This refers to Subir Gokarn's column "Rainfall and the economy" (Muddy Waters, May 4). Gokarn's analysis shows that the problem of monsoon-related rural distress can be managed by better targeted policy initiatives.
Apart from the government, bankers have an important role to play if the financial affairs of farmers are to be stabilised on a long-term basis, so that they can face the periodic failure of monsoon on their own. In a way, the policy directive of 18 per cent agriculture credit for banks has led to over-financing of a large number of small and marginal farmers. Otherwise, how can one explain some banks giving crop loans on the value of land, instead of the crop production costs for a year?
What rural economies need is an influx of long-term funds, say, through rural housing, which takes away the short-term liquid resources of farmers for long-term use. Loans for tractors, irrigation and so on also need to be separated as medium-term loans of, say, seven years with the same rate of interest as on crop loans.
The style of institutional rural credit needs to be corrected as the large interest subsidies on short-term loans have incentivised the farmers in meeting investment/personal needs from these crop loans/kisan credit cards only. Even a single season of crop failure makes the entire short-term loan due, which otherwise should have been a very small portion of the entire credit portfolio of a farmer.
Similarly, personal loan requirements for farmers need to be identified and financed through medium-term loans separately.
Y P Issar Karnal
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