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A child called masoodrezvi

Indian Farmer and Debt Trap

A letter to the Secretary Minority Welfare, U.P.
How Low is the Bottom of Pyramid?
They too are humans
Farmer & debt trap
Coercive recovery
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The Hand Book of Agriculture published by the Indian Council of Agricultural Research (1987) records that "Various studies conducted at different times on rural indebtedness revealed that the farming community was in the clutches of local money-lenders. The terms of lending by these money-lenders were unfavourable and inimical to the interests of the farmers." (P.731).

What actually was unfavourable and inimical to the interests of farmers? A little introspection will reveal that this was two fold:

1) The provision of credit to the farmers specially to the poor small and marginal farmers who were mainly dalits, entirely depended on the sweet will of the money-lender (mainly local Banias ie., traders and goldsmiths) as did the interest rate.

2) The money-lender was powerful both in terms of his knowledge and access to the prevalent legal system and in terms of muscle power and possibility to intimidate the borrower as and when he so wished.


These studies coupled with the realisation that hunger if allowed to perpetuate in the masses could pave ways for revolutions which may even be a violent upheaval, forced different governments in the past to formulate different measures to check the local money-lender and to make available institutional finance to the farmers. The biggest move in this direction was the nationalization of banks and systematically pushing them to open branches in rural areas as also fixation of targets for Direct Agriculture and other identified priority sectors of society like SSI etc.

Governments also stepped in through introduction of subsidy based schemes for the weaker sector like IRDP, SCP, DWCRA, SEUUP, SEPUP, SEEUY, and PMRY etc. It is no secret that though the debtor on paper was the farmer and the weaker sector borrower, a good chunk of subsidy leaked to other people.


There is no denying the fact that Agricultural lending was finally taken up by the banks and the local money-lender was eventually replaced by the institutional money-lender (the banks) in a big way.


At the national level the total direct finance of scheduled commercial banks to agriculture grew from 235 crore rupees (1crore=10 million) in 1970-71 to 95565 crore rupees in 2004-05 (406.66 times !). The total indirect finance (indirect finance to agriculture is lending for fertilizer distribution, loans to electricity boards, loans to farmers through agriculture credit societies etc, etc,) similarly grew from 143 crore rupees in 1970-71 to 36071 crore rupees in 2004-05 (252.25 times). The total direct plus indirect finance to agriculture by the scheduled commericial banks grew from 378 crore rupees in 1970-71 to 131636 crore rupees in 2004-05 (348.24 times). These facts are available at page 115 of Handbook of Statistics on Indian Economy published by Reserve Bank of India (2005-06).

In the same time period ie, 1970-71 to 2004-05 the national foodgrain production improved from 99.50 million tonnes to 198.36 million tonnes (The growth was 1.99 times only !!) - source of statistics is the same as above (page 50). Well let me add that I could not find the same figures in terms of rupees instead of million tonnes (had it been there it would have been more easy to compare it with the growth in institutional credit).

But what is available is sufficient for us to question why the replacement of local money lender by the institutional money lender did not result in increse in food grain production to the tune of even one hunderdth of the increase in money lent by the institutional money lender, to the agricultural sector.

I could not find any statistics on the total indebtedness of the farmer (debts owed to local money leneder + debts owed to institutional money lender) then and now. I suppose and hypothesize that the total debt of the farming community has increased many times, without a commensurate increase in their production.


No doubt, there have been many studies and attempts to improve the flow of institutional credit to the farming sector and the weaker sectors of the societies. Issues of undue delay in disposal of loan applications, untimely release of funds, inaccurate amount of finance etc have been discussed many times over. The most recent is "Report of the Working Group to Examine the Procedures and Processes of Agricultural Loans" available at the website of RBI The Group, headed by Mr. C.P. Swarnkar, has elaborated many points and has made recommendation for correct and proper maintenance of Loan Application Receipt and Disposal Register etc, of dispensing with the need of No Dues Certificates from different banks on computerisation of land records and other such things.

While giving recommendations for State Governments the Group has recorded the following


"Recovery Procedures

3.22 Of late, the farmers in many areas have been susceptible to propaganda against repayment of their dues. This, in turn, discourages the banks to lend in such areas where repayment record is bad. Simplified procedures and quick repayment of loans are two sides of the same coin. Simplified procedures not only encourage farmers to take loans but also encourage them to repay. On the other hand, if the repayment record is good, the bankers would be encouraged to adopt simplified procedure. Proper counseling and financial education can help the farmers to see through this and understand the nuances. Support from the State Governments in the recovery efforts of the banks will also encourage them to lend more aggressively. The Group recommends that SLBCs in the respective states may bring this fact to the notice of the State Governments and coordinate with them in this regard."



On the other hand the Group has made no recommendation for the banks to evolve a fool proof system to ensure that State Recovery Acts (UP Agricultural Credit Act and UP Public Money Recovery of Dues Act - in Uttar Pradesh, forexampe) are not misused and abused. No system of pre RC filing scrutiny and post RC filing audit and inspection has been recommended.


Let me elaborate. The entire story progresses in this way -


1) The farmer was in the grip of local village Bania Money-lender, who exploited him because he the money-lender was more resourceful than the borrower.

2) Banks were nationalized and took over the farm credit almost completely.

3) They were subsequently privatized and their shares taken up by moneyed people all over.

4) They are any day much more resourceful and organised than the local money lender was! There is a hype about freeing of the farmer from the clutches of the money-lender but is it so that actually the money-lender has grown more organised and powerful and can even tell the governments that it needs special coercive and unilateral recovery powers from the Government for recovery from the poor people?

Unfortunately I could not find statistics on sector wise break up of NPAs (NPAs are Non Performing Assets of banks or delinquent loans to put in more ordinary words) but from my experience I do believe that NPA with big buisness houses is much more than the total NPA with the farm and weaker sector.

Further, the latter neither have the availability of services of qualified chartered accountants nor the knowledge and resource to avail of whatever legal protection is available to them from the coercive and unlimited recovery and harrasment proedure available to the money-lender (albeit Institutional, this time).

Committees and Groups formed for improvement of Agricultural Credit invariably consist of practicing bankers (The money-lenders).

Whose interest will they watch?

Of farmers or of their share holders?

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