Apr 6, 2016

Punjab's farm indebtedness bill is a non-starter.

A 40-year-old farmer, Pargat Singh, from Mansa in Punjab had committed suicide a week ago. According to news reports he owned 1.5 acres of land and had taken another 7 acres of land on lease and was allegedly under a debt of Rs 14-lakh. When asked the reason for his death, his wife Narinder Kaur said he was could “no longer bear the humiliation”. 

Pargat Singh is among the 3 to 4 farmers on an average in Punjab who end up committing suicide every day. I therefore wonder whether the long-awaited bill – Punjab Settlement of Agricultural Indebtedness Bill, 2016 – passed by the Punjab Assembly recently without any hiccups will help farmers find an amicable way to settle their dues without leaving any reason that drives them to take their own lives.

I therefore looked at the indebtedness bill very carefully. Expected to provide a one stop solution to the worsening agrarian crisis, plagued by rising indebtedness, the bill fails to nip the evil in the bud.

The expectations from this bill were huge. Considering that it has taken 15 years for the policy makers to come up with a law that was expected to regulate the non-institutional agricultural debt, and provide a speedier settlement of debt-related disputes, the bill is a big disappointment. Effectively all it has managed to do is to pass on the burden from the civil courts to district-level debt settlement forums and a state-level agricultural debt settlement tribunal for settlement of non-institutional debt up to a limit of Rs 15 lakh.

Once the new bill becomes an Act the pending cases in civil courts will be transferred to the forums thereby lessening the burden of the courts.

With the extent of farm indebtedness doubling in the past 10 years, quite a significant proportion of it being non-institutional, the focus on a regulatory mechanism that provides for a fair credit structure for farmers, tenant farmers and farm labourers was the crying need. In Punjab, where arhtiyas normally double as private money-lenders, the challenge is twofold. First, the entire credit business has to be brought under a regulatory framework that does not allow money-lenders to operate as loan sharks. Although, many private money-lenders swear that the interest they charge is a maximum of 18 per cent, this is often disputed by farmers. I have often met farmers and tenant farmers who have outstanding loans pending required to be paid back with an interest of 36 to 50 per cent.

To ensure that farmers are not overtly exploited by the moneylenders, there has to be a cap on the maximum rate of interest that can be charged. For a short term crop loan, the interest should not be allowed to exceed 18 per cent. For loans required for non-agricultural purposes, a ceiling of 24 per cent should have been imposed. But under the new bill, the government has evaded any such responsibility and has very cleverly announced that the interest rate will be announced annually and would be linked to repo rate that RBI announces from time to time. Considering that the repo rate is periodically revised every six months or so, sometimes by as many as four times a year, how will the interest rate be fixed annually remains a question. In any case, the floating rate of interest like in an EMI cannot be expected to work for non-institutional farm loans.

I see no reason why the arhtiyas should complain. After all, as per a study done by Punjab Agricultural University, the 20,000-odd arhtiyas in Punjab annually get roughly Rs 1,000-crores for practically doing nothing. They are paid a commission of almost two per cent for undertaking procurement operations on behalf of FCI. The SAD government had lobbied hard with the centre for not allowing the FCI to make direct payment to farmers instead.

To say that the lender will issue a passbook to the loanee, which has to be duly filled to enable the debt forums to speedily decide a case is easier said than done. Since most transactions are in an informal format, it is futile to expect that the passbook will contain genuine details. Farmers, tenant farmers and farm labourers have a very close working relationship with arhtiyas and it will be practically difficult for them to disrupt the association by making a counter-claim before the forums.

Secondly, the bill is quiet on the recovery mechanism. To state: “recovery of the loan will be on a par with the decree passed by civil courts” is a simple attempt to bypass the most contentious of the recovery provisions. A majority of the farmers take to suicides not because of their inability to pay back in time but are unable to withstand the humiliation that comes in the name of loan recovery. 

Like the much publicized recent Tamil Nadu case where police thrashed a farmer and snatched his tractor by way of recovery, such instances are aplenty in Punjab. In many cases, moneylenders have taken control of land belonging to a farmer failing his inability to repay loan. Confiscating movable property, including tractor and farm equipment, is a usual practice.

I see no reason why the bill couldn’t have made it illegal for the creditors to seize movable and immovable assets belonging to a farmer. It should only be left to the state tribunal to take a final call on that. After all, till the time Vijay Mallya was declared a willful defaulter, the banks did not auction his mortgaged property. In the case of farm recovery also, till the time the state tribunal declares a loanee a willful defaulter his property/assets should not be seized. I have seen even the Micro-finance Institutions (MFIs) recovering loans (or seizing assets) literally over dead bodies. In Andhra Pradesh, many widows whose husband had committed suicide gave horrifying details of how the MFI agents had forced them not to cremate the dead body till the weekly installment was paid. 

Making it illegal for the creditors to seize the assets of a farmer who has defaulted will be a significant step in reducing the spate of farm suicides being witnessed. This step alone is the single most important reform required for non-institutional as well as institutional loans. 

Big Disappointment. Orissa Post. Mar 29, 2016

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