 "Weather gods, indebted farmers and Modi's demonetisation")
The outstanding credit statistics released by the Reserve Bank of India (RBI) reveal several interesting facts. Credit in rural India continued to increase at a faster pace than urban India between 2014 to 2016. This growth has come even as overall credit growth was lower than in 2014-15. Tamil Nadu and Maharashtra continue to be the engines of credit growth of the country. The total amount owed by rural India to scheduled banks is now more than Rs 42 lakh crore.
“What will be important to look at is whether (or not) these small loans are being taken for consumption and meeting urgent needs by the poor in rural areas. My hunch is that most of this credit is not being deployed to increase productivity in the economy,” said Mausami Das of the Delhi School of Economics.
Growth in rural credit in India has been phenomenal in some states. In Uttar Pradesh and Maharashtra, it was almost 40 per cent between 2014 and 2016. Urban credit growth in these states during the same period was 27 per cent and 36 per cent, respectively.
With such a huge amount in agricultural loans at stake, the government has initiated a rash of measures aimed at the rural sector to tackle any ill effects of demonetisation on the rural economy. That’s because any impact on sowing in the rabi season could adversely affect the stability of the banking system, which has lent heavily to farmers. But there is a caveat to these figures. "Agricultural credit is sanctioned in the name of the farmer but it is the agriculture business companies that end up getting over 70 per cent of these loans. Only six per cent goes to small and marginal farmers," says prominent agriculture economist Devinder Sharma.
Till now, the government’s measures seem to be paying off. More wheat, pulses and oilseeds have been sown in the rabi season this year. Although the total rabi acreage has declined this year by around 200,000 hectares, the sowing of important cereals and pulses has increased as compared to 2015-16. Coarse cereals could be a cause of concern, as their acreage has declined this year.
This has been possible because the government has been proactive in addressing the needs of farmers in the wake of demonetisation. It has extended the repayment period of small borrowers who have taken a loan of less than Rs 1 crore by 60 days. RBI data shows that small borrowers make up almost 90 per cent of the borrowers in some states. The National Bank for Agriculture & Rural Development (Nabard) has been asked to pump in Rs 21,000 crore to District Central Cooperative Banks (DCCBs) to keep credit lines open to farmers. This is likely to benefit 40 per cent of small and marginal farmers availing crop loans, according to the government. Farmers are now allowed to withdraw Rs 25,000 a week, which is higher than the limit for other citizens. Moreover, seeds can now be bought with the old 500-rupee notes.
While all this may have helped the government in increasing the acreage over last year, the weather gods could play truant. The Indian Meteorological Department (IMD) has predicted a warmer winter this year, which could severely damage low temperature loving crops such as wheat, barley and lentils like masur and gram. The IMD has predicted that winters in India could be between 0.5 and 1 degree Celsius warmer this year. This could impact agricultural production in a variety of ways. For instance, wheat seeds require an optimal temperature of 12-25 degrees Celsius to germinate. Uttar Pradesh is the largest producer of wheat in India. The maximum temperature in the western part of the state is still hovering around 30 degrees Celsius, even as the rabi sowing season is in full swing. The situation is similar in Punjab and Madhya Pradesh, the other big producers of wheat. All these states are already witnessing higher winter temperatures. But the government can take solace from the fact that higher temperatures in the winter of 2015 didn’t have a significant impact on wheat production.
Winters last year in India were the warmest in history. IMD data shows that December 2015 was the hottest in 114 years in India. Despite this, wheat output grew by six million tonnes in 2015-16.
To offset any negative impact on farmers which could potentially dampen the BJP’s fortunes in the upcoming elections, the government has revised the Minimum Support Price (MSP) more than it did in previous years. On November 21, the government announced the MSP of wheat at Rs 1,625 per quintal. This was Rs 100 more than last year. In comparison the government had hiked the MSP to farmers by Rs 75 in 2015-16. The biggest hike has been for pulses. Support prices of gram and masur have been hiked by Rs 575 and Rs 625 respectively for 2016-17. In 2015-16, the MSP for gram and masur was only Rs 250 higher.
It will be clear only after the post-harvest production figures come, whether the farmer has lost or won by the government's demonetisation move.
“What will be important to look at is whether (or not) these small loans are being taken for consumption and meeting urgent needs by the poor in rural areas. My hunch is that most of this credit is not being deployed to increase productivity in the economy,” said Mausami Das of the Delhi School of Economics.
Growth in rural credit in India has been phenomenal in some states. In Uttar Pradesh and Maharashtra, it was almost 40 per cent between 2014 and 2016. Urban credit growth in these states during the same period was 27 per cent and 36 per cent, respectively.
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Data shows that agriculture, predominantly a rural activity, accounts for Rs 8.5 lakh crore of the total outstanding credit of scheduled banks. Regional Rural Banks were further owed Rs 1.5 lakh crore, according to data available till 2013-14.
With such a huge amount in agricultural loans at stake, the government has initiated a rash of measures aimed at the rural sector to tackle any ill effects of demonetisation on the rural economy. That’s because any impact on sowing in the rabi season could adversely affect the stability of the banking system, which has lent heavily to farmers. But there is a caveat to these figures. "Agricultural credit is sanctioned in the name of the farmer but it is the agriculture business companies that end up getting over 70 per cent of these loans. Only six per cent goes to small and marginal farmers," says prominent agriculture economist Devinder Sharma.
Till now, the government’s measures seem to be paying off. More wheat, pulses and oilseeds have been sown in the rabi season this year. Although the total rabi acreage has declined this year by around 200,000 hectares, the sowing of important cereals and pulses has increased as compared to 2015-16. Coarse cereals could be a cause of concern, as their acreage has declined this year.
This has been possible because the government has been proactive in addressing the needs of farmers in the wake of demonetisation. It has extended the repayment period of small borrowers who have taken a loan of less than Rs 1 crore by 60 days. RBI data shows that small borrowers make up almost 90 per cent of the borrowers in some states. The National Bank for Agriculture & Rural Development (Nabard) has been asked to pump in Rs 21,000 crore to District Central Cooperative Banks (DCCBs) to keep credit lines open to farmers. This is likely to benefit 40 per cent of small and marginal farmers availing crop loans, according to the government. Farmers are now allowed to withdraw Rs 25,000 a week, which is higher than the limit for other citizens. Moreover, seeds can now be bought with the old 500-rupee notes.
While all this may have helped the government in increasing the acreage over last year, the weather gods could play truant. The Indian Meteorological Department (IMD) has predicted a warmer winter this year, which could severely damage low temperature loving crops such as wheat, barley and lentils like masur and gram. The IMD has predicted that winters in India could be between 0.5 and 1 degree Celsius warmer this year. This could impact agricultural production in a variety of ways. For instance, wheat seeds require an optimal temperature of 12-25 degrees Celsius to germinate. Uttar Pradesh is the largest producer of wheat in India. The maximum temperature in the western part of the state is still hovering around 30 degrees Celsius, even as the rabi sowing season is in full swing. The situation is similar in Punjab and Madhya Pradesh, the other big producers of wheat. All these states are already witnessing higher winter temperatures. But the government can take solace from the fact that higher temperatures in the winter of 2015 didn’t have a significant impact on wheat production.
Winters last year in India were the warmest in history. IMD data shows that December 2015 was the hottest in 114 years in India. Despite this, wheat output grew by six million tonnes in 2015-16.
To offset any negative impact on farmers which could potentially dampen the BJP’s fortunes in the upcoming elections, the government has revised the Minimum Support Price (MSP) more than it did in previous years. On November 21, the government announced the MSP of wheat at Rs 1,625 per quintal. This was Rs 100 more than last year. In comparison the government had hiked the MSP to farmers by Rs 75 in 2015-16. The biggest hike has been for pulses. Support prices of gram and masur have been hiked by Rs 575 and Rs 625 respectively for 2016-17. In 2015-16, the MSP for gram and masur was only Rs 250 higher.
It will be clear only after the post-harvest production figures come, whether the farmer has lost or won by the government's demonetisation move.