PRABHAKAR KULKARNI | 13 JANUARY, 2020
National Importance of the Maharashtra Experiment
NPAs are an American concept applied without considering the ground reality here
KOLHAPUR: The experiment of the triangular government in Maharashtra is a matter of national importance as its remote controller Sharad Pawar says that the similar experiment can be carried out at the national level in order to oust the BJP. When and how this can be carried out is a matter of remote possibility but as it is being carried out at the state level it is a matter of national curiosity.
Most of the states which have recently formed their governments by alliance with other regional and national parties barring the BJP have focused on the so-far neglected agricultural sector. This is in tune with the states’ responsibility as agriculture is the state subject.
While other states have carried out loan waiver schemes to relieve debt-stressed farmers, an attempt by the new Maharashtra government to resort to a waiver appears to be so defective and partial that farmers have resorted to agitations and strikes in protest, demanding a total loan waiver.
This is because the chief minister Uddhav Thackeray declared a total loan waiver by clearing the loan records on land documents, known as 7/12 documents, as soon as he took charge. But the government’s full page advertisements in regional Marathi newspapers and the government resolution that was issued say that the waiver will be limited to Rs.2 lakhs and limited to crop loans only. This has created disillusion and discontent in the farm sector.
Although nationalised or public sector banks (PSBs) are expected to provide a variety of loans to farmers, as directed by the district collectors during their coordination meetings, they do not offer loans as per farmers’ expectations. Deposits are taken from local depositors in their respective bank branch areas, but loans are not disbursed by the PSBs to local consumers or farmers.
Farmers in particular are not responded to with loan offers though a specific target is given to each of these branches in the coordination meetings.Thus the bulk finance to the farmers is provided by the rural cooperative credit societies, which have now been handicapped by the partial loan waiver offered by the government.
Agriculture is also an industry and should be provided finance as per its requirements by all financial institutions. As in every industry, farming involves investing capital, starting production and then selling a variety of farm products in the market. Land is a capital asset in agriculture, and after sowing and other operations by way of self-employment, or by engaging labour or on a crop-sharing basis, farmers bring a variety of products to the market.
Hence, all facilities given to industry should be given to agriculture as well. For instance, credit ratings as per the land asset value, loans as required in the form of crop and term loans, and cash credit facilities on the basis of development projects.
More than one bank should be allowed to offer loans, similar to the facility accorded to industry under ‘consortiums of finance’. Nationalised banks offer loan waivers known as ‘haircuts’ to borrowers in the industrial sector—similar waivers should also be offered to the farm sector. Timely relief to the sick agriculture sector should be given as per the norms of various relief measures provided to sick industries.
The farm crisis is aggravated the more the system of non-performing assets or NPAs is made applicable to all loans:
The concept of the NPA is applicable to all loans if instalments are more than 90 days overdue. This is an American concept that the government has applied to India without considering the ground reality here. Regular payment of monthly instalments is possible only if borrowers have an assured monthly income, as is the case with regular monthly wage earners in all government or other secured jobs. In the case of farmers or other professionals who have no monthly fixed income, and are exposed to market fluctuations or other professional hazards, no condition of NPA should be made applicable.
This is safely ignored by rulers and planners in India.
The NPA tag has created a crisis before farmers and lending institutions, both in cooperative banking and other financial sectors. Outstanding loans are blacklisted under NPA and face recovery as per NPA norms. While the Maharashtra government has a declared waiver of Rs.2 lakhs for crop loans, the actual payment will be delayed up to March 2020. This means the NPA tag of all loans remains, and banks or rural cooperative credit societies are facing a crisis as the NPA tag blocks all transactions in the said loan accounts, and the lending institutions are then blacklisted due to NPAs.
The NPA tag has blocked the disbursal of crop loans, even those sanctioned by the banks and rural credit societies. If crop loans are thus blocked, how will the waiver of crop loans materialise?
This is the reason why all outstanding loans in the farm sector should now be stayed, so that the NPA tag will be removed and transactions which are blocked will continue until a total loan waiver is considered in due course for clearing farmers’ 7/12 documents. The Maharashtra government has failed to do this.
The union government seems to be silent on this vital issue and state governments should take it up on a priority basis. Agriculture being a state subject, all state governments are expected to form liberal and farm-friendly policies so that no organisations or financial institutions are able to discard or dismiss farmers’ due proposals.
Even branches of nationalised banks should follow the policy laid down by the respective state government instead of resorting to the pretext that they are controlled by the RBI or the union government.
The state government can if necessary enact state laws for the purpose, for if nationalised banks want to operate in state areas they are legally bound to follow state laws and the rules or norms laid down by the state government.
There is no sign of doing this. Since forming the government the Shivsena, Congress and the Nationalist Congress Party led by Sharad Pawar are still fighting over ministerial portfolios, protocol and other comparatively minor issues, while other pressing issues are lagging behind without any prompt action.
Prabhakar Kulkarni is a senior journalist