The Hindu Business Line : Farm credit target: Easier set than met

IN the Budget speech, the Finance Minister, Mr P. Chidambaram, promised to increase farm credit disbursals by `another 30 per cent' in 2005-06, so as to `double the flow of agricultural credit in three years', starting from mid-2004.

So, an incremental amount of about Rs 1,10,000 crore is required to flow out this year. In addition, the number of borrowers is to be increased by `another five million'.

Against this background, Business Line spoke to some high-level sources in the country's largest banks. The questions put to them were: whether it would be easy to find so many new borrowers, who were not already on the books of some lending agency or another; specially in respect of the poorer sections; whether, after these loans were made and repaid borrowers would necessarily be better off than before, and whether, in conjunction with sharp drops in water tables across the country, bank credit increases might not eventually be more closely correlated with the number of farmers committing suicide than with increased agricultural output.

The paras that follow encapsulate the results of these discussions, which, of course, varied a great deal in the willingness to explicitly call a spade a spade.

First of all, it turns out that in many areas the problem of finding new borrowers is indeed a serious one, given that targets are typically allocated at a fixed number of new borrowers per branch per year.

To tackle it, the RBI has allowed banks to treat as `new' borrowers, people whose loans had been first rephased over and over again and then eventually written off or forcibly recovered.

Such people already have a bad credit history, right from the time that new loans are issued to them.

So, whether or not earlier defaults were wilful, there is only limited space for optimism, as regards the recovery of bank loans and in respect of whether the new borrowers will be left better off than before.

Even in respect of regular borrowers new problems are surfacing as regards unbalanced use of fertilisers and over-exploitation of the soil in the `granary' States, where thanks to attractive and increasing Minimum Support Prices farmers are reluctant to diversify out of `cash' foodgrains into cash crops legitimately so called.

One banker compared the cultivation of rice in Punjab with the diversification into grapes and pomegranates in Maharashtra, for which higher MSPs are available, albeit not from the Government.

Success in the latter definitely makes farmers richer; success in the former could well leave them poorer, in terms of long-term net worth, even though cash flows might increase in the short term.

So far as water stress is concerned, the answer lies in diversifying into crops or activities that require less water per unit of output, and for which dependability of timely irrigation is not so critical.

As an example, another banker gave the case of farmers moving into the cultivation of cotton in Punjab, and the flourishing of dairying in and around Anand while farmers in better-placed parts of Gujarat were making huge profits with little risk by cultivating flowers.

Similarly, loans for minor irrigation to a farmer in Orissa, where water tables are in much better shape, are a safer proposition for both banks and borrowers than are similar loans in, say, certain parts of Andhra Pradesh, Karnataka, Vidharbha and Marathwada.

Finally, the point was made that banks are quite strict on recovery these days. Because of this a bad experience for banks often, and very quickly, translates into a disaster for farmers.

While, therefore, it is all very well to promise the moon, care must be taken to see that expectations are not unduly inflamed. Otherwise, the urge to get rich quick causes farmers to rush into overly ambitious irrigation projects accompanied by the simultaneous, anticipatory, cultivation of high yielding water sensitive crops.

The message for Mr Chidambaram is that making haste more slowly is probably the best way to make haste more surely.

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