Upper caste farmers stand to gain more from loan waivers -Roshan Kishore

-Hindustan Times

Access to formal credit can be a major game-changer in determining farm-incomes. It is to be expected that richer farmers would find it easier to avail of formal credit lines.

What ails Indian farmers? The answer to this question is often mired in ideological quarrels. Some blame a lack of reforms in agricultural markets, while others accuse the state of not doing enough to support farming. Systemic issues are often ignored during such polarised exchanges. Unequal access to credit is one such issue.

In 2013, more than a fourth of the total credit taken by Indian farmers came at interest rates of 36% per annum (pa). This is because these loans had been taken from private money lenders (PMLs) instead of formal financial institutions. With the climatic uncertainties associated with agriculture in India, the downside risks of such highcost credit can be devastating.

Access to formal credit can be a major game-changer in determining farm incomes. It is to be expected that richer farmers would find it easier to avail formal credit lines. Land is among the most commonly used collateral for farm-credit. Given the fact that nature of landownership follows caste-hierarchies in India, upper caste farmers have an inbuilt advantage on this count.

Is this advantage only economic in nature though? An Economic and Political Weekly paper by Chirala Shankar Rao, an assistant professor at the Council for Social Development, Hyderabad, suggests that this might not be the case.

The paper is based on calculations using unit-level data from the 2013 All India Debt and Investment Survey of the National Sample Survey Office (NSSO). This is the latest available data. It gives a break-up of credit from three main sources: scheduled commercial banks (SCBs) and cooperatives among formal sources, and private money lenders (PMLs) among informal sources; by caste and class (by size-class of operated land) among Indian farmers.

These three sources account for more than two-thirds of all loans taken by farmers.

Almost half (45.8%) of India’s farmers are from Other Backward Classes (OBCs). Scheduled Tribes (ST) and Scheduled Castes (SC) comprise of another 14.5% and 13.5%, while others (upper castes) have a share of 26.1%. More than 85% of India’s farmers are either small (0.1 to 1 hectare) or marginal (1.1 to 2 hectares) in nature. The share of semi-medium (2.1 to 4 hectares), medium (4.1 to 10 hectares) and large (greater than 10 hectares) farmers is 10%, 4.2% and 0.6%, respectively.

As is to be expected, loans from PMLs have the biggest share in the credit portfolio of farmers with low land ownership. As they are unlikely to have anything to offer in terms of collateral, formal sector credit would be difficult to come by. Since SCs have the biggest share of such farmers, the share of PMLs in their credit portfolio is also the highest.

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