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THE PRIME MINISTER'S decision to waive interest on kharif loans as a one-time measure, as part of the Centre's effort to lessen the impact of the drought that has affected agriculture in 14 States, is politically correct but it will add to the burden of the already strained agricultural credit institutions. The Government has decided, as a further sop, to extend agricultural input subsidy, valued now at over Rs 2,000 crore, to all farmers for both sown and unsown areas up to a ceiling of two hectares, again as a one-time measure. These are in addition to the package of relief measures announced late-July that included use of the Calamity Relief Fund and the deferment of debt recovery.

While farmers in the drought-hit States, and the country at large, will have to ride out the next few difficult months, it would be unwise not to pick up lessons from the present experience so that the rigours of a similar situation in future are mitigated. Apart from several initiatives the policy-makers need to take to fight agriculture-related calamities, two areas deserve attention: Credit and crop insurance. The need of the hour is progressive institutionalisation for providing timely and adequate credit support to farmers, particularly small and marginal farmers and weaker sections, to enable them adopt modern technology and improved agricultural practices for raising production and productivity. While this must receive continued emphasis, cooperatives deserve closer attention.

The cooperative credit structure, with its vast network, plays a significant part in credit flow for agriculture. However, limited ability to mobilise resources, low levels of recovery, high transactions cost, frequent suspensions of recovery, high levels of imbalances, absence of professionalism, administered interest rates, and externally imposed controls have all affected the health of the system. The institution has remained under-developed because of policy measures such as regulated interest rate regime, waiver of loans, insistence on adherence to prudential norms, and so on. The cooperative credit structure needs to be strengthened through recapitalisation and restructuring. More transparent yet reasonably flexible credit norms have to be put in place. For this, State governments and the State Cooperative Banks must show commitment. Kisan Credit Card is another instrument. The facility allows access to short-term credit; but the enthusiasm the farmers showed at the time of its launch in 1998-99 appears to be waning.

Drought conditions provide an opportunity for further strengthening the national agricultural insurance scheme. The scheme is available to all farmers — loanee and non-loanee — irrespective of the size of holding, and covers all food crops including cereals, millets, pulses, oilseeds and annual commercial/horticultural crops. However, for implementation, past yield data for adequate number of years will have to be made available. Again, the initiative rests with the State governments as data will have to be produced at the level of Gram Panchayat as the unit of insurance. States prone to erratic monsoon — for example, Rajasthan and Gujarat — will have to redouble their efforts to cover farmers under crop insurance.

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