Life And Debt

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[ALL IS LOST: Jal Kaur of Lehragaga village in Sangrur district of Punjab, (centre), both of whose sons, 30 and 25, committed suicide because of heavy debt (Pic by Sanjay Sakaria) As a wit once remarked, it is tougher to borrow Rs 500 from a bank than Rs 500 crore. Finance Minister P. Chidamabaram&rsquo;s Rs 60,000-crore farm loan package is more of a lifeline for banks than it is for farmers. Banks shy from lending to the poor given the high risks and transaction costs, and the lack of information and collateral. And moneylenders step in where institutional creditors fear to tread. In agri-towns across Karnataka, for instance, display boards of local moneylenders rank next only to jewellery and textile outlets. Co-operatives and banks charge 9 per cent annual interest on farm loans. Yet, despite charging 36 per cent interest per annum, moneylenders thrive, and account for roughly 75 per cent of the loans disbursed. &ldquo;We are no competition to them,&rdquo; admits a candid official of a state-owned bank in Thirukattupalli, a small village, in Thanjavur district, 400 km south-east of Chennai. If PSU banks have not been able to make a dent, can private banks penetrate rural India? An official from one of the largest private sector banks in Mandya, Karnataka, says local politicians are hand in glove with some of these moneylenders, and thwart attempts by new-age banks from getting a toehold. Related Stories Who wil feed india? Distributing Food Better 'There are no easy solutions' Growing Distress Food For Thought Beckoning Solutions Farmers turn to moneylenders as there is less formality, and loans are doled out doubly quick. Repayments are largely prompt, because debt recovery is ruthless. In contrast, repayments to banks are generally tardy and many accounts turn bad. &ldquo;Farm loan recovery is a major problem,&rdquo; says the bank official in Thirukattupalli. Unfortunately, farmers have no recourse even if banks &mdash; forget moneylenders &mdash; charge higher interest rates, because there is no effective legislation for usury in India. The Banking Regulation Act, 1949 made the Usurious Loans Act of 1918 inapplicable to transactions between a bank and a borrower. The 1918 law, enacted by the British, had not only capped the interest rate on loans charged by banks at the official rate, but also allowed courts to reopen cases where farmers were charged excessive interest rates. While states have their own usury laws, they rarely get enforced because farmers don&rsquo;t know about them. &ldquo;While individual states have their own moneylending Acts, the provisions do not work on the ground. The awareness amongst marginal farmers and landless labourers about such Acts and the recourse they provide is negligible,&rdquo; says Somak Ghosh, president, Corporate Finance and Development Banking, YES Bank. While the south has a somewhat better credit culture, the fecund badlands of Uttar Pradesh (UP) and Bihar grow debt burdens as much as they do crops. Farmers often have to turn to artiyas (local moneylenders). &ldquo;It is too much of a hassle going to a bank for loans,&rdquo; says Amod Rai, a farmer in Purvi Ismailpur village, around 50 km north of Patna. In Punjab, farmers say, there are agents who arrange bank loans for them. Despite being educated, Sudhakar Singh, a small farmer who grows wheat and vegetables in his 5-acre land, says, &ldquo;It is easier to tap cooperatives or moneylenders for a quick loan. If I go through a bank agent, I will get only Rs 85,000-90,000 if a Rs 1-lakh loan is sanctioned.&rdquo; So, the moneylender actually turns out to be the lesser of the two evils! Raj Sud, a commission agent, who was a moneylender earlier, says, in Punjab, farmers are aware and the going rate is not more than 20 per cent. &ldquo;Typically, moneylenders go by the reputation of the borrower before giving him money,&rdquo; he says. &ldquo;If he is not comfortable, he will seek to mortgage his land.&rdquo; But, getting possession of the land in case the farmer defaults is very difficult. &ldquo;There are thousands of such cases pending in the courts,&rdquo; says Sud. &ldquo;The organised banking system&rsquo;s loans for small farmers died four years ago due to the World Bank-dictated policy of not allowing banks to re-finance their loans to farmers,&rdquo; says Vandana Shiva, founder of the Navdanya organic food movement, and the Research Foundation for Science, Technology and Ecology. As per the National Sample Survey, 59th Round, 2004-05, 51.4 per cent of farmer households in the country did not access credit either from institutional or non-institutional sources. Further, despite the vast network of bank branches, only 27 per cent of total farm households had any loans from formal sources (a third of which also borrow from informal sources). Among marginal farmers, 80 per cent borrowed nothing from formal sources. {mospagebreak} As We Sow Agriculture itself is going through a difficult period. The latest RBI Annual Report notes that since the mid-1990s, the sector&rsquo;s growth has been low as well as volatile. Yet, the proportion of population dependent on it remains large at almost 60 per cent. Dr Rajanna, director at the Department of Agriculture, Karnataka, says continuous planting and fertilisers have reduced soil fertility. &ldquo;There is also a noticeable deficiency of micro-nutrients in the soil,&rdquo; he says. &ldquo;To solve this, farmers need to miss one or two crop cycles and opt for green manuring on their plots. But they are not willing to sit idle for even one season.&rdquo; M.R. Nagaraju, agricultural assistant at the Raitha Samparka Kendra, Mandya Taluk (the farmers association for the Mandya Taluk) points out the average income in his taluk is about Rs 5,000-6,000 per acre. &ldquo;There was a time when there was only sugarcane here,&rdquo; he says. &ldquo;Now, we are seeing a shift to rice as it fetches better prices.&rdquo; D.G. Kailasam, a farmer in the same district, has 4.5 acres of land. He has been farming since 1978. &ldquo;I&rsquo;ve planted paddy in 3 acres and sugarcane in 1.5 acres,&rdquo; he says. &ldquo;Earlier, for one quintal of paddy, we used to get Rs 400. Now it&rsquo;s about Rs 800, which is very good. I even got Rs 1,100 per quintal last year for paddy.&rdquo; Procurement of seeds forms a vital component of the farmer&rsquo;s cost. &ldquo;The government has deliberately discontinued the public seeds supply,&rdquo; says Navdanya&rsquo;s Shiva. &ldquo;Earlier, the Central Cotton Research Institute used to release 4-20 varieties of domestic cotton seeds which, due to their renewable characteristic and reliability, cost the farmers next to nothing.&rdquo; This, Shiva feels, was intended to allow international seed company Monsanto, through its 16-17 Indian licensee-partners, to monopolise the cotton market and sell expensive, non-renewable Bt cotton seeds to farmers. Having travelled across various regions in the country, Shiva says in one state alone she found 2.8 million acres under Bt cotton because there was no other choice. In UP, since many farms fall under city limits, tillers are not entitled to agri-subsidies or even Kisan credit cards. Some forms of institutional credit require small amounts to be reimbursed every day, which farmers cannot afford. Administrative corruption makes bank loans far more expensive than they are on paper. Plus, bank branches of farmers get changed abruptly, a fact discovered only after 2-3 visits to their offices. Don&rsquo;t Blame The Gods Banks are presently required to lend at least 18 per cent and 10 per cent of their net credit to agriculture and weaker sections of society, respectively. Outstanding advances granted to the priority sector by public sector banks (PSBs) were at Rs 5,21,180 crore as of end-March 2007. As a group, they did not achieve the priority sector lending target of 40 per cent till March 1999. The target was first achieved in 2000 and, as a group, they continued to meet the target till 2005-06. Priority-sector lending by state-run banks fell marginally short of the target of 40 per cent by 0.4 per cent as of end-March 2007. Out of 28 state-run banks, only eight could achieve the target of 18 per cent for agriculture, and seven banks achieved the sub-target of 10 per cent for weaker sections of the society. If state-run banks are not delivering much to farmers despite their prolific reach, the state of primary agriculture co-operatives (PACs) is worse still. The report of the Task Force on Revival of Rural Co-operatives Credit Institutions released in 2005 said the accumulated losses of these entities at end-March 2003 stood at Rs 4,595 crore. It was because many of them procured food grains for the public distribution system and sold fertilisers and consumer goods on behalf of state governments! Since the year 2000, priority sector lending to agriculture is also being routed through microfinance institutions, which ensures banks get refinance from the National Bank of Agriculture and Rural Development (Nabard) at 6.5 per cent interest per annum. The Self Help Group model has created opportunities for commercial banks to lend to the poor. A bank lends to an SHG that lends to its members, thus overcoming the information asymmetries that the lending institution would normally face. We Owe Them The technology-driven financial inclusion programme RBI initiated in collaboration with banks and several state governments needs to be intensified and expanded urgently. The goal of doubling farm credit in three years, initiated in June 2004, was achieved in two years. Reform of the cooperative sector based on the recommendations of the Vaidyanathan Committee will further increase flow of credit to the agricultural sector on a sustainable basis. It is difficult to tell precisely how much credit is controlled by moneylenders. In rural India, the contrast between lush-green fields and the tiny, rundown huts in which small and marginal farmers live is stark. They don&rsquo;t have enough to feed their families, not enough clothes for their bodies, and no means with which to educate their children. Their tired, despairing eyes know more about the murky world of moneylenders than statistics are able to show. With inputs from M. Allirajan, Dhanya Krishnakumar, Jayant Singh and Rajesh Gajra raghu.mohan@abp.in &nbsp;