As expected, given the longstanding woes of the farming community and next year’s upcoming general elections, India’s new budget has unprecedented sops for agriculture. But will they translate into actual relief for farmers and help address their core concerns?

One of the highlights of India’s Union Budget 2008-09, announced on February 29, was the largest ever debt waiver and relief for small and marginal farmers, to the tune of Rs 60,000 crore.

The loan waiver scheme is expected to benefit 30 million small and medium farmers and cover loans worth Rs 50,000 crore in total -- that’s 4% of the total loans of commercial banks. One million more farmers will benefit from a 25% rebate against the one-time settlement of loans, something that will cost an additional Rs 10,000 crore.

Agricultural loans given by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007, and overdue as of December 31 of that year, will be covered under the waiver scheme to address the problem of farmer indebtedness.

Agriculture loans restructured and rescheduled by banks from 2004-06 and other loans normally rescheduled under RBI guidelines will also be eligible under the waiver scheme.

Farmers can take fresh loans after settlement of their old ones, which should give a fillip to agri-credit that has already touched Rs 240,000 crore in 2007-08.

Announcing the budget in Parliament, Finance Minister P Chidambaram said the government would provide liquidity to the banking system to the extent of Rs 60,000 crore to write off farm loans. “It (Rs 60,000 crore) may or may not come back to the banking system. We have to pay for the liquidity to the banking system over a period of three years in which we would have recovered (the loans) to the extent being written off,” Chidambaram said in his post-budget briefing. “It (the package) does impose on the system a very large burden. But if you shun instant analysis, you will find that we have strengthened the system rather than weaken it,” he said.

The finance minister said the banking system would have weakened if Rs 60,000 crore had remained unpaid or overdue. “If we can find a way to write off these loans, providing this money to the banking system, the banking system will have an additional Rs 60,000 crore to lend. Then it will have a multiplier effect and stimulate the economy.”

Renowned agri-scientist M S Swaminathan welcomed the relief package for farmers, saying the move would, hopefully, put an end to the rising numbers of farmer suicides across the country. “It is an encouraging step... This will hopefully mark a new beginning of suicide-free farmers in the country,” Swaminathan said.

However, he expressed regret that the government had not considered the National Commission for Farmers’ (chaired by him) proposal of bringing down the interest rate on farm loans to 4% from the current 7%. The Commission had also proposed that the credit recovery cycle be fixed at a four-year interval.

On the impact of the relief package, Swaminathan said the windfall would only alleviate the loan burden of farmers who had borrowed money from institutional sources; the government still needed to take measures for the 47% of farmers who have taken loans from private moneylenders.

Many leading economists have voiced apprehensions over the farm credit waiver saying that the sources of funding remain unclear as also the overall package for the agricultural sector. “There will be a huge gap created because of the farm credit waiver which needs to be met with some extra provisions. The waiver is also not sufficient as it will be given to farmers having up to 2 acres of land,” said development economist Jayati Ghosh of Jawaharlal Nehru University.

She added: “In dryland areas, most of the poor farmers have 4 hectares or more of land. In areas like Vidarbha in Maharashtra and Rayalseema in Andhra Pradesh where farmer miseries are maximum, poor farmers may not get any benefit.”

According to Ghosh, the budget has failed to adequately address the agrarian crisis. “It is disappointing as, being the last budget of the current regime, the finance minister should have fulfilled the promises made in the National Common Minimum Programme.”

Total planned expenditure for the agricultural sector has gone up by only Rs 1,500 crore for the next fiscal, compared to last year, Ghosh said.

Even though the world’s second fastest growing economy has registered a growth rate of over 9% in the past two years, agriculture continues to lag behind at about 2.5% annually.

National Crime Records Bureau (NCRB) data from studies between 1997 and 2005 reveals that -- and this is a conservative estimate -- 1.5 lakh farmers committed suicide all over India, with many abandoning agriculture as a viable source of livelihood.

It’s no great surprise, therefore, that the budget proposals have been received with relief in large parts of the country. However, while farmers in Punjab, Gujarat, Andhra Pradesh and, to some extent Karnataka, are delighted with the proposal, reactions are more muted in Vidarbha, the region of Maharashtra that has witnessed a huge number of suicides among farmers. One of the problems in Vidarbha is that -- as Swaminathan points out -- nearly 50% of farmers have taken loans from private moneylenders because they are not entertained by scheduled banks. And it is mostly farmers in the grip of the village moneylender who have been driven to suicide.

Source: The Hindu, March 1, 2008
              The Telegraph, March 1, 2008