He delayed it as long as he could but when he realised that he had no other option, 33-year-old Pandurang Shinde swallowed his pride and asked his relatives for a loan in June. “It is not the best feeling,” he said. “But I was running out of time.”

“I borrowed Rs 50,000 – I needed that money for the cropping season starting in June,” he said.

Crop loans are critical for the agrarian cycle and are used to fund the purchase of farm inputs – seeds, fertilisers, pesticides and so on – ahead of the cropping season. A small farmer from Vadi, a village in central Maharashtra’s Parbhani district, Shinde had applied for a crop loan in May this year, but it had not come through because he had a pending loan.

Shinde is not alone. Several farmers across Maharashtra have missed out on crop loans this kharif season, according to the data available on the website of State Level Bankers Committee – an inter-institutional forum that includes state and central government officials. The targeted disbursement of crop loans in Maharashtra for the 2020 kharif season was Rs 45,785 crore ($6.2 billion). But until the end of August, the figure stood at Rs 29,511 crore ($4 billion), or 64% of the target.

In the agrarian regions of Marathwada and Vidarbha – worst-hit by the agrarian crisis – the disbursement stands even lower at 53% and 61%, respectively. Against the targeted disbursement of Rs 11,992 crore ($1.6 billion) among Marathwada’s farmers, banks have only given out Rs 6,342 crore (53%) ($860 million). In Vidarbha, where the targeted crop loan disbursement was Rs 12,928 crore ($1.8 billion), banks have given out Rs 7,897 crore ($1.1 billion).

This is the third consecutive year when farmers have struggled to access crop loans because they have outstanding debts – in the first two years, the farm loan waiver process was not implemented properly and this year, the pandemic halted the process.

Shinde had an unpaid loan of Rs 28,000, half of which was recently waived under the farm loan waiver scheme. “The bank manager said he could issue a crop loan only when the remaining amount too is waived,” he said. “I am eligible for the waiver, but the bank said it is waiting for an approval from the state.”

More than 5 million households in Maharashtra, or 37% of its rural population, depends on cultivation for a living. With no access to organised loans from banking institutions, poor farmers are forced to borrow from private moneylenders who charge interest at exorbitant rates. The increasing unviability of agriculture ensures farmers never make enough and are pushed deeper into the debt trap with every season.

This is one of the main reasons why Maharashtra reports the most number of farm suicides in India, a problem the government has acknowledged by announcing loan waivers, which, however, only apply to formal loans taken out from banking institutions.

Farming is a time-bound business so delayed crop loans are useless. Amit Dave/ Reuters

Timely crop loans are critical

Crop loans are a major component of the agriculture credit that the government extends to the farmers and industries allied with farming, through District Central Cooperative Banks, Regional Rural banks and commercial banks. They are disbursed twice a year: the kharif season starting June and the rabi season cultivated post-November.

For crop loans of up to Rs 3 lakh, farmers repaying in time get an interest subvention of 3% out of 7% per annum – that is, an interest rate of 4%. The state government provides a further 2% interest subvention, said SJ Karegaonkar, lead bank manager, Bank of Maharashtra in Aurangabad.

“Therefore, the crop loans up to Rs 1 lakh are issued at effectively no interest rate while loans between Rs 1 lakh to Rs 3 lakh are extended at an effective interest rate of 2%,” he said.

Farming is a time-bound business so delayed crop loans are useless, said Shinde, who cultivates a 1-acre sugarcane farm and a 2-acre cotton field. “To be able to get a decent yield, we need to stick to the time-table,” he said. “Sowing has to happen around mid-June or July first week, depending on when the monsoon arrives.”

“A month before that, we need to prepare the farmland,” he said. “So we need to be ready with the inputs.”

For an acre of sugarcane, a 12-month crop, Shinde needs to invest Rs 35,000. “But the returns are also good if everything goes well,” he said. “At the end of the season, you can make around Rs 1 lakh.”

“It is also relatively easy to sell sugarcane since we sell it directly to sugar factories and not government agencies,” he said.

Cotton, though, is trickier. “An acre of cotton requires Rs 15,000 or so of investment,” said Shinde. “But the crop is sensitive to erratic weather patterns.”

“You never know what the outcome would be until you harvest your crop after six months,” said Shinde. “Also, most of the time we end up selling cotton to middlemen at lower prices and not government agencies.”

“If you have access to crop loans, you can at least be prepared in time,” he said. “This year, I had to rush because I borrowed money at the last moment.”

Crop loans became even more critical for farmers’ survival this year when a lockdown was announced on March 24 by Prime Minister Narendra Modi to contain the spread of the novel coronavirus.

Manik and Hirabai Dhakne from the village of Aswalamba in Beed district – just under 100 km from Parbhani – had planted bhindi (okra) in March as their summer crop on their 2-acre farm. “I had invested Rs 40,000 and ended up making Rs 3,000,” said Manik, 35. “Because of the lockdown, prices had crashed.”

“There was no stock in the market,” Manik said. “Hardly anybody could transport it.”

“I had harvested the crop in April when everything was at a standstill,” Manik said. “I was hoping to make up for that loss this season. But I had my crop loan rejected as well.”

Poor waiver enforcement

Comparative data on the State Level Bankers Committee website indicates when the disbursement of crop loans started shrinking.

In 2014-15, Maharashtra achieved 86% of the targeted crop loan disbursement with Marathwada and Vidarbha standing at 78% and 75%, respectively. The year after that, the banks improved their performance and achieved 92% of their target. Marathwada and Vidarbha clocked 91% and 82%, respectively. In 2016-17, the numbers dropped a bit but still hit 82%.

However, in 2017-18, the numbers sharply dropped with banks only disbursing Rs 25,322 crore ($3.5 billion) of crop loans against the target of Rs 54,220 crore ($7.4 billion, 47%). In Marathwada and Vidarbha, the percentage of disbursement was even worse – 30% and 37%, respectively.

Since then, crop loans have been sliding. In 2018-19, the crop loan disbursement marginally increased to achieving 54% of the target in the state and then again, in 2019-20, it dropped to 48%.

So what happened in 2017-18 to precipitate this decline in crop loan disbursement? In June 2017, then chief minister of Maharashtra, Devendra Fadnavis, announced the “biggest ever” farm loan waiver of Rs 34,000 crore ($4.6 billion). However, the waiver’s prolonged enforcement over the next two years did not allow bank officials to disburse crop loans like they once did. The State Level Bankers Committee report of 2018 states that the “low credit off-take this year can be attributed to the announcement/implementation of farm loan waiver scheme by Government of Maharashtra”.

The bankers could not extend crop loans to farmers until the state cleared their existing dues, said Devidas Tuljapurkar, joint secretary of All India Bank Employees Association. “The bank receives a list of farmers that are eligible for the loan waiver; bankers proceed to clear their accounts and then issue fresh crop loans,” Tuljapurkar said. “But the implementation of the waiver was so shoddy that it had not been concluded even after two years. So that affected the crop loan disbursement.”

Two years after the announcement of the loan waiver, Maharashtra had a new government led by Uddhav Thackeray. He announced a new farm loan waiver scheme in December 2019 but three months later, the novel coronavirus struck.

On May 22, the state government issued a circular, pointing out it has reached out to 1.9 million farmers but “the revenue of the state has dried up due to the pandemic”. “Therefore, it would not be immediately possible to release the remaining money for the loan waiver,” said the circular. “However, the farmers that are eligible for a loan waiver but have not received it yet should be extended crop loans. The banks should mark their amount as ‘to be received from the state government’.”

In the absence of reliable financial institutions in rural Maharashtra, farmers have no option but approach private moneylenders who charge exorbitant interest rates.Photo credit: AFP

Credit rating hurdle

However, despite the state government circular, crop loan disbursement has been sluggish, as we said earlier. Banks are not accountable to the state government since they come under the purview of the Reserve Bank of India, an autonomous institution. They could only have issued loans through an RBI directive or a legally binding circular issued by the state government, but commercial banks themselves are not keen on crop loans because they do not make for good business, said Tuljapurkar.

“The credit system in rural areas is weak,” said Tuljapurkar. “Commercial banks are not keen to operate in economically marginalised areas while cooperative banks are not financially sound. The farmers end up paying the price.”

Manik said his loan was rejected only because his creditworthiness, as per the score issued by Credit Information Bureau India Limited, is not good. “Which farmer would have a great CIBIL record, sir?” he asked. “Most of us have had a loan on our head at some point in time. My record is bad because 12 years ago I had bought an auto-rickshaw and that investment did not end well.”

“I do not have the auto anymore,” he said. “It took a while for me to repay the loan. It reflects poorly on my record.”

“I have tried to reason with them but bankers do not treat us well,” he said.

Farmers are being denied crop loans for the minutest of discrepancies while rich industrialists get crores of rupees despite disastrous track records, complained Ashok Bhutada, a farm leader based in Vidarbha’s Yavatmal town. “Why cannot we use the same yardstick for all?” he asked. “Banks rarely checked farmers’ CIBIL records before issuing crop loans. This is a new thing.”

Back to moneylenders

In the absence of reliable financial institutions in rural Maharashtra, farmers have no option but approach private moneylenders who charge exorbitant interest rates. Even though Maharashtra has the Money-Lending (Regulation) Act of 2014 that requires moneylenders to be licensed, and caps the interest rate at 12% per annum, it is rarely put to use.

Private moneylenders are often strongmen with links to local police and politicians. Manik knows that well. He has borrowed Rs 50,000 from a private moneylender at a monthly interest rate of 5%, or 60% per annum, in the absence of a crop loan. In 20 months, his interest would be as much as the principal amount.

To repay the debt, both Hirabai and Manik have been doubling up as agriculture labourers. “I get Rs 125-150 per day,” said Hirabai. “He gets Rs 300 per day. We have two children aged 10 and 12.”

“We need to save up for their education, he said. “But before that, we need to repay the moneylender’s debt.”

Manik is hoping for a decent sugarcane and cotton yield this season. “I need good returns on my crops so I can repay my debt soon,” he said. “You cannot afford to mess with the moneylenders.”

This article first appeared on IndiaSpend, a data-driven and public-interest journalism non-profit.