Printed at Karnatak Orion Press, Mumbai - 400 001. Tel.: 2203 8843 / 4578 Report oftheExpertGr Agricultural Indebtedness Government ofIndia Ministry ofFinance July 2007 oup on Report of the Expert Group on Agricultural Indebtedness Banking Division Department of Economic Affairs Ministry of Finance Government of India July 2007 REPORT OF THE EXPERT GROUP ON AGRICULTURAL INDEBTEDNESS We, the undersigned, Chairman and the Members of Expert Group on Agricultural Indebtedness have adopted the Report and submit the same CHARIMAN R. RADHAKRISHNA : MEMBERS P.V. SHENOI : Y.S.P. THORAT : KANTHA KUMAR : ii CONTENTS Adoption Page.......................................................................................................................... ii Contents .................................................................................................................................. iii List of Tables........................................................................................................................... v List of Figures ........................................................................................................................ vii Preface .................................................................................................................................... ix Recommendations ................................................................................................................... 1 1 Agrarian Crisis in India ......................................................................................................... 13 2 Agricultural Credit in India .................................................................................................... 35 3 Indebtedness of Farmers ..................................................................................................... 57 4 Farmers’ Distress, Relief and Rehabilitation ....................................................................... 71 5 Tasks Ahead.......................................................................................................................... 83 Annexure A List of 100 Agriculturally Less Developed and Distressed Districts .................................. 11 1 Government of India Order on Formation of ...................................................................... 99 The Expert Group on Agricultural Indebtedness 2 Permanent Invitees, Drafting Committee and Sub-Groups Constituted by ..................... 101 The Expert Group 3 List of Sub-group Reports and Papers Submitted to The Expert Group........................ 105 4 Presentations Made to The Expert Group ........................................................................ 107 5 Meetings of The Expert Group and Drafting Committee ................................................. 109 iii LIST OF TABLES No Title Page 1.1 Share of Agriculture in GDP and Employment 15 1.2 Distribution of Workers by Broad Groups of Industry: Rural India 16 1.3 Certain Key Characteristics of Operational Holdings 16 1.4 Changes in the Size Distribution of Operational Holdings and Operated Area: 17 1960-61 to 2002-03 1.5 Net Irrigated Area by Sources 18 1.6 Use of Energy for Irrigation by Source across States 18 1.7 Growth of Gross Domestic Product (GDP), Sectoral GDP and Per Capita Income 23 1.8 Growth of Agricultural GSDP and GSDP across States 24 1.9 Growth of Area, Production and Yield of Major Crops in India: 25 1980-81 to 2003-04 1.10 Per Worker Productivity in Agriculture and Non-Agriculture – 26 Various States: 2004-05 1.11 Gross Capital Formation (GCF) in Agriculture at Current Prices 31 1.12 MPCE for Farmer Households and All Rural Households by Item Group: All-India 32 1.13 Number of Poor and Undernourished Persons in Various Farm 33 Categories in Rural India 2.1 Source-wise Institutional Credit Flow to Agriculture: 1975-76 to 2005-06 36 2.2 Share of Cooperatives in Total Agricultural Credit in India 37 2.3 Financial Results of Cooperative Credit Societies: All-India 38 2.4 Distribution of Scheduled Commercial Banks’ Credit to 42 Farmer Households According to Size of Holdings 2.5 Region-wise Distribution of Outstanding Farm Credit and Farmer Households 43 2.6 Classification of Districts by Range of C-D Ratios across Regions/Selected States 43 2.7 Trends in Agricultural Credit Flow at Current Prices 44 2.8 Performance Indicators of RRBs 46 2.9 Cumulative Sanctions and Disbursements of RIDF Under Different Tranches 49 (As on 31 March 2005) v No Title Page 2.10 Region-wise Sanction and Disbursement Under RIDF 50 2.11 Measured Gap Between Default and RIDF Allocation for all 51 Domestic Scheduled Commercial Banks 2.12 Progress of SHG-Bank Linkage Programme 52 3.1 Incidence of Indebtedness in Major States: 2003 58 3.2 Share of Debt of Cultivator Households from Different Sources: 1951-2002 60 3.3 Distribution of Debt by Sources across Major States: 2003 61 3.4 Incidence, Amount and Source of Indebtedness by Size Class of Holding: 2003 62 3.5 Non-institutional Debt for each Size Class of Holding across States: 2003 64 3.6 Distribution of Debt by Interest Rates and Source for 65 Cultivator Households: 2002 3.7 Distribution of Debt by Purpose among Rural Cultivator Households: 1961-2002 66 3.8 Distribution of Debt by Purpose across Major States: 2003 67 3.9 Institutional Share in Annual Cash Borrowings 68 4.1 Financial Allocation of Prime Minister’s Relief Package 75 4.2 Allocation and Achievement under the Assured Irrigation Component of 77 Relief Package: 2006-07 vi LIST OF FIGURES No Title Page 1.1 Rate of Surplus over Cost (A2+FL) in Paddy: Punjab and Haryana 20 1.2 Rate of Surplus over Cost (A2+FL) in Wheat: Punjab and Haryana 21 1.3 Farm Business Real Income deflated by Consumer Price Index for 22 Agricultural Labour (CPIAL) 1.4 Monthly Income and Total Consumption of Farm Households by 22 Size of Holdings - All-India: 2002-03 1.5 Per worker Productivity in Agriculture 25 1.6 Index of Terms of Trade Between Agriculture and Non-agriculture 27 1.7 Agricultural Exports and Imports 29 2.1 Share of Cooperatives, RRBs and Scheduled Commercial Banks in 37 Total Agricultural Credit: 1975-76 to 2005-06 2.2 Share of Agricultural Credit in Total Scheduled Commercial Banks’ Credit 40 2.3 Size of Holdings and Average Amount Outstanding Per Loan Account 41 (Short-term plus Long-term Loans) 3.1 Distribution of Debt by Sources across Major States: 2003 60 3.2 Average Outstanding Debt by Size Class of Holdings 63 3.3 Distribution of Debt by Source across Size Class of Holdings 63 3.4 Distribution of Debt by Purpose across Major States: 2003 67 4.1 Suicide Mortality Rate for Male Farmers and Male 72 Non-Farmers in India:1996-2005 4.2 Suicide Mortality Rate for Male Farmers and Male Non-Farmers in 73 Selected States: 2001-05 4.3 Distribution of Risk Factors in Maharashtra 73 vii PREFACE There has been a distinct slow down in agricultural growth during the past two decades, in spite of substantial acceleration in the growth of the Indian economy. The slow down is accompanied by a significant reduction in the share of agriculture in national product, but without much reduction in the share of workers depending on it for their livelihood. The two faces of the emerging distress are the manifestation of agrarian crisis that threatens the livelihoods of farmers, particularly those of the small and marginal ones; and the agricultural development crisis of reduction in its overall growth rate accompanied by declining profitability. The support systems to farming have weakened, public investments in agriculture have declined and institutions have become unresponsive. In the absence of any breakthrough in cost reducing technologies, the rising input prices have made cultivation un-remunerative. The result is the manifestation of agrarian crisis, often, in the extreme form of distress that results in suicides by some farmers. Though there are a number of factors behind the present agrarian crisis, it is the growing indebtedness that compels attention. It is declining earnings that results in the inability to repay debt that triggers farmers’ decision to commit suicide. Hence, indebtedness of farmers becomes a central issue to be addressed. It is in this context that the Government of India has appointed this Expert Group to examine the indebtedness of farmers in its totality with a view to designing and implementing effective policies, programmes and instruments of intervention. The Expert Group set about its task in full recognition of the fact that indebtedness of farmers in India is as diverse and heterogeneous as are the agrarian conditions. There are wide regional, institutional, class and community differences in the nature and magnitude of farmers’ indebtedness. The resource base of agriculture varies from region to region. The levels of access to technology also vary. There are large areas where there is an institutional vacuum. The nature of interventions has to be informed by these differences as well as by agro-climatic diversities. To meet the challenge of comprehending the diversity in indebtedness, the Expert Group started its work by constituting regional sub-groups so as to assess the situation in each of the states in these regions. A series of consultations were held with national and regional institutions which are working at the frontier of technologies such as remote sensing and application of information technology to banking operations; national commodities exchanges; agricultural insurance providers; and agricultural export promoting agencies.