Why can't banks take 'haircut' of petty dues of farmers?

Lakshminarayan is a farmer from Shimoga in Karnataka. He had taken a loan of Rs 35,000 from a local branch of Canara Bank. About a month ago, he received a threatening call from the bank asking him to pay back the pending dues or they will be forced to initiate action for recovering the amount. Panicked, he decided to rush to the bank, and knowing no bus was available at that time, he walked for 15 kms in a hilly terrain to finally reach the bank.

At the bank, he was told to pay Rs 3.46 of the pending loan amount.

This story is a grim reminder of the double standards the banks have in place when it comes to treating their customers. While the poor often receive inhuman treatment, which forces many of them to either land in jail or to commit suicide, the rich are treated with kid gloves and are allowed to easily get away with the bank itself taking the blow. Take the case of State Bank of India (SBI). According to a news report, the bank had written-off Rs 1.23-lakh crore of corporate bad loans in the past eight years. Despite we being told that technically speaking a bank write-off is not a loan waiver and the recovery process continues, all that the bank has been able to recover in these eight years is Rs 8,969-crores which come to a little over 7 per cent of the outstanding credit.

The biggest defaulters in this particular case being Bhushan Power & Steel Ltd with a outstanding loan of Rs 7,705-crore and Videocon Industries Ltd with pending dues of Rs 3,411-crore. As per an RTI reply, both the companies had failed to pay back even a single penny. In fact, out of the 56 borrowers, the list that was made available, the recovery from 36 companies was zero. For a balance of Rs 3.46 a farmer was asked to come to the bank and pay it up, but what happened to the 36 companies from whom SBI failed to recover even a penny?

Another news report, based on an RTI reply, had revealed that only 10 per cent of the bank loans written-off in four years, between 2015-16 and 2018-19 have been recovered. Out of a total of Rs 4,32,584 written-off in these four years, public sector banks could recover only Rs 45,659-crore. If 7 to 10 per cent of the total amount that is eventually what the banks are able to recover, the question that arises is why are banks trying to give an impression as if the write-offs of corporate debt is in any way different from the farm loan waiver? Using the ‘technical’ difference between a write-off and waiver banks have always maintained that writing-off bad loans does not mean that the recovery proceedings have stopped is in reality a very clever smoke-screen that is enacted to cover up the massive corporate defaults.

Strangely, this ‘technical’ cover up became a banking tradition over a period of time. But prior to that the RBI had in a circular issued to banks advised them to refrain from the practice. “Banks are required to extinguish all available means of recovery before writing off any account fully or partly. It is observed that some banks are resorting to technical write-off of accounts, which reduces incentives to recover. Banks resorting to partial and technical write-offs should not show the remaining part of the loan as standard asset.” Probably to cover its own lapses, banks have routinely been claiming that the write-off is simply a shift of the accounts from one ledger to another while the recovery goes on. But many banking experts believe that when bad loans are written-off banks actually remove the assets from the balance sheets knowing well they have lost all hope from recovering anything. 

This brings up a question. Why the banks should not be asked to first clear all options of recovery before announcing a write-off? Why deliberately create confusion in the minds of the people (as well as policy makers) by presenting a misleading picture of bank profits position by pushing the losses in a separate ledger? This is a mischievous practice and needs to be discontinued. I think the RBI needs to come heavily against the banks for this deliberate cover-up. But instead, banks are exerting pressure to set up a bad bank that takes care of the bad loans. Which means instead of addressing the fundamental reasons behind the malaise of increasing bad loans, banks are wanting another cover-up. Setting up a bad bank, in my opinion, is a bad idea.

In April, the Reserve Bank of India (RBI) informed that Rs 68,067-crore which were due from 50 wilful defaulters over the years has been written-off by nationalised banks. Many absconding businessmen, including the diamond merchant Mehul Choksi, are among them. Wilful defaulters are those who have the ability to pay back but don’t do so. Many banking experts have called for launching criminal proceedings against them, but it hasn’t been ever done. All India Banking Employees Association general secretary C H Venkatachalam was earlier quoted in media reports, saying: “It is known that bulk of these bad loans are attributable to big businesses and the affluent. Many cases of default are found to be deliberate, wilful and on account of diversion of funds. Unfortunately bank loan default is still a civil offence and hence criminal proceedings are not being instituted against them.”

Launching criminal proceedings against the wilful defaulters should be first step to stop banks being duped heavily by the rich and powerful. I wonder why the farmers continue to be penalised for petty loan defaults, while the rich get away so easily. If banks can take ‘haircut’ for thousands of crores of company defaults, I wonder why the banks can’t in general, and in this case Canara Bank in particular, take a ‘haircut’ of Rs 3.46? Why make a poor farmer travel all the way, spend a day’s hard labour, for just depositing a petty amount? When will the banks become a little sensible? #

Games Banks Play. Orissa Post. July 24, 2020
https://www.orissapost.com/games-banks-play/

कर्ज वसूली में दोहरा मानदंड, बता रहे हैं देविंदर शर्मा. Amar Ujala, July 23, 2020
https://www.amarujala.com/columns/opinion/double-standards-in-debt-collection-by-banks

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Why do economists frown at farm loan waivers but keep quiet when massive corporate bad loans are written off?

If bad loans of indebted farmers had been waived perhaps they would have escaped committing  suicide. 

This picture is of a congregation of farm widows in Punjab

No sooner did the Maharashtra Chief Minister Uddhav Thackeray announce a farm loan waiver that is expected to cost anything between Rs 45,000 to Rs 51,000-crore, mainline economists have warned of the rising NPAs of the banks and the strain it causes to the already precarious fiscal position of the State governments.

But strangely, the same questions were not raised when almost a month back, in early December, the Minister of State for Finance Anurag Thakur had in a written reply in Parliament, stated that public and private sector banks have written-off Rs 80,893-crore during April-September 2019 period. According to news reports, when asked who the beneficiaries were, the minister replied: “As borrowers of loan write-offs continue to be liable for repayment and the process of recovery of dues from the borrowers in written-off loan amounts continues, write-off does not benefit the borrower.”

It is true that write-offs are not exactly waivers since it only means that the bad loans are shifted from the bank books to another ledger while the recovery process continues. But the write-offs certainly do benefit borrowers. Let’s be clear, it is not as if the entire bad debt is recovered by banks. The percentage of bad assets that the banks are finally able to recover is far too low. As per the RBI, the rate of recovery of bad loans had come down from 18.4 per cent in the financial year 2014, to a low of 12.4 per cent by March 2015. It further declined to 10.3 per cent in the financial year ending March 2016. To illustrate, out of an outstanding amount of Rs 221,400-crores of bad loans in 2016, only Rs 22,800-crore could be recovered. It will be interesting to know what happened to the remaining Rs 198,600-crore.

Although under the Insolvency & Bankruptcy Code (IBC) 2016, the recovery of bad loans has shown a marked improvement – from 49.6 per cent in 2017-18 it has trailed to 42.5 per cent in 2018-19 – a total of Rs 70,819-crore was recovered against a pending amount of R 1.66-lakh crore for 1,135 cases admitted before National Company Law Tribunal (NCLT) for insolvency resolutions in 2018-19. Add to this recoveries made through other routes like Lok Adalats, Debt Recovery Tribunals and SARFAESI Act, the scheduled commercial banks managed to recover only Rs 1.26 lakh crore from a total outstanding of Rs 8.15-lakh crore in 2018-19, which shows to be only 15.5 per cent. With the actual recovery being dismal, it is the banks which end up taking the hit. No wonder, the government had two years back announced a bank recapitalisation programme of Rs 2.11- lakh crore to bailout banks, followed by another Rs 70,000-crore in 2019.

Against these corporate write-offs, farm loan waivers in the past six years total to Rs 2.85 lakh crores (adding the proposed Rs 45,000-crores waiver in Maharashtra). Compare this with just 354 liquidation cases pending for 2020. According to a news report, the claims for liquidation in respect of these companies stand at a staggering Rs 3.55-lakh crores. As per the data available with Insolvency and Bankruptcy Board of India only 4 per cent of this will be realised, which means only Rs 15,165-crore. Banks are staring at zero realisations in many of the insolvency cases pending.

While the bank write-offs affect a limited number of borrowers, a significant number of them being wilful defaulters, Maharashtra’s farm loan waivers are expected to benefit 44-lakh small and marginal farmers. Drawing from the experience of Punjab, Maharashtra has decided to waive bad farm loans up to an outstanding of Rs 2-lakh for each farmer. The problem with the Punjab farm loan waiver scheme is that only outstanding loans up to an exact Rs 2-lakh are waived, which means if the outstanding bank amount exceeds Rs 2-lakh even by Rs 500 the farmer will not get the waiver. This has led to a lot of resentment among Punjab farmers. I only hope Maharashtra is not following the Punjab example in letter and spirit.  

Coming at a time when a continuing drought was followed by heavy rains, a phenomenon termed as ‘wet drought’, standing crops in 70 lakh hectares are feared destroyed in Maharashtra. According to revenue estimates, almost 85 per cent of the kharif crops in Marathwada region were destroyed. While more than 1-crore farmers were affected from the incessant post-monsoon rains, the State had assessed the crop loss to be more than Rs 5,000-crore. Officials say Rs 6,552-crore has so far been distributed as crop loss compensation.

With farm distress continuing over decades, Maharashtra has turned into a hotbed of farmer suicides. In November 2019, a record 300 farmers had reportedly committed suicide. In the 6-year period between 2013 and 2018, an RTI response showed 15,356 farmers had committed suicide. It is generally agreed that the distress is primarily because farmers have continuously been denied their rightful income. An OECD-ICRIER study shows, between 2000 and 2016, Indian farmers lost Rs 45-lakh crore for not being paid the right price. In the past seven years, as per Niti Aayog calculations, growth in real farm incomes had remained at ‘near zero’. In such a depressing farm scenario, farm debt has continued to multiply. Farm loan waivers therefore provide an immediate relief. #  

Maharashtra farm loan waiver justified. Deccan Herald. Jan 10, 2020
https://www.deccanherald.com/opinion/in-perspective/maha-farm-loan-waiver-justified-793003.html?fbclid=IwAR0PWj9nAgIvBaYmOavApo5dki8rxd5drGspux37gTS7hVwarl1ZV9OyEjM

READ MORE - Why do economists frown at farm loan waivers but keep quiet when massive corporate bad loans are written off?

Investing in agriculture is the best way to create domestic demand

Pic courtesy: Deccan Herald

A few days after the Cafe Coffee day founder V M Siddhartha reportedly ended his life, five farmers attempted suicide consuming pesticide in the office of the district collector of Akola in Maharashtra. They were demanding speedy compensation for their acquired land. Almost at the same time, another farmer who had been sitting on a dharna in Haryana for past four months died. He was protesting for a higher compensation for his land acquired by the state government.

While the death and attempted suicide by these farmers had largely gone unnoticed, a huge uproar by the industry had occupied the media space following the circumstances leading to the tragic death of the coffee King. Most industry captains linked his death to the ‘tax terrorism’ that prevails and knowing that the investment climate remains subdued sought more investments, tax concessions and of course wanted tax freedom. Many business journalists and columnists echoed the industry sentiments without even caring to find out that the Cafe Coffee Day owner carried a massive debt burden, which at some stage had peaked at Rs 11,000-crores.

Nevertheless, while the industry may have genuine economic reasons for seeking more sops, including an economic stimulus package to tide over the continuing slowdown, the continuing spiral death dance on the farm did not evoke even an iota of concern; forget about any response in the media. If the late Siddhartha was an entrepreneur who needed support in his difficult times, the fact that is not being acknowledged is that farmers too are entrepreneurs and given the state of distress that prevails all around are perhaps in dire need of hand holding. If only these farmers had got the right amount of compensation and that too in time, they too could have unleashed their entrepreneurial skills. But an opportunity denied, is opportunity lost.

At a time when the industry is already getting an economic stimulus package of Rs 1.8-lakh crore every year, which has continued to pour in since the global economic meltdown in 2008-09, the nationalised banks stare at massive stressed loans of Rs 17-lakhcrore, including roughly Rs 10-lakh crore of non-performing assets (NPAs). In other words, the industry has received Rs 18-lakh crore in the past ten years by way of an economic package, and still remains deep in crisis. Further, newspaper reports quoting the Reserve Bank of India (RBI) statistics say that almost Rs 8.36 lakh crore of bad debts have been written-off in the past 12 years, between the fiscal 2007 and 2019. It’s time to see whether the slowdown is the reason for the slackening performance of the industry, manufacturing sector and exports or whether the huge bank defaults have led to an economic slowdown.

Between fiscal 2007 and 2016, the total amount written-off by banks stood at Rs 2.88-lakh crores. But following this, huge amounts have to be written-off in quick succession – Rs 1.33-lakh crore in 2016-17; Rs 1.61-lakh crore in 2017-18 and a record Rs 2.54 lakh crore in 2018-19 – sucking the banks dry. Whatever be the reasons, the fact that the RBI is reluctant to make public the names of over 9,000 wilful defaulters is clearly an indication that the write-offs hide more than what we need to know. Although the government appears keen to launch a clean-up process, and the introduction of an Insolvency and Bankruptcy code (IBC) in 2016 was considered to be one of the strong approaches to curb the menace, the efforts to dilute the regulations have certainly hit at the possibilities. At a time when the industry receives huge tax concessions ever year, as much as 5 per cent of the GDP according to the Niti Aayog, there is no justification for the industry to cry hoarse when the tax sleuths come knocking.

Now contrast this with how the system works for farmers. Over the years, hundreds of farmers have been publicly humiliated and thrown behind bars for defaulting banks. While lakhs of crores are being written-off for the industry, unable to pay even one bank instalment lands farmers in jail. The banks first confiscates his movable and immovable property, and when the farmer is still unable to pay an outstanding instalment the banks deposit blank cheques taken from farmers at the time of extending the loan, which converts the civil case into criminal. Farmers are then sent to jail, with orders to pay back the original amount plus the interest on it. If only the farmers could pay the instalment I don’t understand why he would have defaulted in the first place. And when some State Governments waived farmer’s bad loans, up to a maximum of Rs 2-lakh for small farmers, economists and economic writers are up in arms warning that the fiscal deficit will hit the roof. But when banks quietly write-off corporate loans I have never seen any mention of fiscal deficit widening and the question of where the money will come from. In fact, the industry is now asking for an economic stimulus package of Rs 1-lakh crore !

For several years now, enough pointers were available indicating a slowdown in the economy. Farm incomes had plummeted to the lowest in 15 years, and some studies had shown that even rural jobs were badly hit. Accordingly, 3.2- crore casual labourers in rural areas lost their job between 2011-12 and 2017-18. Roughly 3-crore of these were farm workers. But the bigger tragedy is that policy makers ignored the loud warnings emanating from a distressed agriculture and only woke up when cars and automobiles sales dipped for months together, cutting tens of thousands of jobs, and when FMCG sales too failed to show any growth. The point I am trying to make is that if agriculture remains perpetually in crisis, Indian economy too will remain in limbo. A thriving economy depends on rising consumption, which in turn depends on how much demand can be created. What has to be understood is that rural sector plays a significant role in spurring up domestic demand. And this will mean more public sector investments in agriculture and farming in the years to come, clearly a shift from the effort to enhance privatisation and provide more stimuli to the industry.

The answer therefore lies in revitalising agriculture, pumping in more money in a sector that promises to provide millions of livelihoods, and in the process create more domestic demand. Agriculture, which caters to nearly 50 per cent of the workforce, receives less than half a percent of the GDP in public investment , 0.4 per cent to be exact, between 2011-12 and 2016-17. This has to change. #

Why this double standard? Deccan Herald, Aug 8, 2019

https://www.deccanherald.com/opinion/main-article/why-this-double-standard-752841.html?fbclid=IwAR1OYg30qh3yPNIGtX9BCZUqdZyuY0z7EVxV8CEii0YyquM0VX2PEH3YFSo

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Let 2019 be an Year of Agricultural Reforms

For four years in a row, Pradeep Sharma, a potato grower from Agra district in UttarPradesh has been suffering losses. Cultivating potatoes in 10 acres this year, he brought 19,000 kg to the mandi only to get a profit of Rs 490 after selling his entire produce. In anger, he sent his paltry earnings to the Prime Minister saying perhaps he will come to understand my problems. A few days earlier, a Madhya Pradesh farmer, Bherulal Malviya, had died of shock after selling his 27,000 kg of onions for just Rs 10,000 in Mandsaur market.

Such distressing media reports depicting the misery of the farming community have donned the media headlines for quite some time now. With losses mounting over the years, farmers have been literally surviving on loans, taking credit from both formal and informal sources. As of Sept 2016, Rs 12.60-lakh crores was the outstanding agricultural loan. Compare this with the average income of Rs 20,000 per year in 17 states, roughly half the country, the desolation is clear. 

Picture the terrible agrarian distress that prevails in the ongoing debate over whether farm loan waiver is the right answers to address farmer’s woes, and secondly, how will the state governments bear the fiscal burden? The speed at which the newly elected Chief Minister’s of Madhya Pradesh, Rajasthan and Chhattisgarh have announced farm loan waivers soon after assuming office, questions are being asked over the ‘economic viability’ of an otherwise ‘politically sound’ measure, the bigger question being tossed around is where will the money come from?  

It doesn’t end here. After Telangana launched the trend-setting Rythu Bandhu programme providing a fixed amount of Rs 8,000 per acre (now raised to Rs 10,000) per year as direct income support to farmers, it has triggered a chain reaction among States to announce similar or improved versions of financial aid. First, the erstwhile Congress government in Karnataka came up with similar package to provide Rs 5,000 per hectare to dryland farmers, and after the recent electoral debacle in the Hindi heartland, and fearing the Congress and BJP’s promise to waive farm loans if voted to power, and obviously in an effort to woo farmers ahead of the forthcoming Assembly elections, Odisha declared an economic package. Instead of a loan waiver, Odisha announced Rs 10,180-crore package for three years under the Krushak Assistance for Livelihood and Income Augmentation (KALIA) programme for land owning farmers, tenant farmers as well as landless labourers and sharecroppers. This will benefit 57-lakh households.

Jharkhand was quick to follow it up with Rs 2,250-crore schemes to help 22.76 lakh small and marginal farmers with a financial support of Rs 5,000 per acre per year, with an upper limit of 5 acres. And while Haryana is contemplating a pension scheme for farmers, West Bengal was quick to come up with Krishak Bandhu Scheme under which each farmer will get cash support of Rs 10,000 per acre per year. In addition, it will provide a life insurance cover of Rs 2 lakh per farmer, irrespective of the cause, for farmers between the age of 18 and 60. The premium will also be paid by the state government.

Let’s first look at the loan waivers. After Chhattisgarh announced the farm loan waiver, Rs 1,248-crore has already been transferred to bank accounts of 3.5 lakh farmers in the first phase, waiving a maximum of Rs 2-lakh each. In Punjab, despite the slow progress, a total of 4.14 lakh small and marginal farmers who had defaulted on cooperative and commercial banks have got a loan waiver of approximately Rs 3,500-crore. For the country as a whole, a total of Rs 2.3-lakh crore of farm loans announced by Karnataka, Madhya Pradesh, Maharashtra, Andhra Pradesh, Rajasthan, Telangana, Punjab, Rajasthan, Chhattisgarh and Tamil Nadu will benefit and estimated 3.4-crore farm families.

Compare this with corporate loan write-offs. This will tell us where the money is getting siphoned-off. According to the Reserve Bank of India, in the four year period between April 2014 and April 2018, Rs 3.16-lakh crore has been written-off while only Rs 32,693-crore of the outstanding amount has been recovered. Accordingly, as on Sept 30, 2018, besides the public sector undertakings, there were only 528 borrowers who had non-performing assets (NPAs) of Rs 6.28-lakh crore while only 95 of them had defaults exceeding Rs 1,000-crore. While no questions are being asked about the ‘economic viability’ of the massive write-offs of a handful of corporate waivers, a lot of heat is being unnecessarily generated over farm loans depicting a clear-cut bias in economic thinking.

Meanwhile, gross NPAs have further increased by a whopping 11.2 per cent reaching Rs 10.39-lakh crore in 2017-18, and only Rs 40,400-crores have been recovered through the much touted Insolvency and Bankruptcy Code (IBC) and Sarfaesi Act. The surge in NPAs is happening despite providing an economic stimulus of Rs 18.60-lakh crore to the industry in the past 10 years. It was in 2008-09 that the government started a stimulus package of Rs 1.86-lakh crore to the industry at the time of global economic meltdown in 2008-09, a package that still continues. In simple terms, the industry is getting a direct income support every year.  

Although considered to be ‘less distorting’ than farm loan waivers, reports indicate that the Centre is looking at the possibility of providing a direct income support of Rs 4,000 to farmers. Estimates point that the proposed direct support will cost the exchequer Rs 2-lakh crore. While this amount may appear big, the fact of the matter is that Rs 4,000 a year comes to less than Rs 340 a month, almost equal to the price of two cups of coffee/tea at any trendy coffee shop. If Rs 340 per month is considered to be an appropriate financial sop for the beleaguered farming community, it only shows the extent of deprivation and income inequality that prevails.  

While farm loan waivers are an economic necessity, and the state governments will have to find adequate resources, direct income support should not be seen as a permanent solution to the agrarian crisis. Agriculture needs a set of robust reforms in addition to the immediate sops being considered. Let 2019 be the year of agricultural reforms, and if the government can provide 7,000 steps, both small and big, for ease of doing business I see no reason why a similar amount of initiatives cannot be considered for ease of doing agriculture. After all, it involves 52 per cent of the country’s population. There lies the perfect economic prescription for Sabka saath, Sabka Vikas.

Let it be year of farm reforms. The Tribune. Jan 4, 2019
https://www.tribuneindia.com/news/comment/let-it-be-year-of-farm-reforms/708313.html

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With high productivity, assured irrigation, a higher MSP and loan waivers in progress, why are Punjab farmers dying?

At a farm widow congregation in Punjab 

A day after the massive farmer protest in New Delhi, hundreds of farmer widows had assembled at Mansa in Punjab. I sat there listening to the heart-rending testimonies of several farm widows, among the hundreds who had assembled at Mansa. In the land of Green Revolution, to see and meet hundreds of farm widows was not so easy. As they stood to narrate their painful stories, more often than not they just stood in front of the mike, said a few words and wept. The silence that followed said everything.

There is hardly a day when I don’t find news reports of farmers committing suicide. A study conducted jointly by the Punjab Agricultural University, Ludhiana; Punjabi University, Patiala; and the Guru Nanak Dev University in Amritsar had in a house-to-house survey put the alarming death toll figures at 16,600 in the 17 year period, between the year 2000 and 2017. In other words, roughly 1,000 farmers and farm workers have taken the extreme step of ending their life every year in the agriculture frontline State. As the serial death dance on the farm continues unabated, another study by the Punjabi University estimates that one in every three farmers in Punjab is living below the poverty line.

As the widows narrated their agony and enormous struggle, as to how they were coping with the huge void left behind by the only bread-earner in their family, I sat wondering why had Punjab, often called as the food bowl of the country, turned into a hotbed of farmer suicides. Why nearly 98 per cent of the rural household were in debt, and 94 per cent of these households had reported more monthly expenditure as compared to their gross incomes. In other words, the rural households in progressive Punjab were living in debt. To live in perpetual indebtedness, and that to year after year, generation after generation, is the worst humiliation that any human being can suffer. Former Prime Minister Charan Singh had rightly remarked that a farmer is born in debt and dies in debt. What he did not say was that living in indebtedness all through your life is akin to living in hell.  

 

Listening to the farm widows, I tried to put the puzzle in place. If providing an assured Minimum Support Price (MSP) for crops, writing-off of outstanding farm loans, and expanding the irrigation network is primarily the recipe for ensuring farm prosperity then Punjab already has these in place. With 98 per cent assured irrigation, meaning that every farm gets an assured irrigation supply, and with the highest productivity of cereal crops – wheat, rice and maize – in the world, why is it that hundreds of farmers are still forced to commit suicide every year? If productivity and irrigation were the answer to the prevailing agrarian crisis then there is no reason why Punjab farmers should be dying. This only shows that the reasons behind the terrible agrarian crisis that prevail lie much beyond crop productivity and irrigation.  

On top of it, Punjab has a very extensive and elaborate system of procurement of food crops. With a huge network of APMC mandis and purchase centres, Punjab has the best infrastructure for procurement of crops in the country. It also has a vast network of rural roads linking the mandiswith the villages. With mandis and rural link roads in place, whatever stocks are brought to these purchase centres and if it meets the quality specifications are purchase at the fixed support price. Over 98 per cent of the wheat and paddy that is brought to the mandis by farmers is purchased at the fixed price. Farmers are able to sell their produce at the officially declared Minimum Support price, which is much higher than the prevailing market prices. That’s the reason why truckloads of paddy are illegally transported all the way from Uttar Pradesh and Bihar to be sold in Punjab mandis.

In addition, Punjab has also announced a farm loan waiver for a maximum of Rs 2-lakh per small and marginal farmer. Although the electoral promise was to waive all kinds of outstanding loans drawn on cooperative, private and nationalised banks, the State has so far promised to waive roughly about Rs 9,000-crore of farm loans of small and marginal farmers. Of which, approximately Rs 1,000-crore worth of farm loans have been waived off so far. In Maharashtra, against the initial estimate of Rs 34-lakh worth of farm loans to be waived, an estimated Rs 14-lakh crore is now planned to be struck out. Similarly, in Uttar Pradesh, Karnataka, Tamil Nadu and Rajasthan where only a fraction of the promised loan amount is being actually waived. The problem is that despite the election promises the State governments do not have the resources to provide for writing-off the entire outstanding farm loans.

Each of the farm widows reeled out an amount of farm loan, varying between Rs 2-lakh to Rs 12-lakh that their deceased husbands left behind. And that made me wonder how come the economic situation had reached such a despicable levels despite Punjab offering the best of rural infrastructure, irrigation and technological advance.

Punjab, therefore offers an excellent case study to understand, re-strategise and formulate a set of agricultural reforms that are more meaningful and effective. A set of reforms that actually go beyond the rhetoric and lay out a roadmap for the future where the society doesn’t have to treat the small and marginal farmers as a national burden. Instead of treating them as abandoned people, the challenge should be to ensure how the rural masses base could benefit from as well as become part of economic growth. That’s why I have always been saying that the time has come to move away from price policy to income policy. The need is to provide farmers with an assured monthly income, which is not only WTO compatible but also provides economic security to farmers. The demand should be to convert the CACP into a Commission for Farmers Income and Welfare with the mandate to assure a monthly living income of at least Rs 18,000 per farm family. That will be the beginning of Sabka Saath, Sabka Vilas. It’s time to think again. #

READ MORE - With high productivity, assured irrigation, a higher MSP and loan waivers in progress, why are Punjab farmers dying?

When electoral promises shower, ask where is the money left for agriculture

The only time farmers appear on the economic radar screen of the country is when elections are around the corner. I have seen this happening for nearly 30 years now, and all political parties irrespective of their colour and ideology have been following the same approach. The forthcoming elections in the three major agrarian states of Madhya Pradesh, Rajasthan and Chhattisgarh too follow the same trend, and all political parties are vying with one another to lure the farming community.

In the run up to the 2019 general elections, two demands which have now become central to every protest that happens across the country pertains to writing-off farm loans and the implementation of the government’s own promise of providing Minimum Support Price (MSP) plus 50 per cent profit as per the recommendation of the Swaminathan Commission. While every political party is promising to waive all outstanding farm loans, in reality only a fraction of the bad loans is being written off. Irrespective of the party in power, majority farmers in Uttar Pradesh, Punjab, Maharashtra and Karnataka have been left high and dry. Nor I am expecting all bad loans in agriculture to be waived in the three predominantly agricultural states going to elections.

Coming to the second demand, while there is a definite need to implement the Swaminathan Commission’s pricing formula in letter and spirit, the fact remains that even if the enhanced price was announced accordingly it would benefit only a small percentage of the farming community. As per the Shanta Kumar high-powered committee, only 6 per cent farmers get the benefit of procurement prices. In other words, the MSP plus 50 per cent profit that is being demanded, even if it is implemented, will benefit only those farmers who are already getting procurement prices. What about the remaining 94 per cent farmers who do not have enough marketable surpluses or are deprived of procurement operations because of the lack of adequate infrastructure? In Madhya Pradesh, for instance, there are 94-lakh farming families, and in 2017 wheat harvesting season only 10.5-lakh farmers were able to sell at the procurement price. What about the remaining 83-lakh farming families?

While there is a definite need to implement the Swaminathan Commission’s pricing formula in letter and spirit, a higher price does not help unless every produce the farmer brings to the mandis is officially procured. Chhattisgarh, Madhya Pradesh and Rajasthan have failed to provide adequate procurement and defaulted time and again thereby building farmers’ anger. Even under the newly rolled out PM-AASHA scheme, the government has made it clear that only 25 per cent of the marketable surplus will be procured. What about the remaining 75 per cent? Who will bear the loss a farmer incurs in selling his produce at a lower price in the market?

The debate therefore has to move beyond the two demands. Little effort has been made to understand the economic design that hardly leaves any policy space for farmers. To illustrate, soon after the UP Chief Minister Yogi Adityanath announced the farm loan waiver, Finance Minister Arun Jaitley had made it clear that the States will have to find their own resources for farm loan waivers. But between April 2014 and April 2018 more than Rs 3.16 lakh crore of corporate bad loans have been written-off the Finance Minister never asked any State government to take the burden. While both the industry and farmers take loans from the same banks, the question that should be asked by farmer leaders is why the industry bad loans do not become State’s responsibility? And just like the industry, why doesn’t RBI direct the nationalised banks to waive the outstanding farm debt also? Why pass on the burden to State governments?

At the heart of the problem is the Fiscal Responsibility & Budget Management (FRBM) Act, 2003 that restricts the current annual borrowing limit to 3 per cent of the Gross State Domestic Product (GSDP). Look at the budgetary provisions and it becomes obvious that there is little money left for agriculture. Let me explain. In Chhattisgarh, as per the revised budgetary estimates, 93 per cent of the state’s own revenue goes to pay for salaries, pension liabilities and interest payments. Just salaries and pensions eat away bulk of the budget. In Madhya Pradesh, the figure is 87 per cent and in Rajasthan it hovers around 116 per cent. If such is the huge burden of government salaries and pensions, there is hardly any resource left for the rest of the population, including farmers. If it is not for Centre’s contribution, all that the three State governments in reality are left with is to keep its employees and pensioners happy, who constitute only a fraction of the total population. For instance, in MP, of the 8.1-crore projected population in 2017-18, there are only 7.5-lakh government employees, including 4.50-lakh in permanent employment.

Where is the money left for farm loan waivers and for undertaking procurement operations? Unless the farm movements are able to understand the dynamics of fiscal management, the political parties will continue to get away with hollow promises made in their manifestos. They need to seek details from political party leaders on how the new party, if elected, will be able to find adequate resources for what they promise for agriculture. It has to begin by seeking an amendment to the FRBM Act, 2003, and demanding the setting up of a State Farmers Income Commission, with the mandate to provide every farming family an assured monthly income of Rs 18,000. This entails working out the present average income in each district, and then ensuring the gap with the minimum guaranteed income is paid by income transfer. #  

READ MORE - When electoral promises shower, ask where is the money left for agriculture

Why shouldn’t the owner of the companies who default on paying back the bank loans not treated the same way as the farmers?

In April this year, Karamjeet Singh, a farmer from village Nandgarh Kotra in Bathinda district in Punjab, was arrested after his cheque of Rs 4.34-lakh bounced, reports Indian Express. Still in jail, he is amongst hundreds of farmers who have been sent to jail for bounced cheques deposited for repayment.

Credit policy has two faces. One for the rich, and another for the poor. Let’s first take a look at the credit policy for farmers. The Punjab Agricultural Development Bank has served legal notice to 12,625 farmers threatening to sell their farm land to recover an outstanding due of Rs 229.80-crore, at a time when the Kolkata bench of the National Company Law Tribunal has allowed just one defaulting company – Adhunik Metaliks Ltd (AML) – to walk away with 92 per cent ‘haircut’. While the undated and signed bounced cheques is a common way to haul up defaulting farmers for non-payment of farm credit, I wonder why a similar strategy is not followed in case of corporate loans.     

Take another example. Two months back, Monnet Ispat & Energy got a ‘haircut’ of 78 per cent; the company had an outstanding debt of Rs 11,014-crore. Under the insolvency proceedings, the lenders will get only Rs 2,457-crore. The remaining amount of Rs 8,557-crore of bad debt will be written-off. The haircut, which in reality is nothing short of a waiver, comes at a time when a 34-year-old farmer, Sukhpal Singh of Mansa region in Punjab, committed suicide for an outstanding loan of Rs lakh drawn from a cooperative bank. In contrast, while the marginal farmer was unable to face the humiliation that comes with indebtedness and ended his life, we don’t see any change in the lifestyle of the owners of these defaulting companies. In fact, they feel recharged after being divested of the financial burden they were reeling under. It’s a new life offered to them on a platter.

This is how the banking system works. When it comes to industries, it looks at every opportunity to strike-off as much of the defaulting amount as possible. AML defaulted to the tune of Rs 5,370-crore, and under the Insolvency and Bankruptcy Code (IBC) it has been allowed to walk away after a settlement was reached with the UK-based Liberty House Group for Rs 410-crore. In other words, the company gets a write-off or call it a ‘haircut’ for Rs 4,960-crore. I don’t think it is even fair to call it a ‘haircut’ as it is nothing short a complete head shave!

Compare this with the Rs 229.80-crore outstanding loan pending against 12, 625 Punjab farmers that the Punjab Agricultural Development Bank is trying to recover. It is not even a sizeable fraction of the huge amount written-off for just one industrial house. Call it a settlement to affect a resolution plan for the companies declared bankrupt; the economic jargon actually is an attempt to hide what in reality is more than a write-off. By selling off a loss making unit the promoter walks out free from what would otherwise be a life-long indebtedness. Almost the entire debt is eventually borne by the tax payers. This is what Noam Chomsky calls it as ‘tough love – tough for the poor and love for the rich’.      

The former Chief Economic Advisor Arvind Subramanian had in fact said that writing-off of corporate loans leads to economic growth. If this is true, I don’t understand why waiving farm loan does not lead to economic growth. After all, both the farmer as well as the industry takes loans from the same banks. How then can the write-off of corporate bad loans lead to economic growth whereas farm loan waivers lead to moral hazard? Why should farmers be therefore despised for seeking loan waiver? In fact, Arundhati Bhattacharya, the former chairperson of the State Bank of India had blamed farm loan waivers for leading to credit indiscipline. The Reserve Bank of India governor Urjit Patel had found farm loan waivers as a moral hazard upsetting the national balance sheet.

Although the Punjab Agricultural Development Bank has denied of any real intention of putting the land of 12,625 farmers for public auction saying that the legal notice is just a threat, the fact remains that as many as 71,432 farmers are under scanner for having defaulted the bank to the tune of Rs 1,363.87-crore.  Sooner or later, all these farmers will receive legal notices if they fail to pay up. In fact, many of them have already landed in jail. Similarly in Haryana, just to illustrate, a farmer who had failed to pay back a loan of Rs 6-lakh taken for laying a pipeline for irrigation was ordered by the district court to pay a fine of Rs 9.83-lakh and undergo a 2 year jail term.   

On the other hand, the ‘haircut’ allowed to AML means the banks will not be able to recover this huge amount. According to media reports, some of the other not so-high profile companies allowed ‘haircut’ includes: Jyoti Structures 85 per cent; Alok Industries 83 per cent; Amtek Auto 72 per cent; Electrosteel Steels 60 per cent and Bhushan Steels 37 per cent. Among other outstanding cases listed by the Insolvency and Banking Board of India, Synergies Dooray Automotive Ltd got a ‘haircut’ of 94. 27 per cent as a result of which financial companies are able to recover only Rs 54-crore from an outstanding amount of Rs 972.15-crore.

According to the latest data, over Rs 3-lakh crore worth of loans belonging to 70-80 companies has now been referred for ‘hair-cut. These are loans which have not been paid for 180 days. This includes Rs 1.74-lakh crore of 34 power companies. According to a High Power Committee set up by the Gujarat government, three power projects of Tata, Adani and Essar carrying a cumulative debt of Rs 22,000 crore will get a haircut of more than Rs 10,000-crore. What is interesting here is that in case of big defaulters, the entire government and banking machinery become hyper active to bail out the companies. But in case of agriculture, the same banking system seeks exemplary punishment, including jail term. I have never seen a jail term being prescribed for a corporate defaulter.

In an article entitled Reform that Isn’t in Indian Express former Cabinet Minister Kapil Sibal rightly sums it up saying: “Recovery through the IBC process in the steel sector will be about 35 per cent of the loans advanced and in the power sector, only 15 per cent of the loans advanced. This is a scandal in itself. Even the beneficiaries will raise loans from banks to pay for acquisitions.”

The question that needs to be asked is why aren’t the defaulting companies being allowed to go bust? Why is the entire effort to bail out the companies that have failed to perform? At the same time, why shouldn’t the owner of these companies who default on paying back the bank loans not treated the same way as the farmers? First, why should the RBI not disclose the names of defaulting companies to begin with? Secondly, why shouldn’t the corporate bigwigs be made to cool their heels in jail? #        

Haircuts are good, Farm loan defaults are bad -- the two-faced treatment of waivers. The Wire. Oct 1, 2018. https://thewire.in/political-economy/farm-loan-defaults-waivers-india

READ MORE - Why shouldn’t the owner of the companies who default on paying back the bank loans not treated the same way as the farmers?