Modi's farm sops might mean little on the ground

Sops are a belated acceptance of the fact that demonetisation has impacted the farming sector hard

The big-bang announcements of Prime Minister Narendra Modi on New Year eve to alleviate the pain of demonetisation may fall short of easing the problems of India’s 140 million farming families because most of the measures do not address the difficulties arising out of the cash crunch.

Modi, while thanking the farming community for bringing in more areas under rabi crops and purchasing higher quantities of fertilisers despite the cash shortage, said the farmers who had taken loans for rabi crops from district cooperative banks (DCBs) and primary agriculture cooperative societies (PACS) would not have to pay interest on their borrowings for 60 days starting on January 1. Those who paid their interest in November and December of 2016 will be reimbursed by the government.

However, experts say this could have a marginal impact because in a crop season almost 70% of the loans taken by farmers are given by scheduled commercial banks and around 30% by DCBs, PACS and Regional Rural Banks (RRBs).

In 2016-17, the Centre’s crop loan target is almost Rs 9,00,000 crore, of which the amount disbursed by scheduled commercial banks is the maximum.

The Centre last month had extended the crop-loan repayment date by two months for the borrowings that were to be cleared between November 1 and December 31.

“Interest of two months is a very small amount. How it addresses the issue of cash shortage in rural India is difficult to understand,” said Himanshu, professor of economics, School of Social Sciences, Jawaharlal Nehru University.

He said the interest for the year at 7% on a loan of Rs 1,00,000 was somewhere around Rs 7,000 and the waiver of two months’ interest would be about Rs 1,200, which is nominal.

Modi’s second announcement was providing Nabard an additional Rs 20,000 crore for providing farmers better access to credit and loans in 2016-17. However, with more than 40% of the farmers out of the institutional credit mechanism, this step, too, will have a limited impact. In November Nabard got Rs 21,000 crore to provide easy loans to farmers at low rates.

 “Since the 1990s, institutional credit to agriculture has stagnated at around 40%, which has not improved despite best efforts,” said Ashok Gulati, former chairman of the Commission for Agriculture Costs and Prices and chair professor of agriculture in Icrier (Indian Council for Research in International Economic Relations).

Modi also announced starting on January 1, all the 30 million Kisan Credit Cards (KCCs) would be converted into RuPay cards to enable farmers to withdraw cash with greater convenience.

Experts say this too will not be sufficient unless banks and ATMs increase their daily cash disbursal limits. Moreover, converting the 30 million KCCs into RuPay cards is challenging.
 

“To me the direction given by the Prime Minister is right but implementation remains the key,” Gulati said.

The sops are a belated acceptance of the fact that the cash crunch due to demonetisation has impacted the farming sector hard.