The Budgetary Head for Interest Subvention

Most budgetary statements are open to more than one interpretation: the enhanced allocations to the Agriculture sector is no exception. This year, the sector has been allocated Rs 35,000 crore, which is a substantial jump over the last year’s budget line of Rs 20,000 crore. Naturally, those writing in support of the government claim that this is the highest ever increase in the budgetary provision for the agriculture sector, and shows the firm commitment to the farmer. Those familiar with the exercise of the budget are sure to ask: where is the catch?

The catch lies in the fact that funds for interest subvention on farmers’ loans, more specifically short term crop loans, which are administered through the instrument known as the Kisan Credit Card (KCC) are now being shown as a development intervention in the agriculture sector, rather than as an allocation to the Department of Financial Services (in popular parlance, the Banking and Insurance division) of the Finance Ministry.

A seminal question that emerges from this change in classification is if farm credit an “agricultural input” per se, or is it in the nature of a financial service under the “universal service obligation” which banks, especially nationalised banks are supposed to provide.

The answer to this question is not a simple an “either/or” proposition: for while farmers, like all other citizens, must have access to financial institutions, the coverage under the Kisan Credit card is a special dispensation for the specific purpose of meeting the short-term credit needs with respect to seeds, fertilisers, nutrients, pest, and weed management. 

True, some leeway is available to the farmer to use part of his credit limit for “consumption” needs – but medium to long-term investments, including tractors and farm equipment are not part of the KCC scheme of things.

It is important to note that the overall credit limit and the scale of finance for each crop is settled by a district level committee which includes representatives from all stakeholder departments and banks, including the co-operative banks. 

These are tough negotiations for while the farmers and agriculture department pitch for “a higher scale and limit”, bankers typically tend to be “conservative”. Again, while the agriculture departments in the state governments aim for universal coverage of the KCC, including oral lessees and informal tenants, the bankers do not share this view. 

It must be acknowledged that in the absence of clear title to land or tenancy, extending loans to “non-owner-cultivators” is a challenge. In many states, the certificate of “actual cultivation” given by the Panchayat or the Agriculture department also suffices, though banks are not really comfortable. 

The asymmetry with regard to KCCs continues, and though the issue is discussed in almost every meeting of the district and state level bankers committee meeting, there is no real consensus. It may also be mentioned that even though the Public Debt Recovery Acts treats “bank loans” at par with arrears of land revenue, the fact is that implementing the Act is fraught with serious political implications. 

On the contrary, state governments find it expedient to declare remissions of land revenue as an executive decision, before the “Opposition” demands it. In any case, with the formal declaration of drought, the remission sets in automatically. This is not the case with a bank loan, even when there’s a crop failure on account of climatic aberrations.

Having said all this it should be placed on record that from an administrative standpoint, it does make perfect sense for the fund to be placed with the Agriculture Ministry for at least three reasons. 

First and foremost, this Ministry understands the cropping cycle, knows the seasonality of lending, and can place funds with the banks based on the actual loaning before every crop season. Secondly, banks will look up to the Agriculture Ministry as a “major stakeholder” with the ability to release funds and demand service. 

Whosoever controls the purse, also controls the strings, and bankers will now give equal, if not more attention to Agriculture, (and by implication, those, like this columnist who hold senior positions therein). Last, but not the least, there’s little possibility of the funds being diverted for any purpose other than short-term agricultural credit.

Before closing, it is important to mention that the Agriculture Budget has also earmarked another Rs 5500 crore for the restructured and revamped farmers insurance policy, the Pradhan Mantri Fasal Bima Yojana. But states will have to contribute an equal amount though the nomenclature suggests that the entire funding will come from the Centre. 

Many states including West Bengal contribute the farmers’ share in the actuarial premium. The short point is that of the Rs 35,000 crore for the agriculture budget, more than half will go to financial institutions, and the farmer will not get to see it in a physical form – like fertiliser, seeds, or even cash! 

The farmer will get benefits if, and only if the financial institutions, notably the banks and insurance companies get their act together and deliver their services in the spirit of “service”, and work in a positive partnership with the agriculture departments, both at the levels of the Union and state governments.