Save the Sheep not the Wolves, Mr. Finance Minister!

पाम ऑयल मिशन को लेकर नॉर्थ-ईस्ट में उपजी आशंकाएं

“हमसे कोई सलाह-मशविरा नहीं लिया गया। नॉर्थ ईस्ट में पाम ऑयल मिशन ठीक नहीं है क्योंकि मेघालय में हम आदिवासियों का जीवन...

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While presenting the budget Finance Minister Arun Jaitley told the Parliament that his government will ensure the income of farmers will double by 2022 as agriculture will go onto be projected as an enterprise. This was followed by some chest thumbing and some more promises. Between going gaga over the work done by his party over the last four years the gentlemen found very little time to shed some light on how does his government planned to raise the funds to realise the ambitious outcome.

Unless the government makes it sufficiently clear what sources are going to pump the agricultural growth needed for doubling farmer incomes the FM’s word should be treated as only a rhetorical statement made to silence the dissenting farmers.ArunJaitley doesn’t need a reminder that all the challenges putting agriculture in India in crisis today are mostly a result of under-investment by the state and financial shortages,be it low capital formation, high input cost for the farmer and low prices for produce that leads to farmer debts.

On various occasions, he has however signalled that the private sector to fund the growing needs of agriculture. Maybe Mr Jaitley needs a lesson in history to figure out where do the roots of the growing agriculture distress lie and hence consider realistic, pragmatic and sound solutions rather than depending on the private players.

History reminds us to be wary of the Private

Fresh from throwing out the mighty British empire India depended heavily on its import of food grains in order to feed the millions of its citizens, post-independence. By mid 50’s, as food shortages began to swell and foreign exchange reserves fell sharply, the Indian government entered into an agreement with the U.S. government for assistance for the import of food grains under P.L. 480. The domestic demand for agricultural produce declined whereas the dependency on US aid increased.

Agriculture finance was yet to receive much attention even after twenty years of Independence. Banks were mostly controlled by individuals and business houses who often had close connections with numerous companies. There was no shying away from investing in companies where the bank owners saw their interest being served.
These banks generally ignored the farmers, women, students, small industrialists when it came to providing them loans. They showed no interests in opening branches in rural and underdeveloped areas, nor were they keen in granting loans to the needy sectors. The poor farmers remained debt ridden and large areas of the country remained unbanked.

The R.K. Hazari Committee Report of 1967 observed that in order to undertake proper credit planning in the country it was necessary to snap the links between the banks and big business houses. Both the ‘Vivian Bose Commission 1956’ and the ‘Mahalanobis Committee on Distribution of National Income in India, 1960’ clearly exposed the nexus that existed wherein directors of banks used their position to finance the companies in which they had interests.

Given this backdrop, 14 banks were nationalised in 1969 with a larger social purpose to sub serve national priorities like rapid growth in agriculture, small industries and export, employment generation and development of backward areas. With the nationalisation of banks, credit availability to the agricultural sector increased manifold. The directed credit programme in India gained significance with agriculture being marked as the priority sector.

Until 1967 the government largely concentrated on expanding the farming areas. But the population was growing at a much faster rate than food production. This called for an immediate and drastic action to increase yield which came in the form of the Green Revolution. Spreading over the period from 1967-1968 to 1977-1978, the Green Revolution changed India’s status from a food-deficient country to one of the world’s leading agricultural nations.

The branch expansion programmes taken up by Indian banks resulted in 36.9% of branches being opened in rural and semi urban areas to cater to the largely unbanked sections of the country. Accordingly, 41.1 percent of total branches of all Public Sector Banks including regional rural banks were in the rural and semi urban areas as of June, 2012 compared to 8.8 percent of new generation private sector banks. Important to remember here is that agricultural advances by public sector banks, regional rural banks and co-operative banks constitute major chunk of agrarian credit in India as proven by various studies.

The success story of Indian Agriculture however was short-lived. Severe crisis cropped up in up in 1990 closely following economic reforms.It seemed liberalisation had a calamitous impact on the livelihoods associated with agriculture. Symptoms of the agrarian distress is the high rate of suicides amongst our farmers. Between 1995 and 2014 alone 2,96,438 farmers have committed suicide in India. On average, 3,685 farmers in Maharashtra state took their lives every year in the period between 2004 and 2013.

For the first time, urban India added more to its population than rural India as per Census 2011. According to P. Sainath, leading Indian journalist who has reported on rural India for more than two decades , millions of people earlier engaged in agriculture are roaming around the India in “footloose migration” search for daily wages. This proves the destruction of livelihoods in the predominantly agrarian rural India.

Photo : Bankers Adda

Post 2000, agricultural lending did witness a boom, but it was agribusiness oriented enterprises who took the larger share of the pie. It is a well-recognised fact that though the target for priority sector remains unchanged at 40 percent, the share of priority sector in total net bank credit is declining. The Reserve Bank of India has maintained a studied silence on the defaults. A disturbing aspect of this default is that such decline has occurred in spite of the fact that the ‘norm’ of priority sector credit has been diluted substantially. For instance, direct and indirect advances to agriculture can now be clubbed for meeting the sub target of 18 per cent of direct advances to agriculture.

The definition of priority sector itself has been widened; advances up to Rs 5 lakh for financing the distribution of inputs for agriculture and ‘allied’ sectors can now be considered as indirect advances to agriculture. The ‘allied’ activities include dairy, poultry, and piggery and consequently advances for poultry feed and cattle feed are eligible for being included under this category. Moreover, the share of agricultural advances in total net bank credit declined consistently to 16.4 percent and further to 14.3 percent during the period of 1991–1996. It is clearly evident that the reduction in priority advances will certainly have impact on agriculture.

The total agricultural advances have grown tremendously from Rs96,000 crores in 2004 to Rs10 lakh crores in 2017. However farmer suicides remains unabetted in the country. Whereas in 1990, 86% of agricultural loans had an average ticket size of less than Rs 2 lakh, in 2017 only 46% of the loans were of the same amount or less than that. This proves that credit concentration is with the richer classes and the poor and needy are being ignored once again.

Profitiability the only motive for the Private

Profitability has emerged as the single most important criterion for judging the operational efficiency of individual banks today. Will the private sector banks be able to provide for the vast number of underdeveloped parts of India? Or are they just targeting the ‘rural rich’? Narayan SA, President, Commercial Banking and Capital Markets at Kotak Mahindra Bank notably remarked, “Wealth in rural India is growing, which was not the case seven to years back. This has made the proposition of being in rural India interesting.” This was said in context of those few who reaped in benefits from financially remunerative farming and the boom in real-estate making them an attractive proposition for bankers.

Whereas public sector banks including regional rural banks have been toiling hard to provide low cost credit to rural India, private sector banks eye them as ‘an opportunity to make profits’. While it is also true that only a portion of weaker section was able to reap its benefits, the role of nationalisation of banks in uplifting the agriculture market in India cannot be denied.

The Supreme Court itself held that, the object of nationalization of banks is to render the largest good to the largest number of people in the case of All India Bank Officers Confederation and Others v. Union of India. The court also observed that employees and officers working in the banks are not merely trustees of the society but bear responsibility and owe duty to the society for effectuation of socio-economic empowerment. In P. C. B. Houses v. United Commercial Bank & Others, the Court held that loan by nationalized bank to small scale entrepreneur should not be circumscribed by considerations of commercial profit.

As many corporate groups and economists demand de-nationalisation of the banking sector Mr Jaitley should remember that it would once again transfer the economic power to hands of few industrialists. The current NPA (Non-Performing Assets) crisis which gave rise to the demands of de-nationalisation in Indian public sector banks is a direct fallout of credit to the private sector in the first place.

Many private sector players borrowed heavily to invest in the power, steel and infrastructure sectors. In 2017, RBI reported that only 12 companies including Essar Steel, LancoInfratech, Bhushan Steel, Jaypee Groupare estimated to account for 25% of the total NPA in the banking sector.

Under such circumstances economic development of the poor and deprived sections by private enterprise (including private sector banks) as mooted by respected Finance minister could well be the ugliest joke of modern India.


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