Low agricultural NPAs are a feat of accounting wizardry, which hide a grim underbelly

agri1.jpgBy Persis Ginwalla* and Sagar Rabari**

Recently, Finance Minister of Gujarat Nitin Patel claimed that “the farmers in Gujarat have no debt”. A Bankers’ Association annual report also gives the following figures (see Table below) and clearly the Non-Performing Assets (NPAs) under ‘Crop Loan’ is a mere 2.54% of the outstanding amount. The farmers’ ability to pay back the loan amounts is proof of the earnings that farmers are realizing in Gujarat and their prosperity, it would imply.

amountIf only it were true, which alas, is not the case. As it turns out, the low NPAs are a feat of accounting wizardry, which also hides a grim underbelly. The Kisan Credit Card loan, which most farmers of Gujarat avail of, entitles the farmer to a loan amount on which the Government of India (GoI) gives an interest subsidy of 4% if the principal amount is paid back in time, failing which they forfeit the interest subsidy and have to pay the full interest amount (7%).

Given the fact of low prices of agricultural commodities, low procurement at Minimum Support Price (MSP), and minimal value addition the farmers are almost never left with a surplus from which to repay the loans. But repay they do; solely to avail of the 4% interest subsidy. Without doing the simple math, they borrow the amount from private moneylenders for a few days.

Having repaid the bank amount thus, within 4-5 days they will again take a new loan from which they will pay back the private moneylender, additionally paying 2-3% interest for a full month to the moneylender. The loan having been paid up it does not show up as NPA. Viola!!

Besides, in order to reduce the burden of usurious loans, the farmers also do not prefer to wait for the price of the agricultural commodity to appreciate and would sell it soon after harvest, when prices are usually low. Secondly, even if they choose to wait for a while before selling the produce they cannot.

There is not enough by way of agriculture infrastructure – godowns, warehouses, cold storages – for the farmers to store their produce in the interim. Sensing the helplessness of the farmers the wholesalers’ cartel can and do cap the procurement ceiling to the lowest possible amount. The crop insurance premium is also cut at source, and the actual debt would be: 7% interest + insurance premium + interest on private debt. The total would be in the vicinity of 13%.

Moreover, the interest subsidy accrues to the farmer when the Bank receives it from the government. All in all, the objective of the subsidy is being nullified thus; the subsidy amount gets devoured by usury. But more importantly, it allows for a fiction to be floated i.e. the farmers are prosperous, being able to pay the loan amount resulting in low NPAs. The real issues – usury, exploitation, poor returns on agriculture, imperfect financial inclusion, lack of agricultural infrastructure, impoverishment of the farm sector – remain hidden behind the mask of “low NPAs”.

While private debt keeps accumulating, the Bank tots up the track record of maximum credit repayment compliance. The Finance Minister’s statement has to be appreciated in this context. Their experience with crop insurance is as bad. They are rarely compensated for crop losses (due to insufficient or irregular rain or insects …) despite the premium being paid to the insurance companies. Figure this: Government pays the premium to the insurance companies directly, the insurance companies rarely ever survey the crop loss or damage and rarely disburse the compensation.

Who gains, who loses? Where does the money come from, where does it go? Trickle down? Gush up? Do the math. The farmers of Gujarat, reeling under the cumulative effects of insufficient rain, lack of irrigation, low returns on yields and demonetization, are demanding that:

  1. their loans be waived off,
  2. failing which, GoI should extend the time limit for loan repayment without cancelling the subsidy eligibility, and,
  3. disbursement of crop insurance.

But who listens?

*Development sector professional and a land rights activist in Ahmedabad, Gujarat. **Activist associated with land rights struggles in Gujarat and India and is secretary, Khedut Samaj – Gujarat, Ahmedabad

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