Remember ME - You Me and Dementia

Saturday, December 20, 2008

The loan waiver that failed

The much-hyped Rs 71,000 crore loan waiver has benefited only a small fraction of indebted farmers in Banda district of UP, finds Bharat Dogra. But it has set off a spiral of corruption and further indebtedness.

In 2008, the central government announced a loan waiver for farmers that was supposed to provide relief from institutional debt to the extent of Rs 60,000 crore (this figure was later raised to Rs 71,000 crore). The process was to be completed by June 30.

However, in December, when I asked several farmers and social activists in Banda district of Uttar Pradesh about the extent of relief actually provided to farmers, all of them said that most farmers had not got the expected relief. Even bank officials agreed that the loan waiver had failed.

Such a response is telling, coming as it does from Banda district which is located in Bundelkhand, a region that has experienced drought, farmer distress and indebtedness, in some cases leading to suicide.

In Bigahna village, Mahua block, I spoke to a group of 15-20 farmers. They said that while around 50 farmers were indebted to banks, not a single farmer had received any benefit from the so-called “debt relief”.

One reason for this, explained a bank official, could be that even the most distressed farmers are keen to renew their credit cards as they don’t want to be shown up as defaulters; they value the insurance and other minor benefits that come with a renewal. So the trick is to somehow pay back the loan on paper (even if the farmer has to borrow at a high rate of interest from a moneylender) and then borrow from the bank again, after a few days. Such ‘paper renewals’ have proved tragic for many farmers as the loan waivers exclude those who have successfully renewed their credit cards by paying back their loans.

According to social activist Raja Bhaiya, middlemen who hang around rural banks are often in collusion with officials and arrange such ‘renewals’ in return for payment.

Raja Bhaiya’s estimate is that in Naraini block, where he works, only 10% of farmers who are in debt with banks actually benefited from the scheme.

“What’s more,” a bank official says, “those who were careless enough not to renew got the benefit, while those who took great care to renew despite the hardships did not get any benefit. In my bank, 15% got the benefit and these are not the most deserving ones.”

“We’ve failed our honest customers. We didn’t stand up to get a fair deal for them,” another bank official says.

Senior social activist Gopal Bhai adds: “Such a scheme sends the wrong signal in the credit system -- that the more honest will get the least consideration.”

Back in Bigahna, farmer and teacher Chunni Lal Kuswaha says: “We heard that it is a huge scheme of Rs 60,000 crore which has been expanded to Rs 71,000 crore. So imagine the disappointment of farmers when they found, at the end of all this, that they have not got any relief at all.”

One farmer in the village, Ramnarayan Kuswaha, was told by the bank manager that his Rs 31,000 loan could be waived as it was within the category of waived loans. However, he demanded payment (a bribe) of Rs 5,000 to implement the waiver. And because Ramnarayan could not arrange for this money he was unable to get any relief!

Similar complaints of bribes being demanded were made by others too. One person said that, in some cases, if an adequate bribe is arranged, a new file can be prepared to ensure that the loan, whatever its status, gets covered by the waiver.

These are individual complaints; the more general and widespread issue is that most loans are not covered by the well-intentioned but badly framed loan waiver.

As reported by the National Sample Survey on the basis of its 59th round of surveys (2003), 48.6% of farmer households were in debt; 61% of indebted farmers had operational holdings of less than one hectare; 57.7% of the outstanding amount was sourced from institutional credit, and the remaining 42.3% from moneylenders, traders, relatives and friends.

The Expert Group on Agricultural Indebtedness estimated, in 2003, that non-institutional sources accounted for Rs 48,000 crore of farmer debts. Of this, Rs 18,000 crore was availed of at an interest rate of 30% per annum or more.

Responding to this crisis situation, India’s 2008-09 budget presented a scheme of debt waivers as well as partial cancellation of some farmer debts. The scheme applied only to loans taken from banks and cooperative credit institutions. Small and marginal farmers who owned up to two hectares of land were promised a complete loan waiver; farmers above this limit were promised a 25% loan cut, and that too only if they were able to pay back 75% of the loan till June 30. Implementation of the scheme was to be completed by June 30, 2008.

It was evident from the outset that the farm loan waiver scheme announced in the budget suffered several constraints:

  • While loans were waived for marginal and small farmers, nothing was said about loans of the weakest sections of landless farm workers and landless rural artisans. Several landless households are indebted to banks due to mismanagement of Integrated Rural Development Programme-type schemes and frauds in which influential villagers and landlords have taken loans in their names.
  • While bank and cooperative loans of marginal and small farmers were waived, nothing was said about loans taken from private moneylenders. As private moneylenders frequently charge very high rates of interest, loan amounts increase rapidly.
  • Small and marginal farmers could have been defined differently for non-irrigated areas so that farmers with up to 10 acres of non-irrigated land could also benefit.
  • The stipulation regarding a precise due date implies that several bank loans of small and marginal farmers were not covered by the waiver. Particularly noteworthy is the case of farmers who had borrowed from private moneylenders to pay back their bank loans by the stipulated date, as they did not want to be considered ‘defaulters’.
  • The harmful role of middlemen attached illegally to many rural banks was ignored.
  • To prevent future indebtedness, there was no mention of lowering bank interest rates for farmers or special efforts to promote cheap, local resources-based technologies.
  • Relief for middle-level farmers, many of whom are heavily in debt, was minimal as they had to meet one tough condition -- they had to pay back 75% of the loan by June 30 in order to avail of a 25% concession!

Datta Patil, coordinator of Yuva-Rural, a voluntary organisation active in promoting low-cost organic farming in Vidarbha, says: “In Vidarbha, most farming is rain-fed or non-irrigated, so even farmers who have relatively large holdings need relief. In fact, the debt problem is more acute among farmers with landholdings ranging from 8 to 20 acres. They will get very little relief from what the Union budget has offered. To provide real relief from debt in Vidarbha, the budget waiver should be extended to middle-level farmers too.”

Partly by public announcement and partly by issuing new directives to banks, the government has tried to meet some of these criticisms at least halfway. At the same time, however, there has been a lot of confusion in many rural banks.

In late-May, around three months after the loan waiver was announced, a villager from Lalitpur district in the Bundelkhand region, told me: “I am a farmer as well as a bank official. So I get very worried when so many farmers approach me for information about their debts as I am myself not very clear about the precise guidelines, nor are my colleagues in the bank.”

A few days later, when I went to Chitrakoot district, I made it a point to meet a bank manager. What he told me was disturbing. He opened his files (but did not show them to me) and said: “The position in our bank is that not more than 20% of affected farmers will benefit from the loan waiver as per the existing guidelines.”

It is clear that although weaknesses in the loan waiver scheme have emerged at an early date, adequate remedial measures have not been taken. It is not too late to include new stipulations so that the waiver covers most farmers in distress.

By Bharat Dogra an independent writer based in New Delhi.


Forget yourself for others, and others will never forget you.

No comments: