Do farmers disturb credit culture more than industry?

 

The Marathi agriculture daily Agrowon has criticized both the RBI governor Urjit Patel and State Bank of India’s Arundhati Bhattacharya  who have objected to the farm  loan waiver in Uttar Pradesh and similar demands elsewhere. The paper’s line is quite different from that of the mainstream English press which has been sharply critical of Yogi Adityanath’s Rs 36,359 crore munificence. 

Patel is quoted as having said, "I think it (loan waiver schemes) undermines an honest credit culture. It impacts credit discipline. It (impacts) incentives for future borrowers to repay. In another words, waivers engender moral hazard," he said after announcing the first bi-monthly monetary policy for 2017-18.

He added that debt waivers also entail transfers from taxpayers to borrowers.  Then there was more. "If on account of this overall government borrowing goes up, yields on government bonds also get impacted. Thereafter, it can also lead to crowding of the private borrowers as higher government borrowing can lead to increasing cost of borrowing for others.”

Agrowon responded in an editorial:  “The chief of  the State Bank of India Arundhati Bhattacharya has made a statement against the farmers’ loan waiver saying that farmers’ should not be given loan waiver because that disturbs the credit discipline. Following this the Governor of Reserve Bank of India Urjit Patel has also opposed the farmers’ loan waiver saying that would disturb the honest credit culture. These high level persons are opposing the move when at the highest level pro-farmer considerations are going on and demand for loan waiver is being put forth in many states.

It adds, “In fact banks which were formerly limited for serving big industrialists were twice nationalized in order to provide benefits to farmers and common citizens. But these banks are providing credit to big industrialists thereby disturbing the very spirit of nationalization. The banks have two-fold policy of doing favour to big borrowers and disregarding any relief or due credit to farmers.”  

The paper adds that  banks have followed one criteria while providing credit and waiver of loans to big industrialists and the other negative one for farmers and this amounts to double standards on the part of the banks. “There are large number of cases in the country wherein crores of rupees loans are given by banks sidetracking due rules and regulations. When these loans are not repaid they are shown as NPAs and later they are written off to clear the balance sheets. This process is going on every year. These written off cases are nothing but clear loan waivers.”

It goes on to say that this ‘writing off’ process reduces dividend of banks’ shares and incurs loss to the government. On the contrary when farmers are given loan waiver the amount is paid by the government without any loss to the banks and on the contrary their profits are increased.

Agrowon ends by saying that it should “therefore be noted that farmers are repaying their loans and only due to natural calamities and also some anti-farm government policies their monetary conditions are perturbed resulting in crisis.”  

Apart from the editorial the paper has responded to the first tirade against the loan waiver by SBI chairperson Arundhati Bhattacharya by publishing a few articles on the futility of the statements by those who know nothing of Indian agriculture. For instance in this article I have pointed out that  the statement by Arundhati Bhattacharya is based on ignorance of the farm sector and farmers’ transactions in rural economy.

If you consider her personal background you find that Arundhati Bhattacharya is a Bengali who spent her childhood in Bhilai where her father  worked at the Bhilai Steel Plant. Her mother, was a homeopathy consultant in Bokaro. She is married to a former IIT Kharagpur professor.  Is she  in a position to know the farm sector or have any idea about how farmers live in villages and how they manage their rural households? 

Her statement resulted in  agitations against her and her effigy was burnt by the member of Parliament Raju Shetty in front of a State Bank branch at Nagpur. She has said, “Credit discipline breaks when you waive off farm loans. Money will come in today because government will pay but when we will give loan in future, farmers will wait for next elections. Support to the farmers is necessary but not at the cost of credit discipline.” 

But her statement is based on the presumption that farmers normally do not repay loans which is not necessarily true.

While only crop loans are given to farmers, that loan is recovered directly from the bills received from the sugar co-operatives which send the cane bill amount directly to the farmers’ accounts in banks. Thus the link recovery system clears the disbursed loans. In case of Jirait lands, farmers do not get any credit facility. If they get loans they pay after selling their produce in the market. But as they do not get adequate rate for the produce they are cash-starved and cannot repay according to bankers’ expectation.

Also the farm sector’s   dependence  on nature, and its vulnerability to natural calamities such as unseasonal rains, drought or crop infestation, as well as inadequate water and power supply, are all factors which afect a farmer's ability to repay. 

 That the distressed farmers or even common consumers facing difficulties should be helped is government policy. That is why the RBI has issued the specific circular dedicating power to banks to provide credit and if necessary waive off loans of the distressed bank consumers including farmers. (  It quoted the said circular   No.BPOD.BP.BC.81 / 21.01.040.95 dt.28th July 1995).

  The English press has criticized the loan waiver by pointing out that it cannot help marginal farmers who took loans from non-institutional sources, so the most vulnerable will not benefit. The same article in Mint  underscores the SBI and RBI’s credit culture point by saying, also, as is the case with any loan waiver, those who paid back their loans despite facing hardships would end up as losers. 

A writer in The Times of India made the additional point that “As per the WB (World Bank)  research, most banks preferred to move away from districts where bailout percentage was higher to other districts with relatively lower percentages. Most banks shied away because of the fear that loan waivers increase tendency of the borrower not to repay in the hope of the next government bailing them out.”

The Indian Express was also critical,  in an editorial and in a comment piece.

Interestingly, the Financial Express was more sympathetic.  “Those claiming that farm loan waiver is bad economics tend to treat agriculture at par with other industrial sectors. But then, considering agriculture as an industrial sector has its own pitfalls. For example: Farmers of the country do not get benefits at par with industrial workers. They have been a neglected lot for decades. Imagine the chaos that would ensue if farmers decide to go on a strike for even a single crop season. Loan waiver, hence, needs to be seen as a small contribution towards the agriculture workers.”

 The paper added, “Secondly, it also needs to be seen as a small one-time investment, or even as a bonus, for a vast section of society that keeps our kitchens running.”