De-risking Agriculture: What do Farmers Need?

NDA-1 decisions like permitting GM cotton in 2002 and introduction of Kisan Credit Cards have been game changers for Indian agriculture. Measures like crop insurance and more can be hugely beneficial for the sector, which has, for long, reeled under pressure. An analysis by
K G Karmaker

01 July, 2016 Agriculture, Opinion
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The Finance Minister Arun Jaitely in his Budget speech (2016-17) expressed a nation’s grateful thanks to our farmers for having delivered food security to the country. Another Union Minister, the then Agriculture Minister C Subramanian openly praised farmers for having enabled the Green Revolution in the late 1960’s and for having staved off starvation for millions, especially after the two successive droughts of 1965 and 1966 and the wasteful war of 1965 when Pakistan sought to win Kashmir by force after our Chinese debacle in 1963. The PL-480 food imports from the US kept us from starvation and then CIMMYT/IRRI provided us dwarf high-yielding varieties of wheat and paddy, which needed higher doses of fertilisers, pesticides and much water but improved food production dramatically. Credit availability had to be increased and bank nationalisation was the easiest way out but one must give due credit to the ability of the farmers to master the nascent technologies and improve food availability for the masses. Hailed as the Father of the Green Revolution, the Agriculture Minister gave all credit to the farmers who took upon themselves the risk of adopting new technologies using new seeds and new techniques without any de-risking mechanisms or support from the government except for the sustained campaign for training, field-trails and supply of HYV seeds.


Between 1967-2016, dramatic changes have taken place in the agriculture sector. The tremendous government support and drive between 1967-1985, soon dwindled to a period of muted support for the sector between 1985 to 1992, when self-sufficiency had already been achieved. Thereafter, from 1992 to 2004, there was a period of benign neglect followed by a major push for agriculture with the doubling of agriculture credit in three years in 2004 (actually achieved in 2 years) with huge amounts of credit earmarked for agriculture in the Union Budget, thereafter. But in 1990‑1991, the first debt write-off of all rural credit up to Rs 10,000; was announced and again repeated in 2008 for electoral gains, with debt write-offs up to Rs 300,000 for agricultural dues of farmers. Both write-offs were politically motivated but led to electoral victories for the Congress. But the entire banking system took about 10-12 years to recover from the shocks of these debt write offs.

Game Changers

One very important step taken was the introduction of Kisan Credit Card in 1998 by the then Finance Minister Yashwant Sinha, to provide affordable and timely credit to farmers. It was merely a passbook, which gave continuity of crop loans for 3 years and saved farmers from the anxiety and uncertainty of securing funds every year. Today, the KCC is a chip-based card with five-year tenure (over the entire crop cycle of 2 bad years, 2 normal years and 1 excellent year). This single move empowered the farmers like never before and though it benefitted the big farmers, it is actually available for all farmers who have proper documentation of land records in their names and a credible history of stable banking relationships.

The UPA government also took another step, ostensibly to help farmers access credit on affordable terms and along with increasing directed credit volumes for agriculture every year, they started subsidising banks (through RBI/NABARD), to provide credit at the rate of 7 per cent interest to farmers from 2006-07 onwards and followed this up with a further 3 per cent rebate (from 2011-12) if agricultural dues were repaid in time. Some State governments like Karnataka, AP, MP etc, gave further subsidies to their farmers for on-time repayment of crop loans and farmers from these states now get credit at virtually 0 per cent rate of interest. But this pushed farmers to avail of cheap credit on very favourable terms and big farmers and Adtiyas/agents started taking huge loans and diverted them for fixed deposits or started money lending operations with extremely high rates of interest, repaid all dues in time and availed of larger crop loans in succeeding years. While the banks and agents were happy, overall food production did not get much boost as the small holder farmers were deprived of credit access (82 per cent of all land holdings are those of small holder farmers). The banks happily achieved their agricultural sector loan targets, but with funds diversion, agricultural productivity remained muted.

Stock Taking

The Indian agricultural production base has widened over the years and today, India is the world’s largest milk producer and the second largest in production of fruits and vegetables. Comparing our agricultural productivity with that of China, our crop productivity is low, ranging from 30 per cent to 70 per cent of China’s crop productivity in all major crops. Tragically, after the wide-ranging economic and banking reforms dictated by the IMF/World Bank from 1992 onwards, the agriculture sector was totally neglected and from 1995 onwards, over 3 lakh farmers have committed suicide and on an average one farmer commits suicide every 30 minutes. If this is not a true indicator of agrarian distress there can be no other index for the agriculture disaster that has been unleashed, since then. On the one hand, input prices, especially for seeds, fertilisers and pesticides have been increasing exponentially while crop prices are controlled for political reasons. Again, for political reasons, sugar prices are being propped up when cheap sugar can be available, locally and from abroad. The government lacks the guts to de-control sugar prices and take decisions on GM-brinjal and other GM seeds, while the US, China and even Bangladesh can take swift decisions to help benefit their farmers. Political lobbyists, without any shred of scientific evidence and lots of political backing, have held all farmers to ransom while the Government dithers from carrying out even field trials of GM crops due to doomsday predictions from lobbyists and so called environmentalists.

A decision taken by the then Prime Minster Atal Behari Vajpayee in 2002 permitting GM cotton, has benefitted Indian cotton farmers and earned the country over Rs 50,000 crore by way of exports and not having to resort to costly imports. From a net importer of cotton, India is now the largest exporter of Cotton and Yarn due to that one bold decision by our Prime Minister. If Americans and Chinese have not been affected adversely, why Indians are resisting these GM seeds? We need more such brave decisions on GM seeds of various crops so that our farmers can enhance their earnings. Farmers too, need to enhance the seed replacement rates and access better quality seeds with germination rates exceeding 90 per cent. The government should also come down heavily on fly-by-night operators who cheat farmers by selling seeds having germination rates of 20 to 30 per cent only.

Comprehensive Agriculture Risk Management Framework

A) Production Risk Management

1. Agriculture Insurance – Crop & Livestock Insurance
1.1. Proper Data Management: A huge amount of useable data (weather, crop production, losses etc) is either produced or collected by different departments of the government or other entities. This data is in different formats and in custody of different agencies and often more than one agency are collecting the same set of data. In order to make use of this data for crop insurance, the government should create a ‘nationally consistent database, to be made available to insurance companies and others at a nominal cost. The government should also facilitate and encourage farmers to share the farm level data with public agencies.
1.2. While yield insurance is practically considered all-risk insurance and therefore apt for almost all seasonal crops, it requires a huge amount of crop cutting experiments. Also the process is slow, leading to delay in settlement of claims. The government should encourage use of innovative technologies to estimate the yields and expedite the data, including satellite sensors or digital cameras. A ‘Development Fund’ may be created to support such initiatives.
1.3. A Centre for Integrated Risk Management in Agriculture is to be established in public-private partnership and the centre to prepare a detailed guide lines for implementation of policies governing control of risks in various Agro-Ecological Zones by involving state government, insurance providers, banks and civil society organisation.
1.4. Generally though weather-based crop insurance is appropriate for specialty crops like fruits, vegetables, plantation crops etc, the states should be given the freedom to choose between this and customised indemnity insurance, with the same level of public support. Further, insurance companies may be incentivised to develop customised insurance products that are relevant and useful for farmers.
1.5. Crop insurance penetration of non-loanee farmers is dismal despite substantial public funding on par with loanee farmers. States should take interest in popularising crop insurance among non-loanee farmers and insurance companies should work with states in providing easy access to insurance.
1.6. Livestock insurance is entitled for the same level of public support as crop insurance considering its future potential contribution to rural income growth. Government support to livestock insurance on par with crop insurance will significantly increase rural insurance penetration.

2. Natural Resource Management
2.1. Concentrate on building small, decentralised irrigation infrastructures at the village level and improve the storage capacities of existing dams to capture the incoming precipitation and runoff water, especially with increasing frequency of intense rain in short time.
2.2. Waste-water is an asset and government to encourage waste water to be re-used using bio-organic wastes and recycled as is done in Israel and to ensure recharging of groundwater via storage basins and watersheds when water is plentiful.
2.3. 80 per cent of all water is used in agriculture but many irrigation facilities are not being used as many old government schemes are not functioning and hence the need to review, revamp and renew schemes in line with modern needs of farmers.
2.4. Land purchase should be done on the basis of direct negotiations and factors like acreages, population density, could be other factors for consideration and this will remove unwarranted litigation. Proper legal framework and social impact assessment with due diligence is required. Rehabilitation and resettlement with livelihoods for displaced farmers, is also essential.
2.5. Every pucca construction on a converted land must create water harvesting ponds/ structures to compensate for the run-off created due to coverage of the erstwhile water seepage structure. This would help us retain ground water levels. Groundwater recharge measures are urgently needed.
2.6. Preserve common lands as a measure to retain pasture lands as dairy cattle depend on such lands.

3. Climate Variability & Change
Climate forecasting, climate information generation and dissemination, early warning systems, by using remote sensing technology as a tool for mapping of agricultural losses and climate change response system need to be put in place. Weather forecasting, prompt dissemination of market information and crop advisories should be ensured to farmers and farmer organisations, through mobile phones. These are also useful in case of disastrous weather events.

4. Others/General
Appropriate farm mechanisation, including establishment of “Tool Banks” owned by individuals, JLGs, FPOs, should be encouraged to reduce avoidable costs, drudgery and to increase productivity.
4.2. To ensure better crop yields, appropriate crop selection/diversification from existing crop to crops most suited in the agro-climatic/ecological zone needs to be implemented.

B) Market Risk Management

1. APMC Markets
1.1. Transforming existing market yards into productive and useful commodity aggregation, segregation, storage and other basic value addition facilities aided by objective quality assessment.
1.2. Creating digital kiosks in each APMC main market yard, which make available commodity future prices, forward market prices, prices from other key markets, other critical price/ policy inputs and government schemes and initiatives, relevant to farmers.
1.3. Creating a digital Mandi by providing broadband/dedicated Internet connectivity 24*7 in agricultural markets.
1.4. Creating a NABL approved lab in each of the 2,500 main market yards.
1.5. GOI should come up with statistically acceptable mechanism of price declaration in the APMC markets. This would help us give a better price than the current ones.
1.6. The states to consider the concept of a unified agricultural market (UAM) on the lines of Karnataka model that leverages NeML Unified Market Platform (UMP). Each state becoming a single agri-market and allowing outside state trade would gradually evolve into a National Agricultural Market (NAM).
1.7. The basic building block of the UAM is a Modern Mandi/Digital Mandi consisting of e-trading, objective quality verification based trade, e-permits and direct farmer payments linked to the trade thus creating a verifiable record for the smallholder farmers. This would make smallholders creditworthy and increase their negotiation power to seek better prices for their produce.
1.8. Linking APMC markets to institutional credit using NeML/UMP e-pledge.
1.9. Integrating UMP in skill development programmes to enhance farmer awareness on market mechanism and their capacity building.

2. Commodity Futures Trading
2.1. Strengthen awareness campaigns across the country about commodity futures trading.
2.2. Leveraging price signals from Commodity futures market as a key input in policymaking.

3. Infrastructure
3.1. Grain Storage: Create Hub & Spoke Model and back end infrastructure as Mandi-level Silos and link with Rail side Silos. To adopt a seamless Integrated Bulk Handling, Storage and Logistics System thus eliminating gunny bags, reducing losses and minimising dependence on labour. To create Port based Silo terminals enabling export or import with low-cost and to promote bulk procurement by notifying Silo Terminals as ‘’Procurement Centres” enabling farmers deliver their produce direct in bulk.
3.2. Need to improve rural roads and bridges for better connectivity to markets.

4. Market Price Support Measures
The central government to create a safety net mechanism for farmers wherein Minimum Support Price should include the storage and logistics costs.
4.2. Forecasting and Buffer Stock Management for pulses.

C) Financial Risk Management

Agriculture Credit
1. RBI/NABARD is to ensure that all farmers with landholdings be entitled to a 5-year tenure KCC (Kisan Credit Card), which is chip-based for swift and secure funds-transfer. For oral lessees and tenant farmers, the Joint Liability Group credit facilities are available. The 5-year KCC tenure takes care of the normal crop cycle of two good crops, two average crops and one bad crop year over the 5-year period.
2. The government should do away with interest subvention scheme on crop loan and take corrective measures to provide institutional credit to small farmers and link them to
the market.
3. Banking and micro finance – Easy, innovative and tailored schemes for the farm sector and computerisation of land records are essential to the farmer. The state governments should try to facilitate the creation of FPOs, JLGs, SHGs and farmer associations to assist farmers.
4. Capital formation through lending in allied sectors should be encouraged
5. External support bodies – banking, microfinance institutions (NBFCs), insurance, private and corporate, agriculture research – should collaborate towards risk mitigation and engage and provide easy outreach to farmers in terms of imparting knowledge, credit accessibility, insurance policies and pay outs.
6. To strengthen the Credit Guarantee and Joint Liability Group concept, it is important for the government to ensure business facilitation.

D) Other Initiatives

Agriculture Credit
1. To set up dedicated 11 KVA lines for agriculture so that efficient electric pump-sets are used for groundwater extraction, instead of using inefficient diesel pump-sets.
2. To consider specific district-level agriculture plans taking into account natural factors and local needs, with a minimum tenure of 5 years rather than uniform policies at the state or central level, as agriculture is a state subject.
3. The central government must set productivity and production levels for each state and each state in turn will set the same for each of its respective districts, with adequate fixing of accountability at all levels.
4. Transforming existing market yards into productive and useful commodity aggregation, segregation, storage and other basic value addition facilities aided by objective quality assessment and trade.
5. GOI should come up with a transparent and statistically acceptable mechanism of price declaration in the APMC markets. This would help farmers get a better price than the current ones.
6. Leveraging price signals from commodity futures market as a key input in policymaking.
7. The Government of India to create a safety net mechanism for farmers where in Minimum Support Price should include the storage and logistics costs.

Rural Indebtedness

Especially after the 1992 economic reforms, it has become difficult for the farmers to secure a decent income from farm operations as the terms of trade since then have squeezed the smallholder farmers who have an average land holding of about 1.4 hectares only. Farmers borrow largely from non-institutional sources (agents/big farmers/moneylenders) as they rarely possess documents relating to land ownership or land tax receipts in their names, as mutation of land holdings have not been registered for ages due to deaths/births in the family. These farmers are denied bank credit at subsidised rates, which are generally preempted by the bigger farmers. Also, women farmers and agricultural labourers are being denied classification as farmers although they cultivate/own small plots of lands and are also denied subsidised credit. So, the big farmers with access to institutional credit take cheap loans and on-lend the same to smallholder farmers at very high rates of interest (as per risk perception). Farmers take loans for seasonal agricultural operations and also to meet family/societal obligations like funerals, marriages, hospitalisation, children’s education etc. Farming being one of the riskiest of operations, insurance should be available to farmers, but most farmers avoid crop insurance and other insurance facilities. And if the monsoons have failed as in the last two Kharif seasons, then farmers fail to repay loans and with mounting interest dues, fall deeper and deeper into debt. Sometimes, farmers are reduced to being bonded labourers for generations due to past debt obligations. The Royal Commission on Agriculture, 1928, was colonial India’s effort to examine and report on the conditions of farmers and the famous phrase “The Indian peasant is born in debt, lives in debt, and bequeaths indebtedness to his successors”, was recorded therein. The Report examined the major causes of indebtedness of Indian farmers and it is distressing to learn that 88 years later, the basic reasons for farmer indebtedness, remain the same. Some of the reasons for indebtedness of Indian farmers are:

  1. Low income
  2. Poverty and lack of education
  3. Unproductive and wasteful expenditure of loans
  4. Inherited debts
  5. Waste of money on litigations
  6. Poor financial inclusion
  7. Poor knowledge of banking facilities and services
  8. Faulty money lending systems
  9. Uncertain monsoons
  10. Wasteful expenditure on social customs
  11. Rising cost of agricultural inputs
  12. Result of past indebtedness
  13. Forced sale of mortgaged lands for non-repayment of dues giving rise to landless labourers
  14. Exploitation by moneylenders
  15. Growing poverty due to lost capacity as labourers
  16. Discrimination in rural societies
  17. Social unrest causing crimes and suicides
  18. Rural societies divided into landlords (Haves) and landless agricultural labourers (Have-nots)
  19. Growing problems of bonded labourers
  20. Overall decline of the Rural Economy
  21. Poor infrastructure as also poor socio-economic development parameters
  22. Political exploitation as farmers are unable to select leaders wisely, due to avarice.

Aadhar Card and Mobile Phones

After the 1992 economic reforms, farmers have suffered and the weaker ones have no way out except to commit suicide. Debt write-offs are regularly touted as a panacea by various state/central governments. But, such announcements play havoc with the bank repayment cycles. Other steps like creation of RRBs and NABARD, revival of Co-operatives, 2007, various agricultural insurance schemes, especially the 2016 version, called the Prime Minster Fasal Bima Yojana (PMFBY) with very low and affordable premium rates (2 per cent for Kharif crops and 1.5 per cent for Rabi crops) would be a boost to the farmers and a good safety net for their risks. The efforts at promoting financial inclusion in utilising Jan Dhan Yojana, the Aadhar Card and the Mobile Phones are noteworthy and will be a boon for the farmers.

The new health insurance and accident insurance schemes and the micro-pension schemes are very important in securing financial inclusion for the farmers. The doubling of farmer incomes by 2022 is also very important if the net income is considered. There must be a mechanism to control the galloping input costs of farmers. At a National Seminar held by the Bombay Chamber of Commerce and Industry at Mumbai in November 2016, some comprehensive

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