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Resource centre on India's rural distress
 
 

Don’t leave out the small farmer -S Chandramohan
-The Hindu Business Line

Whether it is promoting a lease market in land or the use of tractors, credit should be tailored to the needs of marginal players

The Finance Minister has announced several measures to make farming competitive and rev up growth in agriculture. While this is welcome, the sector as a whole needs an overhaul to make best use of these measures.

To address the needs of landless farmers who are unable to provide land titles as guarantee, it is proposed to finance five lakh joint farming groups through Nabard. Marginal farmers, too, should be able to avail of long-term credit to purchase capital equipment, including tractors; that would help them become viable. This practice is common in China and is beginning to take root even in countries of capital-starved Africa.

A sum of 25,000 crore has been earmarked for the creation of rural infrastructure out of the shortfall of banks towards priority sector lending. This should be utilised to create assets and improve irrigation. The allocation of 5,000 crore towards a long-term rural credit fund to provide refinancing support to regional rural banks (RRBs) and co-operative banks should go towards long-term investment in agriculture.

Indian agriculture is dominated by small farmers; the average size of a land-holding has declined from 2.3 ha in 1970-71 to 1.32 ha in 2000-01. If this trend continues, the average size will be a mere 0.68 ha in 2020. Compare this with the average size in Brazil, which is more than 50 ha!

Go for technology

Some structural changes need to be made to improve productivity in Indian agriculture, which compares unfavourably even with smaller countries such as Vietnam and Indonesia.

It often takes new technology to promote efficient use of scarce resources such as seeds and water, but high initial costs prevent small and marginal farmers from adopting them. That's why the Government must provide incentives. Countries such as the US, Brazil and China take the lead in this.

The example set by Andhra Pradesh and Gujarat, which have set up special purpose vehicles (SPVs) to promote micro irrigation, could be replicated by other states, and extended to areas such as sowing, fertiliser application, water conservation and acquiring equipment to reduce the use of water harvesting, and so on. Use of implements such as the zero tiller, power harrow and so on should be encouraged by providing incentives and loans at concessional rates of interest.

India's spending on agricultural research is less than 0.5 per cent of GDP which is below the level of even some sub-Saharan countries. We need to increase the engagement of farmers in extension services and be involved in private sector participation.

Gujarat takes a holistic approach where information on best practices is shared, and a host of services are provided. The government has historically used radio and television to disseminate information. While the Kisan TV initiative announced by the Finance Minister has to be implemented at the village level across the country, the focus has to shift to mobile innovations, disseminating information on new seeds, improved farming practices and the adoption of alternative pesticides.

Agricultural credit is still inefficiently allocated and farmers continue to borrow at high rates, even above 25 per cent. Tractor financing by nationalised banks has come down significantly whereas the share of private banks and NBFCs is more than 65 per cent of the total number of tractors financed. While they have been able to considerably reduce the turnaround time of financing to as little as three to seven days, nationalised banks financing tractors and implements would expand the scope of mechanisation, which, in turn, would enhance productivity.

The second-hand tractor market, largely patronised by marginal farmers, is more than 35 per cent of the new tractors sold in the country; banks should come forward to finance this segment.

Workable solution

If private sector players are able to successfully manage the assessment of credit as well as recovery, it should not be difficult for Government-owned banks to do so, given their deep penetration and network.

Due to inadequate records of land ownership, markets in parts of rural India are dysfunctional. There are significant inter-State differences in policies related to the leasing of agricultural land. States that have more rural land under lease also have higher agricultural productivity.

The leasing market should be strengthened by the introduction of public land banks; under such a scheme, absentee land-owners could "deposit" their land at a bank operated by the local panchayat and credible finance institutions, and receive rent for its use. Small and marginal farmers should be encouraged to borrow and cultivate the land, knowing they have secure tenancy for a fixed period. In this process, more arable land will be utilised, and farmers can increase their output.

The small banks initiative announced by the Reserve Bank of India could perhaps address this issue as part of its objective of financial inclusion.

About the rural non-farm sector

We need to create a geographically dispersed network of labour-intensive food-processing parks to support the goal of increasing agricultural exports where there is huge upside potential, while simultaneously adding more non-farm jobs to the rural economy. The government must also encourage capital-intensive, viable mobile storage applications on public-private partnership basis; there are too few of these now.

Several innovative agriculture-related startups - which provide mobile commerce solution to farmers and low-cost drip irrigation systems - are beginning to take shape; they must be encouraged. In this connection, it is hoped that the proposal to establish a 10,000 crore fund for startups will encourage similar frugal but relevant innovations in the agri sector.

India needs a lightning jolt in its agricultural reforms programme. We also need to empower farmers by ensuring better pricing information, inputs, credit and storage facilities, and improve their earning potential. The positive measures announced should go a long way in making the farm sector resilient, vibrant and sustainable.

The writer is the president and group CFO of Tractors and Farm Equipment Limited. The views are personal