Farm loan waivers to raise state deficits by ₹1.08 tn: India Ratings report

https://www.thehindubusinessline.com/news/farm-loan-waivers-to-raise-state-deficits-by-108-tn-india-ratings-report/article9995895.ece
PTI

MUMBAI, DEC 18

The farm debt waivers announced by the five large States together will widen the combined fiscal deficit of the States by 1,07,700 crore or 0.65 per cent of GDP this financial year, warns a report.

The combined fiscal deficit of the States for FY18 has been budgeted at 2.7 per cent of GDP or 4.48 trillion.

Uttar Pradesh, Punjab, Maharashtra, Rajasthan and Karnataka have announced farm loan waivers this year after a string of farmer suicides in these States.

Nine States have budgeted an increase in their fiscal deficits/gross state domestic product (GSDP) ratios this year compared to 19 states in FY17.

“With several States announcing farm loan waivers, there is a fear that the combined fiscal deficits of the States could be much worse than the budgeted figure,” India Ratings said in a report on Monday.

The report estimates that the combined fiscal deficit of the States in FY18 at 3 per cent of GDP or  4.99 trillion. This is higher than the budgeted figure but considerably lower than FY17.

The report is based on the analysis of 29 State budgets, the impact of the farm debt waivers announced outside the budgets and implementation of GST from July 2017.

While the farm debt waivers announced by UP and Punjab are part of their respective FY18 budgets, the waivers announced by Maharashtra, Rajasthan and Karnataka are outside their budgets.

“These States will have to either generate additional resources to fund farm debt waivers or cut their budgeted expenditure,” the report said.

If such announcements are funded through expenditure compression, the axe usually falls first on the budgeted capital expenditure, followed by social expenditure.

“Both cuts do not augur well from the point of view of the medium to long-term growth prospects of these States,” the report said.

Andhra Pradesh and Telangana, which announced a farm debt waivers of 43,000 crore and 17,000 crore, respectively, in 2014, however have adopted a staggered payment mechanism.

The report, however, said despite fiscal pressures, the encouraging feature of FY18 state budgets is near stability in the combined revenue deficit and some improvements in the combined primary deficit of the states compared to FY17.

The other encouraging feature of the state budgets this year has been the continuation of capex by the states.

Boosted by Uday bond issuances, combined capex of the states grew 40 per cent year-on-year and 26.2 per cent in FY16 and FY17, espectively.

How will farm loan waivers impact the Indian economy?

https://www.livemint.com/Politics/HcS9M9n9rus7h5JiLQC2ZM/How-will-farm-loan-waivers-impact-the-Indian-economy.html

Farm loan waivers will strain the finances of states, and harm both farmers and banks over the long run

The debt waiver packages, even if limited to a few states, will likely prove to be counter-productive and offer little gains to farmers over the long run. Photo: Mint

The debt waiver packages, even if limited to a few states, will likely prove to be counter-productive and offer little gains to farmers over the long run. Photo: Mint

In its policy statement released last week, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) pointed out that the implementation of farm loan waivers across states could hurt the finances of states and make them throw good money after bad, and stoke inflation.

How much of an impact will the waivers have on the Indian economy?

Mint analysis suggests that the cumulative impact of farm loan waivers is likely to be lower than that of the power-restructuring package, Ujwal Discom Assurance Yojana (UDAY), unless they are extended to all Indian states. However, the debt waiver packages, even if limited to a few states, will likely prove to be counter-productive and offer little gains to farmers over the long run.

So far, three major states—Uttar Pradesh (UP), Punjab and Maharashtra—have announced large-scale farm debt waivers. The debt waiver packages of UP and Punjab were aimed to fulfil poll promises made by the Bharatiya Janata Party (BJP) and the Congress party, respectively, in these two states. The cumulative debt relief announced by the three states amounts to around Rs77,000 crore or 0.5% of India’s 2016-17 GDP.

UP’s debt waiver of Rs36,400 crore is equivalent to one-fourth of the total estimated farm debt in the state. Punjab’s debt waiver worth Rs10000 crore is  equivalent to less than one-seventh of the total estimated farm debt in the state. Maharashtra’s farm debt waiver appears slightly more generous as it appears to cover almost one-third of the state’s farm loans.

If poll-bound states—including Gujarat, Karnataka, Rajasthan and Madhya Pradesh— too announce farm debt waivers and extend it to one-third of farm loans in their respective states, then the aggregate amount of farm debt waivers before the 2019 elections would balloon to Rs2 trillion, or 1.3% of India’s GDP.

The Rs2 trillion hit to state finances is not a small amount but it is lower than the fiscal burden of the UDAY scheme, which originally envisaged states to take over Rs3 trillion of discom (distribution companies) debt. As of now, the UDAY website shows that 15 states have pledged to issue bonds worth Rs2.7 trillion, or 1.8% of India’s GDP.

This means that the current cost of debt waivers, though large, is not yet alarming. But what if all states, and not just the poll-bound ones, decide to waive farm loans, and extend it to half of all farm debt rather than just one-third? In such a case, the total waiver amount will substantially increase to Rs6.3 trillion or around 4% of the GDP.

The extreme case of 50% farm debt waiver should raise concerns as it will worsen states’ debt-to-GDP ratio by 4 percentage points on average. This will jeopardize India’s stated aim to reduce its total public debt, Centre and states combined, to 60% of the GDP.

State-wise outstanding farm debt has been estimated by using available break-up (for previous years) of agricultural loans extended by scheduled commercial banks and regional rural banks. The estimates thus obtained have been scaled up to the total value of institutional farm loans at Rs12.6 trillion. This figure was cited by Union minister of state for agriculture Parshottam Rupala in November last year in response to a question on farm debt.

While the effect of increased public debt will play out over the long run, the increased interest burden due to higher debt will hit state finances immediately. Even if we assume a benign scenario, where debt waiver amounts to only one-fourth of all farm debt, as in the case of Uttar Pradesh, the aggregate interest payment burden of states will rise by 8% (over their 2016-17 levels). Interest payments of states are already quite high, and often eclipse their spending on important infrastructure areas such as roads and irrigation.

The impact on state finances could have been justified had the waivers provided meaningful relief to India’s distressed rural economy. But that is unlikely to happen since the poorest farmers in India typically rely on non-institutional sources of credit, as a previous Plain Facts column pointed out. Instead, as the experience of 2008 shows, farm loan waivers can discourage subsequent lending by banks in districts with greater exposure to the debt waiver, harming farmers over the long run.

Given that farm loans will be transferred from the assets side of banks’ balance sheets to the liabilities side of government’s books as part of the waivers, will distressed banks gain from such moves? Not much, according to a review into the non-performing asset (NPA) portfolio of banks.

Banks might gain in the short run as their loan book gets lighter and they get rid of some non-performing assets. But such waivers and their anticipation in future would damage credit culture. It is not surprising that after the farm debt waiver in 2008, the drop in banks’ agricultural bad loans or NPAs lasted for barely a year before rising sharply once again.

But to put things in perspective, the share of agricultural loans in the total basket of NPAs today is low. In fact, banks with more NPAs tend to have a smaller share of agricultural loans in total NPAs, as the chart below shows. This means that even temporary relief for stressed banks will be quite modest.

Given that the promise of farm waivers have seemed to help both the Congress and the BJP win in Punjab and Uttar Pradesh, respectively, it is likely that India’s political class will increasingly adopt this option in the run-up to the 2019 Lok Sabha elections.

But the above analysis suggests that such waivers are unlikely to help the cause of either distressed farmers or troubled banks over the long run. And they may well impair the quality of public spending by states, as the central bank fears.

In Telangana, caught between life and debt

Ravi’s wife Yadamma now works as a farm labourer to support her sons. Harsha Vadlamani
Ravi’s wife Yadamma now works as a farm labourer to support her sons. (Source: Harsha Vadlamani)
Written by Sreenivas Janyala | Karimnagar |Posted: November 20, 2014 4:30 am

On the night of July 4, Korishala Ravi stepped out of his house that is right across a branch of the State Bank of Hyderabad in Kodakandla village of Medak district in Telangana. The 35-year-old farmer had applied for a loan to the branch three times but his plea was rejected each time, forcing him to turn to moneylenders. Few hours later, not too far away from the bank branch, he was found dead, his body hanging from a tree.

Ravi’s village is part of Telangana Chief Minister K Chandrasekhara Rao’s Gajwale constituency. Rao had identified it to be developed as a model village.

On September 23, Polu Rajaiah, a 48-year-old landless farmer of Thotapalli village in Karimnagar district, got himself a hair cut and asked his wife to make his favourite curry. After lunch, he went to their field about one km away, drank pesticide and died. Rajaiah had been borrowing money, first to take two acres on lease, then another four acres, and to purchase seeds and fertilisers, but his maize crop had failed, leaving
him with a debt of Rs 3 lakh.

Since Rao took over as the chief minister on June 2, there have  been 79 farmer deaths officially recognised as ‘suicides’ in the newly formed state. Beera Ramulu, a farmer and RTI activist associated with NGO Rythu Swarajya Vedika, puts the number at more than 300. Most of these farmers died in Warangal (83), Karimnagar (40) and Medak (70) districts. However, Agriculture Minister P Srinivas Reddy says not all farmer suicides are related to crops.

Like most of the others, Rajaiah and Ravi were both tenant farmers, and they did not fit anywhere in the system designed to help and protect farmers — be it loan eligibility cards, crop loans, easy bank credit, farm-loan waiver scheme or agriculture subsidies — as they had no land to show as collateral. That left them at the mercy of moneylenders charging interest rates as high as 24 per cent per annum. Now their families have to prove the deaths were solely linked to their crops to be entitled to ex-gratia — another uphill battle.

On November 13, the RBI issued a circular to all banks on financing ‘Bhoomi heen kisan (landless farmers)’, as per an announcement in the Budget. Under it, landless farmers can form ‘Joint Liability Groups’ and avail of loans through NABARD for farm and non-farm activities, standing as guarantors for each other. The measure, it is believed, would go a long way towards resolving denial of loans to landless farmers. Union Agriculture Minister Radha Mohan Singh has proposed financing at least 5 lakh joint farming groups this financial year.

Ravi’s brother Balanarasimha, a taxi driver, says Ravi’s loan applications were rejected because he didn’t own any land to show as collateral. “They asked for land ownership documents first to even consider the application,” he says. Ravi had taken five acres on lease to grow cotton, maize and paddy, of which two acres belonged to a relative who had already taken a loan on the land. The owner of the remaining three acres refused to give him a lease agreement, which would have made Ravi eligible for loan. State Bank of Hyderabad Kodakandla Branch Manager Sheikh Abdul Kareem says, “Farmers seeking loans have to give us a copy of the land title in his name, or, in case of tenants, a copy of the lease agreement signed by the owner. We cannot give loans if the documents are not clear or there is a dispute regarding ownership.” The Korakandla branch caters to nine nearby villages, with at least 7,000 farmers. Since January, it has given 500 new crop loans and rescheduled 700 old loans under the Telangana government’s crop loan waiver scheme, but the amount of loan given is very small. For cotton crop, it is Rs 20,000 while for paddy, it is Rs 18,000 per season. The Telangana Rashtra Samiti (TRS) government in the state had announced a Rs 17,000 crore farm loan waiver scheme, to fulfill its poll promise. Under the scheme, outstanding amounts as on March 31, 2014 on crop loans up to Rs one lakh are waived off. This rescheduling of loans makes farmers eligible for fresh loans. The government order issued on August 13, however, clearly stated that the scheme covers only institutional loans and not loans from non-institutional sources. Ravi also tried to get a loan from Telangana Scheduled Castes Cooperative Finance Corporation Ltd through the bank, but the policy is still under discussion. Managing Director of the corporation B Jayaraj says once the budget is passed in the Assembly, the government will decide the loan and subsidy ratio. Admitting a “few inherent deficiencies”, State Bank of Hyderabad General Manager J Sitapathy Sarma says, “Denial of loans to landless farmers is a major issue and needs a change of policy which will make them eligible even if they are unable to show collateral.” He, however, insists that farmers must make an effort to at least get a loan eligibility certificate from the village or mandal revenue officer. The State Bank of Hyderabad is the convener of the State-Level Bankers’ Committee (SLBC). Meanwhile, in order to meet their 18 per cent target fixed for farm loans, banks classify all kinds of loans under the agriculture sector. For example, the SLBC said in July that banks in Telangana had given Rs 49,564 crore loans to the agriculture sector in 2013-14. But when the state government sought details of the accounts of individual farmers who were given loans, SLBC revised the figure to Rs 12,000 crore on March 31, 2014. Banks were apparently also bunching agricultural loans with those taken by farmers for jewellery, marriages, and other non-farm expenses. There are many examples of farmers taking loans for digging or repairing bore wells and paying children’s fees. When crops fail, all these add to their loan burden. “Thousands of farmers are caught in a vicious cycle of debts due to low yields or total crop failure. There is constant pressure from moneylenders and when it does not rain and crops start failing, all they can think of is escaping it by taking their own lives,” says activist Beera Ramulu. TRS politburo member and Karimnagar MP B Vinod Kumar admits the plight of landless farmers who take land on lease. “We need far-reaching reforms in the lending process to include landless farmers in the credit system. In 2010-11, banks introduced business correspondents in villages to make the process of giving loans easier but the correspondents recommend only those who have something to mortgage,” Kumar says. With no options, Ravi had borrowed money from relatives and other villagers at 24 per cent per annum. Documents show he took two loans at 18 per cent interest each, to pay Rs 50,000 upfront to take five acres on lease, and two loans at 24 per cent interest each. “The yield of the maize crop was not good due to inadequate rainfall. The paddy also failed,” says Ravi’s brother. Ravi’s wife Yadamma now works as farm labour, earning Rs 100 a day to support her sons Shiva and Sai. Rajaiah never thought of approaching a bank although three — Andhra Bank, State Bank of Hyderabad and UCO Bank — have branches in Husnabad, 25 km from his Thotapalli village. “We don’t own even a small piece of land, bank officials do not even look at your application. He did not get the loan eligibility card so there was no point going to the bank,” his wife Komaramma says. In 2011, the AP Government introduced a system of giving loan eligibility cards to tenant farmers. Village Revenue Officers, tehsildars, Mandal Revenue Officers could issue the card to a tenant farmer after ascertaining that farming is his only profession, is a genuine farmer, and has taken land on lease. In the presence of the village sarpanch and witnesses, a gram sabha is held and the farmer is given the eligibility card. “But revenue officials are wary of giving the eligibility cards fearing that they will be held accountable if the farmer fails to repay although the government order states that it is not the responsibility of government officials. When officials verify and find that the farmer has some outstanding loan already, they don’t issue the card. This way the system has slowly stopped working and very few cards are given,’’ says RTI activist and member of Rythu Swaraj Vedika Kondal Reddy. In Mallampalli village of Mulug Mandal in Warangal, Merugu Achala, 21, works up to eight hours in a cotton field for Rs 100-130 per day. Her husband killed himself recently over pressure from moneylenders after their cotton crop failed. Achala borrowed Rs 15,000 recently to pay the school fees of her daughter and son, in Class I and kindergarten respectively. The loan outstanding in her husband’s name is already around Rs 1 lakh, but Achala is determined to keep her children in a private school. “My husband did not want them to work in the fields and wished they got proper jobs when they grew up. I too don’t want them to ever work in agriculture,” she says. – See more at: http://indianexpress.com/article/india/india-others/in-telangana-caught-between-life-and-debt/4/#sthash.CXKQ5uO9.dpuf

Memorandum to AP Chief Secretary on Loan Waiver

140622 Chief Secretary Telangana final Download

Rytu Swarajya Vedhika has a submitted a memorandum with the following demands.

  1. As a first measure, the Government must delink the loan waiver proposal from distribution of Kharif loans for the current agricultural season and should immediately take action to disburse crop loans  without delay to all the farmers including Tenant farmers.
  2. While the farming community is in deep crisis due to indebtedness, loan waiver is not a solution to end the crisis. The crisis is still continuing even after the debt waiver and relief extended during 2008.   A comprehensive solution lies in bringing in policy changes related to all aspects of agriculture (Credit, input support, extension and marketing) as well as pursuing the land reforms agenda with renewed vigour to bring about a meaningful change in the agriculture sector to help close to 85% ofsmall and marginal farmersto secure and sustain their livelihoods. . A piecemeal, myopic solution to the problem in the form of loan waivers alone is a grossly inadequate solution to the larger, complex set of problems ailing the farming sector in the State.
  3. Tenant farmers, dalits, tribal and women farmers who received lands under various land distributionschemes do not have access to institutional credit. They are taking loans from private money lenders, input dealers or Microfinance Institutions at a higher interest rate (as high as 60% Rs. 5 per Rs. 100 per month).  These farmers  are in deep crisis and constitute a large chunk of farmers committing suicides. This loan waiver is of no help  to them.
  4. Government should make immediate effort to increase access to institutional credit to real cultivators.  One of the problems often expressed by the bankers in giving crop loans to these farmers is the lack of a guarantee for repayment. The state government should establish a Credit Guarantee Fund for small and marginal farmers which can give collateral security to the tenant farmers.
  5. All the real cultivators who are not covered under institutional credit are to be organised into cooperatives and linked to the institutional credit.  All their high interest private loans can be swapped with low interest bank loans.
  6. Loans of all farmers who have committed suicides since 1997 have to be waived and their private loans be swapped with no interest bank loans.
  7. Government should introduce special budget for agriculture with an allocation of atleast 10% of the total budget.
  8. Government must ensure that the loan waiver does not benefit non-cultivating, absentee land owners who have other major sources of income or livelihood and have taken loans in the name of agriculture. Specific mechanisms must be evolved to identify and eliminate the above categories of landowners from the purview of the loan waiver scheme. Further, steps must be taken to identify the actual cultivators and update the revenue records accordingly. Government must also actively explore mechanisms (e.g. setting up a separate Committee) for evolving a set of criteria to enable eligible farmers benefit from the loan waiver scheme in a meaningful manner.
  9. Government should also take care that the loan waiver does not apply to ineligible loanees through the following measures
    1. Restricting the loan waiver only to crop loans
    2. In case government decides to waive short term and allied sector loans, it should be restricted to small and marginal farmers only (up to 4 ha in rainfed areas, 2 ha in irrigated areas)
    3. Exempting Hyderabad district from the purview of the loan waiver. A thorough enquiry should be conducted and if need be waiver can be extended in the second phase. Pending this, the crop loan waiver up to one lakh for all farmers in the other district should be done immediately.
  10. Government should with stain from any effort to impose additional taxes or issue bonds and transfer the burden on to people or the next government.

The real cost of credit constraints: Evidence from micro-finance

In December 2010, the Indian state of Andhra Pradesh passed a law that severely restricted the operations of micro-finance institutions and brought the micro-finance industry to an abrupt halt. We measure the impact of micro-credit withdrawal in this unique natural experiment and find that average household expenditure dropped by 19 percent relative to a control group after the ban. The largest decrease was observed in expenditure on food. There is some evidence of higher volatility in consumption after the ban. All households were affected and not just the borrower households, which may suggest general equilibrium effects.

http://www.igidr.ac.in/pdf/publication/WP-2013-013.pdf

 

వచ్చే ఆర్థిక సంవత్సరంలో వ్యవ’సాయం’ రూ.63వేల కోట్లు నాబార్డు ప్రతిపాదనలు

హైదరాబాద్, ఫిబ్రవరి 14: వచ్చే ఆర్థిక సంవత్సరంలో వివిధ రంగాలకు రుణ మంజూరుపై నా బార్డు కసరత్తు చేస్తోంది. ఇందులో భాగంగా వ్యవసాయానికి దాదాపు రూ. 63 కోట్ల మేర ఇచ్చేవిధంగా ప్రతిపాదనలు సిద్ధం చేసింది. ఈ మేరకు స్వల్ప, దీర్ఘకాలిక రుణాల కింద రూ.59818.95 కోట్లు, భూమి అభివృద్ధికి రూ. 654.75 కోట్లు, యాంత్రీకరణకు రూ.2432.12 కోట్ల మం జూరుకు ప్రతిపాదించింది. వీటిని రాష్ట్రస్థాయి బ్యాంకర్ల కమిటీ (ఎస్ఎల్‌బీసీ)కి పంపనున్న నేపథ్యంలో సోమవారం వ్యవసాయశాఖ అధికారులతో సమావేశమై సూచనలు స్వీకరించింది. ఈ సందర్భంగా అధికారులు వివిధ అంశాలను ప్రస్తావించారు. 

సమస్యల పరిష్కారానికి చొరవ చూపాలని నాబార్డు ఉన్నతాధికారులను కోరారు. ఇక నీటిపారుదల రంగానికి రూ.1061.38 కోట్లు, ఉద్యాన రంగానికి రూ.1441.72 కోట్లు ప్రతిపాదించింది. ఇక పశు సంవర్ధక శాఖ కింద రూ.2113.05 కోట్లు పాడి పరిశ్రమాభివృద్ధికి, రూ.1088.16 కోట్లు పౌల్ట్రీకి, రూ. 554.43 కోట్లు మేకలు, పందుల పెంపకానికి ప్రతిపాదించారు. మత్స్యరంగానికి రూ.1320.06 కోట్లు నాబార్డు ప్రతిపాదించింది. ఫుడ్ ప్రాసెసింగ్‌కు రూ.637.69 కోట్లు ప్రతిపాదించారు. నాబార్డు ప్రతిపాదనలు… ఎస్ఎల్‌బీసీ ఆమోదం బాగానే ఉన్నా.. ఆచరణలో మాత్రం బ్యాంకు లు శ్రద్ధ చూపడంలేదన్న విమర్శలున్నాయి.

No access to credit to Tenant Farmers in AP: RDI Study

A study done by Rural Development Institute in 22 villages in Warangal, Nalgonda,Vishakapatnam, East Godavari and Kurnool districts of AP concluded that tenant farmers access to credit is still very low inspite of govt initiating loan eligibility cards

  • As per the revenue records AP has 17,47,901 tenant farmers
  • during 2011-12, 6,80,226 tenant farmers have applied for loan eligibility cards and 5,13,655 of them have received the card.  in this only 2,37,522 have renewed during the following year
  • situation became worse in 2012-13. only 4,80,083 tenant farmers have applied and 3,95,207 farmers have received the cards
  • 2011-12 the total agricultural credit received by tenant farmers is Rs. 390 cr which about 1% of total agricultural credit.  during 2012-13 it is only Rs. 133 cr.
  • in most of the villages still money lenders play important role
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