01-05-2025
Why are bad debts rising in Maharashtra's farm sector
Just five years after the last farm loan waiver in Maharashtra, demand for another such debt relief is gaining momentum.
Farmers and farm leaders say lower-than-expected farm incomes have left them with little money in hand, leading to a rise in bad loans. A 'bad loan' is basically a loan that has not been repaid even after the grace period for repayment has expired.
What are crop loans and how do they help farmers?
Farm loan or crop loan refers to the short-duration finance extended to the farm sector before the start of the agricultural cycle. Banks extend this loan to farmers to meet capital expenditure needs for seeds, fertilisers, farm labour, etc. Agriculture finance comes under priority sector lending, and banks have to compulsorily lend to the sector.
Crop loans are usually for a period of 11 months with a minimal rate of interest of 5 per cent, of which 2 per cent is subvented by the central government and another 2 per cent by the state government. Also, in Maharashtra, crop loan upto Rs 3 lakh has been made interest-free since 2021. Farmers are expected to repay the principal amount (along with interest if the principal is above Rs 3 lakh) within 11 months, failing which the loan is deemed outstanding.
Before the start of the agricultural lending circle (mostly from April- May), banks are given targets for farm loans along with other priority sector lending. For the financial year 2024-25, the annual target for crop loan was Rs 1,77,342 crore, of which till December 31, 2024, banks had loaned out Rs 1,42,286 crore, or 80 per cent of their target.
This mechanism has been put in place to ensure easy access to institutional finance for farmers, who would otherwise turn to private moneylenders. These moneylenders charge interest between 10-15 per cent, and farmers often end up locked in a cycle of endless debt. Studies have shown a strong link between farm distress and lack of easy finance.
What is the status of outstanding farm loans in Maharashtra now?
As of December 31, 2024, banks have reported Rs 2,63,203 crore of outstanding agriculture loans. This is almost double of the Rs 1,40,413 crore reported in 2019, when the last farm loan waiver was announced by the state government.
Farmers with outstanding loans are unable to raise fresh finance from banks, which again makes them vulnerable to private moneylenders.
Why have outstanding farm loans gone up in Maharashtra?
Anil Ghanwat, leader of the farm union Shetkari Sanghatana, blamed central government policies for farmers being unable to make the most from their fields. 'Since 2019, restrictions have been brought in in the form of export bans. Limiting the amount that traders can hold has had a negative effect on most major commodities like wheat, onion, soyabean pulses,' he said. Cost of production, Ghanwat said, has been on the rise. 'Thus farmers have been unable to make ends meet,' he said.
Soyabean, which is grown over 40 lakh hectares, has been trading well below its government declared Minimum Support Price (MSP) since 2021. This was mostly because of easy import of edible oil due to the slashing of import duties. The same was raised in 2024, but a bumper crop failed to see any appreciation in prices.
In the case of onion, export ban and continuous clamping on trade to ensure low retail prices resulted in lower prices for farmers. The export ban was recently removed but prices are still low.
Similarly, cotton, another important kharif crop, has been trading below its MSP over the last two seasons.
Both cotton and soyabean contribute to over 80 lakh hectares out of the 1.20 crore hectares sown during kharif season.
Meanwhile, on the input side, the prices of fertiliser complexes (fertilisers which contain all the three primary nutrients viz Nitrogen, Phosphate and Potassium) have seen a sharp rise. Yuvraj Patil, a farmer from Nanded district, pointed out that the most commonly used complex 10:26:26 (phosphorus and potassium present in 1:1 quantity) is trading at Rs 1,700 per bag of 50 kg each. 'Last year, the price of this fertiliser, which is widely used in almost all crops, was Rs 1,470,' he said.
Labour is another pain point for farmers, especially for cotton and soyabean growers who have to depend on manual labour for most of their work. At present, a male labour charges between Rs 400-500/day while a female labourer can be hired at the rate of Rs 300-350/day. 'For the last season, harvesting cost for soyabean per acre was Rs 3,500 — a sharp rise from Rs 2,000 which was the rate for the season of 2023-24,' he said. Overall labour costs have increased by 10-15 per cent on a year on year basis.
Former MP and farm leader Raju Shetti claimed the previous loan waivers had failed to make any difference to farmers. 'When Uddhav Thackeray was the chief minister, he announced a loan waiver of Rs 20,000 crore, but given the stringent conditions to be a beneficiary, not much relief was felt on the ground,' he said.
Shetti said the present rise in outstanding loans is mostly due to increased prices of insecticides, pesticides and fertilisers.
Maharashtra and loan waivers: a brief history
In 2019, the Uddhav Thackeray-led Maha Vikas Aghadi (MVA) announced a blanket waiver of outstanding loans upto Rs 2 lakh. This scheme was not for people in government services, elected members of the state legislature and Parliament, and those who file income tax returns.
As of December 31, 2020, 29 lakh farmers had benefited from the scheme with bad debt of Rs 21,991 crore being waived. In June 2017, the then chief minister Devendra Fadnavis had announced a waiver of Rs 34,000 crore to alleviate farm distress.
Ghanwant said Maharashtra is one of the few states where loan waivers have been pushed by the political leadership. 'Unfortunately, this has seen farmers default willfully in the hope of waivers. Even before the 2024 state elections, there were talks of a waiver. Bad credit is a combination of both political support and farm distress,' he said.
