How to Achieve Low Agriculture NPAs : Lessons from Gujarat

Who gains, who loses? Where does the money come from, where does it go? Trickle down? Gush up? Do the math.  ...

Persis Ginwalla[1]

Sagar Rabari[2]

The farmers of Gujarat are debt-free, it is claimed. How true are the claims? How do Banks manage to recover loans? The attached note examines the issue of farmers’ credit worthiness in Gujarat and articulates the farmers’ demands.

Recently the Finance Minister of Gujarat, Shri Nitin Patel, claimed that “the farmers in Gujarat has no debt.” ( A Bankers’ Association annual report also gives the following figures (see Table) and clearly the NPA under “Crop Loan’ is a mere 2.54% of the outstanding amount. The farmers’ ability to pay back the loan amounts is proof of the earnings that farmers are realizing in Gujarat and their prosperity, it would imply.

Gross Advances of Banks in Gujarat, NPA and % NPA to outstanding (for the quarter ended December 2016)

(Amount in Rupees crores)


Amount outstanding

Amount of Gross NPA

% NPA to Outstanding

  1. Crop loan




  1. Agri. Term loan




Total Agriculture




  1. MSME




  1. Other PS




Total Priority Sector




  1. Non Priority Sector




Total Advances




Source: State Level Bankers’ Committee Report for quarter ended December 2016.

If only it were true, which alas, is not the case. As it turns out, the low NPAs are a feat of accounting wizardry, which also hides a grim underbelly. 

Persis GinwallaThe Kisan Credit Card loan, which most farmers of Gujarat avail of, entitles the farmer to a loan amount on which the GoI gives an interest subsidy of 4% if the principal amount is paid back in time, failing which they forfeit the interest subsidy and have to pay the full interest amount (7%).

Given the fact of low prices of agricultural commodities, low procurement at MSP, and minimal value-addition the farmers are almost never left with a surplus from which to repay the loans. But repay they do; solely to avail of the 4% interest subsidy. Without doing the simple math, they borrow the amount from private moneylenders for a few days. Having repaid the bank amount thus, within 4-5 days they will again take a new loan from which they will pay back the private moneylender, additionally paying 2-3% interest for a full month to the moneylender. The loan having been paid up it does not show up as NPA. Viola!!

Sagar RabariBesides, in order to reduce the burden of usurious loans, the farmers also do not prefer to wait for the price of the agricultural commodity to appreciate and would sell it soon after harvest, when prices are usually low. Secondly, even if they choose to wait for a while before selling the produce they cannot. There is not enough by way of agriculture infrastructure – godowns, warehouses, cold storages – for the farmers to store their produce in the interim. Sensing the helplessness of the farmers the wholesalers’ cartel can and do cap the procurement ceiling to the lowest possible amount.

The crop insurance premium is also cut at source, and the actual debt would be: 7% interest + insurance premium + interest on private debt. The total would be in the vicinity of 13%. Moreover, the interest subsidy accrues to the farmer when the Bank receives it from the government.

All in all, the objective of the subsidy is being nullified thus; the subsidy amount gets devoured by usury. But more importantly, it allows for a fiction to be floated i.e. the farmers are prosperous, being able to pay the loan amount resulting in low NPAs. The real issues – usury, exploitation, poor returns on agriculture, imperfect financial inclusion, lack of agricultural infrastructure, impoverishment of the farm sector – remain hidden behind the mask of “low NPAs”. While private debt keeps accumulating, the Bank tots up the track record of maximum credit repayment compliance. The Finance Minister’s statement has to be appreciated in this context.

Their experience with crop insurance is as bad. They are rarely compensated for crop losses (due to insufficient or irregular rain or insects …) despite the premium being paid to the insurance companies. Figure this: Government pays the premium to the insurance companies directly, the insurance companies rarely ever survey the crop loss or damage and rarely disburse the compensation. Who gains, who loses? Where does the money come from, where does it go? Trickle down? Gush up? Do the math.  

The farmers of Gujarat, reeling under the cumulative effects of insufficient rain, lack of irrigation, low returns on yields and demonitisation, are demanding that: a) their loans be waived off, b) failing which, GoI should extend the time limit for loan repayment without cancelling the subsidy eligibility, and, c) disbursement of crop insurance.

But who listens?

[1] Persis Ginwalla is a development sector professional and a land rights activist in Ahmedabad, Gujarat.

[2] Sagar Rabari is an activist associated with the land rights struggles in Gujarat and India and is Secretary, Khedut Samaj – Gujarat, Ahmedabad.

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