The Hindu Business Line : A package for farmers

FULL CREDIT TO the Finance Minister, Mr P. Chidambaram, and the Reserve Bank of India for swiftly coming up with a financial bail-out package for distressed farmers ahead of the kharif sowing season. Farmers of Andhra Pradesh, Karnataka, Tamil Nadu and Maharashtra, in particular, devastated by the drought of two-three years, can now think of preparing their fields. If the monsoon behaves, the financial package should breathe life into their lives as the interest outstanding in their bank accounts clubbed with the principal due as on March 31, 2003 will now have to be returned over a five-year period with a two-year moratorium. New Delhi has sensibly decided to treat equitably the stressed bank accounts of farmers and corporates for getting fresh bank credit; the banking system will also not be taxed as there are no write-offs, but only a phased out payment of dues.

Predictably, the interim report of the Vyas Committee on the flow of agriculture credit, which favours revisiting the NPA guidelines for farm credit, forms the basis for the government action. The message is simple: Credit lines need to be always kept alive to help farmers tide over droughts and floods, which impair and sometimes end their lives. That has not been happening. For instance, the present NPA norm of default on interest and principal up to two crop seasons or two half-years after the due date does not "fully mirror" differing crop maturities, some of which extend up to 18 months. The Vyas Committee favours scrapping the two half-year norm. Farmers availing themselves of term loans also borrow for crop production and under extant provisioning norms, all loan accounts are classified as NPA even when just one turns bad. The Vyas Committee is for loan restructuring when families are hit by major ailments or their assets destroyed by fire or pest attacks. Banks should not be cribbing as the Government has not twiddled with the interest rates on farm loans nor are there to be any waivers; loan repayments will only be delayed.

The RBI has off and on laid down rules for banks to write off corporate debt apart from setting up a Corporate Debt Restructuring mechanism to revive industries stuck in a business downturn. For steel and textiles, the government has brought in special schemes providing for write down of debt at interest rates lower by about four percentage points over that initially contracted for. Without prescribing rates, the Government could have advised banks to reduce the interest burden on farmers with a good track record before the recent drought overcame them; the rural branches are sure to have the data on loan accounts. Farm loans up to Rs 50,000 come at 9 per cent, and beyond that and up to Rs 2 lakh at 10.25-11 per cent.

There is a tinge of populism in the bail-out when the Government tells banks to buy farm loans from moneylenders. Informal credit is priced at around 32 per cent per annum and banks will go broke buying them. The Finance Minister has said that "NPAs in agriculture are no more than in the private corporate sector, " and if that is so the Government should pursue the idea of credit rating farmers when about Rs 1,05,000 crore in institutional credit is being offered to the farming community this fiscal.

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