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Seminar on Agricultural Debt Waiver – Efficacy and Limitations (Opening remarks by Urjit R. Patel, Governor, Reserve Bank of India, August 31, 2017, Mumbai)

News and Press Release - Dated:- 1-9-2017 - Ladies and Gentlemen, On behalf of the Reserve Bank of India, I warmly welcome you and thank you for accepting our invitation to join us today in this seminar. 1. In the recent period, farm loan waivers have engaged intense attention among the farming community, policy makers, academics, analysts and researchers. On the one hand, there is a gamut of issues that have intensified the anguish of our farmers. In this context, farm loan waivers have brought .....

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around 15 percent of GDP, 11 per cent of our exports and provides livelihood to about half of India's population. The importance of the sector from a macroeconomic perspective is also reflected in a significant flow of bank credit to finance agricultural and allied activities relative to other sectors of the economy. Outstanding bank advances to agriculture and allied activities have risen from about 13 per cent of GDP originating in agriculture and allied activities in 2000-01 to around 53 .....

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et bank credit (ANBC) or credit equivalent amounts of off-balance sheet exposures, whichever is higher, to agriculture. Under this carve-out, 8 per cent is prescribed for small and marginal farmers. Even foreign banks with 20 branches and above have to achieve this target within a maximum period of five years starting from April 1, 2013 and ending on March 31, 2018. The share of outstanding advances to agriculture and allied activities in total priority sector advances has increased from 32.5 pe .....

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rt term crop loans of up to ₹ 3 lakh to farmers at a concessional rate of 7 per cent. Timely repayment is incentivised by an additional subvention of 3 per cent. The scheme also encompasses other benefits, including post-harvest loans for storage in accredited warehouses against Negotiable Warehouse Receipts (NWRs) for upto six months for Kisan Credit Card (KCC) holding small and marginal farmers at a concessional rate of 7 per cent in order to avoid distress sales. During 2017-18, the Cen .....

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he provision of ₹ 15,000 crore originally made in the Union Budget (Table 1). During 2016-17, the volume of short term crop loan lent stood at ₹ 6,22,685 crore, surpassing the target of ₹ 6,15,000 crore. Table 1: Interest subvention for providing short term credit to farmers (₹ crore) Year Amount of subvention 2009-10 2,011 2010-11 3,531 2011-12 3,283 2012-13 5,400 2013-14 6,000 2014-15 6,000 2015-16 13,000 2016-17 (RE) 13,619 2017-18 (BE) 20,339* (15,000) * On June 14, 2 .....

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put in place a scheme under which five lakh Joint Liability Groups of Bhoomi Heen Kisan (landless farmers) will be financed through the NABARD in order to augment flow of credit to landless farmers cultivating land as tenant farmers, oral lessees or share croppers and small/marginal farmers as well as other poor individuals taking up farm activities, off-farm activities and non-farm activities. The experience of catalysing bank credit flows to agriculture and expanding the panoply of subvention .....

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atility. It has perennially been characterised by low investment, archaic irrigation practices, monsoon dependence, fragmentation of land holdings and low level of technology. Lack of property rights and low initial net worth of farmers add to the constraints. Consequently, considerable flux in output and prices is common, imposing large losses on farmers and potentially imprisoning them in a circle of indebtedness with disturbing frequency. Therefore, in the absence of coordinated and sustained .....

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and debt relief scheme (ADWD) of 2008 amounting to ₹ 52,000 crores (0.9 per cent of GDP) or ₹ 81,264 crores at current prices using the GDP deflator. Unlike the 1990 scheme that aimed at providing blanket relief to all farmers up to a certain loan amount, the 2008 scheme waived debt for certain classes of cultivators1. In 2014, Andhra Pradesh and Telangana announced farm loan waiver of ₹ 24,000 crores and ₹ 17,000 crores, respectively. Beginning with Tamil Nadu in 2016, .....

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ide effects in the form of faulty targeting of beneficiaries and resulting discrimination, incentivising wilful defaulters, and erosion of credit discipline have been cited. I am pleased to note that several luminaries driving the evolution of these ideas are present here today. Rather than attempting an uninformed evaluation, I am personally looking forward to the guidance of experts present here on various issues that intermingle around the subject. 9. Let me now turn to the other side of deba .....

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revenue expenditure. This, in turn, has to be financed by additional market borrowings which pushes up interest rates, not just for the States but for the entire economy. A collateral damage is that private borrowers are crowded out of the finite pool of investible resources as the cost of borrowing rises. Even if the loan waiver is accommodated within budgetary provisions, it will force cutbacks in other heads of expenditure. Experience has shown that the most vulnerable category is capital ex .....

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delays and material damages - go up as a result of capacity constraints becoming even more acute and attendant congestion charges . If, on the other hand, budgetary provisions are exceeded, higher spending and widening of the fiscal deficit have, as experience has shown, inflationary consequences, and possible spillovers that could undermine external viability (the twin deficit argument). Also, research points to adverse welfare effects because, ultimately, loan waivers involve a transfer of res .....

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