 84,000 (24 per cent of total loan taken), for small farmers about Rs 73,000 (18 per cent of the total) and for other farmers about Rs 1.6 lakh (27 per cent of the total).

Landless farmers emerged to have the lowest credit requirement in a year and the entire amount of about Rs 2.3 lakh was taken from non-institutional sources. The average amount of loan taken from institutions increased with the landholding size.

Waivers promoted wilful defaults

The study revealed that the waivers increased the chances of wilful defaults by farmers (between 68 to 80 per cent respondents in the three states agreed) and the waiver pushed honest farmers to default on agricultural loans (between 72 to 85 per cent of respondents in the three states agreed).

Income and production-related issues were bigger problems than indebtedness (between 87 to 98 per cent respondents agreed).

FLW only benefitted a small group of the actual distressed farmer population (more than 90 per cent respondents agreed).

Most Punjab farmers borrowed from institutions

In terms of the proportion of respondents, about 89.3 per cent in Punjab, 79.2 per cent in Maharashtra and 74.8 per cent in Uttar Pradesh borrowed from institutional sources.

In terms of the proportion of loan amounts, about 75 per cent in Punjab, 83 per cent in Maharashtra and 76 per cent in Uttar Pradesh were taken from institutional sources.

Interest rates

The interest rates on non-institutional loans were found to range between 9.5 and 21 per cent. The interest rates on institutional loans ranged between 5.9 per cent and 7.7 per cent.

Default higher on institutional loans

Possibility of default was higher on institutional loans than on non-institutional loans.

There is diversion of agricultural loans towards non-agricultural use. The diversion of KCC (Kisan Credit Card) funds was highest in the case of Punjab and lowest in the case of UP. It was also found that for an average farmer diversion of funds is inevitable and critical for survival.

Waiver and political connection

The wavers seem to have evolved a political connection over time. During the election campaigns, political parties compete to be the first to promise a waiver on agricultural loans. In addition to their political mileage, these wavers are positioned as a ‘ram-baan’ solution to any distress faced by Indian farmers. But despite several successive governments implementing these loan waivers, the distress among farmers continues, in fact it appears to have become more acute in recent years.

The study also indicated that a waiver is not an efficient way to alleviate farmer distress and that it is a short term solution after which farmers will go back to taking loans.

The current study focuses on the impact of FLW on farmers, bankers, banking and credit discipline and state finances. These schemes have been studied and evaluated using primary survey data and secondary data analysis. Three states – Punjab, UP and Maharashtra have been chosen for the primary survey.

The study revealed that in the year an FLW is implemented, the capital expenditures are reduced by the government and the lending is reduced by the financial institutions. The waivers worsened the credit discipline among the farmers in the medium and long run, said the study.

Farm loan waivers were designed as a reaction to acute agrarian distress and to ensure the continuity of future credit but it has tacitly evolved to emerge as a political tool that is strategically used by political parties to influence rural voters, the study said.

Effect of waivers on state’s finances

While studying the farm loan waiver rolled out by former Chief Minister Amarinder Singh’s government from 2017 in Punjab, the study revealed that while the government paid loans of farmers, the budget of the other departments suffered. For instance, in Punjab, the actual expenditure of several departments decreased in 2018-19, when most of the parts of the waiver were rolled out (compared to 2017-18).

The expenditure of the department of power was cut from Rs 3,013 crore in 2017-18 to Rs 2,202 crore in 2018-19, a reduction of about 27 per cent. Similarly, the expenditure of the department of home was reduced from Rs 6,674 crore in 2017-18 to Rs 6,211 crore in 2018-19, a reduction of about 6.9 per cent. The expenditure of the department of health was reduced from Rs 2,830 crore in 2017-18 to Rs 2,793 crore in 2018-19, a reduction of about 1.3 per cent. The decrease in expenditure of departments like water resources (Rs 2,815 crore in 2017-18 to Rs 1,422 crore in 2018-19, a reduction of 49.5 per cent), public works (from Rs. 2,329 crore in 2017-18 to Rs 1,377 crore in 2018-19, a reduction of about 40.9 per cent was the maximum.

It was the agriculture department that saw the expenditure increasing in 2018-19 (compared to 2017-18). From Rs 6,917 crores in 2017-18 to Rs 11,475 crores in 2018-19, an increase of about 66 per cent; Its share in the budget increased from 6.3 per cent (2017-18) to 9.6 per cent (2018-19). The expenditure under the FLW scheme is counted under this head.

Usually, about 8 per cent of the state budget is generally allocated to the agricultural department. This share increased to about 9.6 per cent in 2018-19, when Rs 11,475 crore was spent on the agriculture department, about 37 per cent of this, ie, Rs 4,238 crore was spent on the FLW scheme.

Within the agricultural department, the expenditure was split further between sub-heads. The FLW scheme was under the sub-head of the “Crop Husbandry” department. In 2018-19, 96 per cent of agricultural department’s aggregate expenditure was made under the “crop husbandry” sub-head. In this year, the share of expenditure of “forestry and wildlife” department shrunk significantly and even the expenditure of “soil conservation” and “agricultural research and education” departments was cut.

What all suffered

The expenditure analysis of the Punjab budget data yielded that both developmental expenditure and capital outlay (as a percentage of GSDP) fell in 2017-18; outstanding liabilities and market borrowings both increased sharply in 2017-18 and 2018-19; key departments and departments require capital expenditure including “power”, “water resources”, “public works”, “health and family welfare” suffered budgetary/expenditure cuts in 2018-19 (YMD).

Within the department, the introduction of the “debt relief” coincided with a reduction in budgetary allocations for “soil and water conservation”, “agricultural research and education” and “forestry and wildlife”.

Punjab borrowed money to pay waver

The report says, “From discussions with senior official from the Department of Agriculture and Farmers’ Welfare (PDAFW), Punjab, it was found that the FLW scheme was partially funded by a loan taken by the Punjab Mandi Board from a private bank. The loan from the Punjab Mandi Board was utilised to transfer waiver benefits. To repay this loan, the Punjab Mandi Board levied an additional 1 per cent cess on the arrivals of wheat and paddy in the mandis. These collections were used to repay the above loan. We could not find official documents corroborating and detailing about this loan. While, such a practice highlights the monetary pressures and accounting innovations that state governments have to resort to finance expensive and populist schemes like FLW. Apart from this practice itself, the fact that the scheme appears to be partially funded through an additional market cess applied on paddy and wheat mandi arrivals may raise questions on state’s ability to finance FLW scheme out of budgetary allocations.” The state is already unable to get its Rural Development Fund (RDF) from the Center on this account. The Center has not released its Rs 1,000 crore from the previous year.

Farmer suicides

The study also analyzed responses from farmer families having experienced suicides. The objective was to understand, first hand, what causes led to incidents of farmer suicides in the three states. In the wake of Covid-related restrictions, 15 such families distributed in the three states were studied, five families in Punjab, four in Maharashtra and six in UP. In all the three states, successive crop loss and indebtedness together were the prime causes of farmer suicides. Sole dependence on agriculture for income was another major cause of farmer suicides in UP.

While further analysing the indebtedness issue, the main reasons for high indebtedness were huge loan amounts with the interest being greater than the principal and increased family and personal expenses being paid out of amounts to be used for loan repayments.

Ajay Vir Jakhar, chairperson of Bharat Krishak Samaj, said the report correctly summarises that in the given circumstances, indebtedness in Indian agriculture is inevitable and indebtedness is more of a symptom of farmer distress than its immediate cause.

“The major problem of farm loan waivers arises from the design of the waver itself. A large section of the people whose loan should have been waived were unable to benefit from the process. Bharat Krishak Samaj believes using the gram sabha to identify the really deprived and distressed would be the right way,” he added.

It is also clear that the farm loan waivers are only temporarily addressing the pain and the government needs to look at long-term solutions of making farming a viable profession.

When farm loan waivers are implemented, allocations of departments like “power”, “water resources”, “public works” and “health and family welfare” suffer. It does not have to as it adversely impacts the landless, the tenant farmers and the really poor. The states need to raise more resources rather than divert funds, he added.


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