The long-awaited bill – Punjab Settlement of Agricultural Indebtedness Bill, 2016 – passed by the Punjab Assembly without any hiccups has turned out to be a damp squib. 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 took 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 (commission agents) normally double as private money-lenders, the challenge is two-fold. First, the entire credit business has to be brought under a regulatory framework that does not allow moneylenders to operate as loan sharks. Although, many private moneylenders swear that the interest they charge is a maximum of 18%, 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%.
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%.
For loans required for non-agricultural purposes, a ceiling of 24% 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.
Procurement operations
I see no reason why the arh-tiyas 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-crore for practically doing nothing. They are paid a commission of almost 2% 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. 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 wilful 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 wilful defaulter his property/ assets should not be seized. 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 loans.