Not through write-offs

Having created hype about doubling agricultural credit in three years, the UPA government will now have to come out with a concrete action plan of action.

However, some of the suggestions being mooted by constituents of the ruling alliance are disconcerting. The worst idea to emerge is the plea to write off the outstanding dues of farmers so as to enable them take fresh loans, as also of defaulting cooperative credit institutions "" which can then clean up their books.

Such a remedy will prove worse than the disease, as was shown by the loan waiver scheme of 1991. Many credit institutions are yet to recover from its impact. However, with persons like Manmohan Singh and P. Chidambaram at the helm, one can hope that such dangerous pleas will be overlooked.

Indeed, there is tremendous scope for augmenting the flow of rural credit without resorting to economically unsound measures. The NDA government had begun addressing this issue, but began too late to make much headway.

Measures like the reduction of interest rates on farm credit from unreasonably high levels of between 14 and 18 per cent, the introduction of Kisan credit cards and the stress on micro-credit disbursal through self-help groups, were all steps in this direction.

So were the changes in the norms for computation of non-productive assets of banks regarding unrecovered agricultural advances, included in the Reserve Bank's monetary and credit policy for 2004-05 that was announced last month.

This policy has also taken into account some of the suggestions made by the Vyas committee on rural credit in its interim report. These include waiver of margin or security requirements for agricultural loans up to Rs 50,000 (Rs 10,000 earlier).

This spade work has paved the way for Mr Chidambaram to move forward, but it has not made his task easy. To begin with, he will have to find ways and means of raising resources for expanding rural credit rapidly. The escape route usually taken by the commercial banks to avoid lending to the farm sector by parking their money in the rural infrastructure fund and claiming it as priority sector lending, will have to be plugged.

Besides, urgent steps will be needed to restore the health of the cooperative credit infrastructure that alone can ensure credit availability even in remote areas. For this, either the Rs 15,000-crore rehabilitation package proposed, but not implemented, by the previous government can, mutatis mutandis, be implemented or some entirely new one be chalked out.

Furthermore, the refinance for farm credit available to cooperatives from Nabard will have to be looked into. At present, this amounts to no more than 25 per cent of their total loans. The money raised by them from other sources turns out to be dear money.

Therefore, ways and means of stepping up refinance without escalating costs will have to be worked out. Crucial will be streamlining the credit delivery system itself, on which will depend the success or failure of all other measures.