Headline : Transforming farm loans Editorial 1st Dec’19 FinancialExpress
Importance of crop loans in India:
- Crop loan is a lifeline for over 145 million farmers in India.
- Every year, millions of farmers and thousands of bank branches go through a intense process of granting crop loans delivered through Kisan Credit Cards.
- Banks disbursed Rs 12.5 lakh crore worth farm loans (majority as crop loans) during 2018-19.
Efforts to encourage crop loans:
- The Centre provides interest subvention on crop loans up to Rs 3 lakh, and with additional incentive for timely repayment, effective interest rate works out to affordable 4%.
- Banks are also mandated to secure crop insurance cover for farmers, who have to pay a minimal premium.
Still many farmers unable to access loans:
- Despite these measures to make crop loans affordable, only 61% of farmers have accessed institutional loans (NAFIS 2016-17).
- Manual crop loaning processes is a big reason for that: Due to predominantly manual crop loaning processes in banks, there are substantial direct and indirect costs inflicted on farmers, including:
- Loss of precious time and potential wage opportunities
- Expenses on visits to banks/other offices
- Legal expenses on verification of land records/documentation
- Processing fee levied by some banks
Banks still do not like these loans much:
- Yet, this massive loan segment continues to be treated as a necessary evil by banks, rather than mainstreaming as a commercial proposition like retail loans.
- Denial or delay in crop loans forces farmers to borrow from informal sources, on adverse terms.
Farm loan waivers across states:
- Undue glorification of farm loans through politically-motivated loan waivers is common.
- While the central government has resisted announcing farm loan waivers, this fiscal prudence was not replicated during the several assembly elections held since 2014.
- Political parties have been promising loan waivers as their main electoral strategy. Subsequently, the elected state governments announced farm loan waivers aggregating a whopping Rs 2.4 lakh crores.
Loan waivers cause systemic damage:
- Irrational loan waivers cause systemic damage where:
- Farmers tend to postpone repayments
- NPAs rise in banks that show reluctance in extending new loans
- State governments resort to fiscally-imprudent acts such as higher market borrowings
- Curtailing expenditure on capital investments and welfare programmes to fund waivers
- Not surprisingly, agricultural NPAs crossed Rs 1 lakh crore mark in July 2019, their proportion to total outstanding agri-loans rose from 9.6% in July 2018 to 11.0% in July 2019, and states that implemented waivers ended up in bad fiscal math.
Issues with issuing subsidised crop loans:
- Today, subsidised crop loans are a necessity for farmers.
- But there are issues relating to:
- Accurate targeting
- Skewed distribution across states
- Exclusions, adverse selection
- Actual impact in terms of incremental farm productivity/output, etc.
- Correct diagnosis and mitigation of crop loan issues can be possible only through analysis of credible micro data and trends on farm credit.
Difficulties in tracking actual progress on loans to agriculture:
- Within the priority sector norms for agriculture, banks are required to provide 8% loans to small and marginal farmers.
- The presence of women and lessee farmers, who also need credit, is steadily growing in India.
- But, with existing manual loan operations and related data, it becomes difficult to track actual progress on these parameters.
Need a paradigm shift to make crop loans work better for all stakeholders:
- This calls for a paradigm shift in approach to adopt disruptive fintech ideas for making crop loans work better for farmers, banks, governments.
Some transformative ideas towards achieving this:
- Loan process automation:
- Crop loans should continue to be delivered to farmers based on a well-evolved methodology comprising crop-wise acreage, crop seasonality, district-wise scale of finance etc.
- However, we need to make crop loan delivery simple, transparent and efficient through process automation to allow timely, hassle-free, cost-effective credit access to farmers.
- Banks must make crop loans a serious and competitive business:
- Banks must start seeing crop loans as multi-billion worth banking opportunity with 145 million aspirational rural customers, having cross-selling opportunities.
- Banks need to act proactively and disruptively to make crop loaning a serious and competitive business, like retail loans.
- National Agriculture Calamity Fund (NACF):
- To safeguard financial interests of farmers in the event of a natural calamity or market adversity, the government may create a ‘National Agriculture Calamity Fund (NACF)’ within a credible national-level agency.
- Mandatory annual contributions to NACF by the central/state governments may be facilitated by the Finance Commission in its resource-sharing formula. States granting loan waivers outside the NACF mechanism may be disincentivised in devolution of the formula.
- Seamless integration between crop loaning and insurance processes:
- There is a need to make crop insurance a preferred choice of farmers, insurance firms and banks.
- To achieve seamless integration between crop loaning and insurance processes, refinements are needed such as:
- Early remittance of premium collected by banks to insurance firms
- Timely payment of premium subsidy by state/central governments
- Use of advanced remote-sensing and digital technologies for timely and trustworthy conduct of crop cutting experiments at farmer level
- Building effective grievance mechanism, etc.
- Big data analytics:
- With numerous data points involved in crop loan operation for 145 million farmers, the segment is a mammoth big data game.
- in the absence of digitisation, banks, governments and other stakeholders are deprived of power of data analytics for making informed decisions on policies, products, processes, cross-selling opportunities, etc.
- Therefore, there is an urgent need to adopt modern financial technology in crop loaning.
- National Data Platform on Farmers (NDPF):
- Creating a robust ‘National Data Platform on Farmers (NDPF)’ to warehouse data on individual farmers, covering their demographics, land records etc. is the need of the hour.
- NDPF may be promoted as a joint venture of central/state governments, financial institutions and other stakeholders.
- Farmer-level risk assessment:
- Banks do not systematically factor structured risk assessed at farmer level in their crop loaning decisions.
- With farmer-level micro data on NDPF, it will be possible to evolve appropriate risk-assessment models and generate a ‘Farmer Rating and Credit Score (FRCS)‘.
- Crop loan eligibility for a farmer, worked out using usual standard criteria, may be further moderated, based on his/her score.
- Such a risk-based lending approach would help in promoting judicious borrowing by farmers and responsible lending by banks.
- National Crop Loaning Portal (NCLP):
- A standardised ‘National Crop Loaning Portal (NCLP)’ may be developed under the aegis of Indian Banks’ Association (IBA) as a fully digitised end-to-end solution for crop loaning.
- Farmers may be given access for making online loan application, tracking and viewing loan transaction details.
- The proposed NACF and NDPF could prove to be major steps towards promoting cooperative federalism in Indian agriculture.
- Loan process automation would enable banks to easily outsource basic loan processes to other agencies.
- Data-driven, digital and score-based approaches to crop loaning would help liberate farm loans from the crutches of political patronage.
- The adoption of a digital and score-based retailing approach to crop loans would enable banks to position this segment as their growth driver, like retail loans, and gradually make it immune to syndromes such as loan waivers.
GS Paper III: Economy
Section : Editorial Analysis
Headline : Is seawater the ultimate answer?
Context of the topic:
- As per National Health Profile (NHP), India’s public health spend as a percentage of GDP has increased by 0.16 percentage points from 1.12% to 1.28% of GDP, between 2009-10 and 2018-19.
- India’s target is 5% GDP on health spend.
- The NHP is an annual stocktaking exercise on the health of the health sector.
The key findings of NHP 2019 are as below:
- Increase in cost of treatmentleading to inequity in access to health care services.
- Increase in per capita public expenditure on health in nominal terms from Rs 621 in 2009-10 to Rs 1,657 in 2017-18.
- There has been an improvement in sex ratio and a decline in birth and death rates
Health expenditure as percentage of GDP
- Spending by states showed deviation with the highest average per capita public expenditure on health by Northeastern states and the lowest by Empowered Action Group (EAG) states plus Assam.
- EAG states are the eight socio-economically backward states of Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, Rajasthan, Uttarakhand and Uttar Pradesh.
- Among the NE states, highest GSDP spend was by Mizoram (4.20%) and Arunachal Pradesh (3.29%).
- Tamil Nadu and Kerala though having better performers on health parameters, performed poorly on the health finance index with low GSDP spend (Tamil Nadu – 0.74% and Kerala – 0.93%).
- Globally, India’s per capita health expenditure was only $16 in 2016. A comparison has provided against other countries that are on the UHC path.
Other Findings of NHP 2019
- As per NHP 2019, there has been a change in disease profile of the country with a shift from communicable onestowards the non-communicable diseases (NCDs)such as cardiovascular disease, chronic obstructive pulmonary disease, cancer, mental health disorder and injuries.
- This was also documented by the State Level Disease Burden Study 2017. It highlighted an increase in disease burden from NCDs from 30 to 55% between 1990 and 2016.
- Several initiatives have been taken in this regard. These include:
- National Programme for Prevention and Control of Cancer, Diabetes, Cardiovascular Diseases and Stroke (NPCDCS) launched in 100 districts across 21 states with the aim to prevent and control thesediseases thorough awareness generation, behavior and lifestyle changes.
- Free door-to-door screening programme for early detection of cancer, heart disorders and diabetes.
- As per the NHP, sex ratio in the country has improved from 933 in 2001 to 943 in 2011.
- The sex ratio in rural areas has increased from 946 to 949, and in urban areas from 900 to 929.
- Kerala has recorded the highest sex ratio (1,084), and Chandigarh has recorded the lowest sex ratio (690).
- Also, the estimated birth rate, death rate and natural growth rate are declining. During 2000 to 2016, the figures were as below:
- The estimated birth rate reduced from 25.8 to 20.4.
- The death rate declined from 8.5 to 6.4 per 1,000 population.
- The natural growth rate declined from 17.3 to 14.
- The total fertility rate in 12 States has fallen below 2 children per woman and nine States have reached replacement levels of 2.1 and above.
- Delhi, Tamil Nadu and West Bengal have the lowest fertility rate among other States.
- There has been growth in medical education infrastructure.
- The country has 529 medical colleges, 313 Dental Colleges for BDS & 253 Dental Colleges for MDS.
About: National Health Profile (NHP)
- The NHP covers demographic, socio-economic, health status and health finance indicators, human resources in the health sector and health infrastructure.
- It is an important source of information on various communicable and non-communicable diseases that are not covered under any other major programmes.
- This information is essential for health system policy development, governance, health research, human resource development, health education and training.
Universal Health Coverage
- In 2011, the High Level Expert Group of the erstwhile Planning Commission submitted its report on the rollout of Universal Health Coverage (UHC) in India.
- It recommended that the government (central government and states combined) should increase public expenditures on health from the current level of 1.2% of GDP to at least 2.5% by the end of the 12th plan and to at least 3% of GDP by 2022.
- The benefit of increasing health expenditure would result in:
- A five-fold increase in real per capita health expenditures by the government (from around Rs 650-700 in 2011-12 to Rs 3,400-3,500 by 2021- 22).
- A corresponding decline in real private out-of-pocket expenditures(from around Rs 1,800-1,850 in 2011-12 to Rs 1,700-1,750 by 2021-22).
- According to the WHO, Universal Health Coveragemeans “all people and communities can use the promotive, preventive, curative, rehabilitative and palliative health services they need, of sufficient quality to be effective, while also ensuring that the use of these services does not expose the user to financial hardship.
- The three objectives of UHC are:
- Equity in access to health services;
- Quality of health services should be good enough to improve the health of those receiving them;
- People should be protected against financial-risk, ensuring that the cost of using services does not put people at risk of financial harm.
About: Central Bureau of Health Intelligence
- Central Bureau of Health Intelligence (CBHI) was established in 1961 by the Act of Parliament on the recommendation of Mudaliar committee.
- It is the Health Intelligence Wing under Directorate General of Health Services (Dte.GHS), Ministry of Health & Family Welfare (MoHFW).
- Vision–To havea strong Health Management Information System (HMIS) in entire country.
- Mission –To strengthen Health Information System (HIS) in each of the district in the country up to the facility level for evidence based decision-making in the Health Sector.
- Sex Ratio – The number of females per 1,000 males
- Total fertility rate – The average number of children that will be born to a woman during her lifetime
- Disability-adjusted life years (DALYs) measures how much of a normal life span of an individual is taken away by a disease related morbidity of mortality.
- It is an international standard of disease burden.
Headline : Explained: Jammu and Kashmir state to two UTs — today, later
- The state of Jammu and Kashmir will be officially bifurcated into the Union Territories of J&K and Ladakh on October 31. The day will mark the beginning of the functioning of the two UTs at a bureaucratic level.
- This marks an important milestone in the history of J&K and culminates the process that started on August 5 with the landmark announcement for emasculation of Article 370 as well as end of statehood for J&K
- The period between August 5 and October 31 has been used by the state administration and the Home Ministry to put a basic bureaucratic structure in place to implement the Jammu and Kashmir Reorganisation Act.
- This is the first time that a state is being bifurcated into two UTs. In the past, there have been instances of a UT becoming a full state or a state being reorganised into two states.
Slow process of Reorganization
- As of now, the state administration has implemented all that is mentioned in the Reorganisation Act as it is.
- For full-fledged bifurcation of States, the Reorganisation Act gives a period of one year. But, reorganisation of states is a slow process that at times can take years.
- Issues relating to reorganisation of erstwhile Andhra Pradesh, which was bifurcated into Andhra and Telangana in 2013, are still being brought to the Union Home Ministry for resolution.
Implication of the official bifurcation
- Post the official bifurcation the Centre will be in direct control of police and law & order in J&K from 31st October.
- It also puts an end to J&K’s flag and constitution, symbols of the state’s special status.
- The Lieutenant Governors of the two UTs will take oath of office along with the Chief Justice of the Jammu and Kashmir High Court.
- On the ground, the two UTs will get their own Chief Secretaries and other top bureaucrats, their own police chiefs and key supervisory officers.
Impact on laws that governed the state of Jammu & Kashmir
- Legislative restructuring is a work in progress, with a lot remaining to be done. While 153 state laws are to be repealed, 166 have been retained.
- The exercise of repealing Acts that mention “applicable to all of India but not the state of Jammu and Kashmir” will also have to be undertaken.
- Further, there is a massive legislative exercise of making state-specific insertions into the 108 central laws that would now be applicable to the two Union Territories.
Impact on staff
- While the bureaucratic structures are in place, the staff of the state administration are yet to be divided.
- As of now, the Home Ministry has issued an interim order to maintain the station of all staff in the lower bureaucracy as it is.
- This is to ensure that the two UTs keep on functioning without any hiccups beginning October 31. However, a subsequent reorganisation of staff will take place in due course.
Filling the political void
- It is early days, but the Centre hopes to slowly fill the political void created following the arrest of almost all notable politicians and prominent workers of mainstream parties in the Valley.
- A new political alternative being catalyzed by the Centre is starting to take shape in Kashmir.
- Several young aspiring politicians are ready to look beyond the abrogation of Article 370, and willing to start afresh a dialogue with the people and engage with the Centre.
- The government is also banking on the emergence of a new crop of political leaders from panchayats and municipal bodies.
EU MPs in J&K
- European Union parliamentarians visiting Kashmir termed the dilution of Article 370 an internal issue of India and said they stand by the country in its fight against terrorism.
- The 23-member delegation also condemned the killing of five labourers from West Bengal by militants in Kulgam district.
- They also acknowledged that terrorism is a severe problem in Kashmir and named Pakistan as its source.
Section : Editorial Analysis
Headline : India needs to be geared to a single-minded pursuit of growth Editorial 5th Aug’19 IndianExpress
Path to $5 trillion economy:
- India needs to transition towards a $5 trillion economy, taking it from lower-middle income status to upper-middle income.
- The path of this transition can only be paved with reforms.
Some of the measures undertaken in the past five years:
- The introduction of goods and services tax (GST)
- Insolvency and Bankruptcy Code (IBC)
- Real Estate (Regulation and Development) Act (RERA)
- Monetary Policy Framework
- A focus on ease of doing business
- Formalisation of the economy
- Enhanced foreign direct investment (FDI) limits
- Recognition of the scale of the nonperforming asset (NPA) problem
- Recapitalisation of public sector banks (PSBs)
Major measures often have short time negative impact:
- Structural reforms of this magnitude always bring with them consequent headwinds.
- Demand, both internal and external, is subdued and private investments are yet to take off.
- Expansionary monetary and fiscal policies are needed to bring aggregate demand out of its slump.
- However, with both fiscal deficit and inflation targets, the extent of monetary and fiscal expansion to stimulate aggregate demand is limited.
Reforms should be focused on growth:
- The focus of second-generation reforms should be a single-minded pursuit of growth that is investment- and exported.
- In 1965, South Korea’s income level was around $700. By 1996, it had risen to $16,230 thanks to the annual average growth of 10.7% over 31 years.
- China’s per-capita income in 1993 was $530. In 2008, it had reached around $2,720 with average annual growth at 11.5%.
Steps India must take to drive a $5 trillion economy:
Improved credit flow:
- A slew of recent events have triggered a liquidity crunch.
- Banks and mutual funds are reluctant to lend to nonbanking financial companies (NBFCs), and bank lending growth is meagre.
- Given the undercapitalised nature of PSBs, the liquidity crunch is further compounded.
- Ensuring sufficient credit flows is the need of the hour.
- The Indian financial sector is overly reliant on banks as source of funding.
- Deep Bond market necessary for this:
- In India, the bond market represents only 20% of total corporate debt as compared to 80% in the US.
- India needs to deepen the corporate bond markets to lessen the load on banks as drivers of credit in the financial system.
Asset monetisation and recycling:
- Innovative ideas such as asset monetisation and recycling need to be vigorously pursued to fund government capital expenditure.
- Reverse BOT (build-operate-transfer) and TOT (tolloperate-transfer) for airports, roads, infrastructure investment trusts (InvITs) of power transmission grids and gas pipelines, along with monetising land lying idle with public sector enterprises, can raise significant funds.
- Strategic disinvestment can raise further non-tax revenues for GoI. NITI Aayog has recommended strategic disinvestment of 46 central public sector enterprises (CPSEs). These need to be expeditiously taken forward.
- Government must get out of business enterprises and become a facilitator and catalyst.
Lower Interest Rates:
- Reserve Bank of India (RBI) must also recognise that the real cost of borrowing in India is inordinately high when compared to peer nations.
- The imperfect monetary transmission mechanism implies that successive and large rate cuts from RBI are needed to bring down the cost of capital.
- Liquidity needs to be infused into the system, increasing the pool of loanable funds available in the market.
- Several sectors remain unreformed, agriculture being the biggest example.
- We need to unleash the productive spirit of our farmers by eliminating outdated laws such as the Essential Commodities Act, the APMC Act, and replace them with modern regulations such as the Agricultural Produce and Livestock Marketing (APLM) Act, the Contract Farming Act, and the Land Leasing Act.
- Along with marketing reforms, investments in the value chain are needed. This will boost both exports and the domestic food processing industry.
- Dependence on agriculture as a source of livelihood also needs to be reduced.
- 80% of global economic production happens in cities, lifting vast segments above poverty lines.
- They are centres of growth, innovation and creativity.
- We must focus on making Indian cities smart, sustainable and innovative.
- They hold the key to growth and job creation.
- Manufacturing will play an important role in growth and job creation.
- Export-led growth needs to be targeted, particularly in labour-intensive sectors.
- To capture larger shares of export markets, our firms must be globally competitive.
- Rationalising electricity tariffs, labour and land laws are critical enablers of firm competitiveness.
Textile sector reform:
- The textiles and apparel sector presents significant employment opportunities, especially to the labour force exiting agriculture.
- A focus on man-made fibres, through removal of the inverted duty structure, is a first step.
- India also needs to focus on scale. Nearly 95% of our fabric is produced in small-scale industries, leading to a loss in competitiveness in destination markets.
- Largescale textile parks, providing common infrastructure and plug-and-play facilities to entrepreneurs, would make this sector competitive.
Power and railway sector reforms:
- We need vibrant and dynamic power and railway sectors.
- In power sector, we need to bring in franchise and public-private partnership (PPP) modes in distribution, permit open access and free renewable from licensing requirement for generation and supply.
- In railways, we need to rationalise passenger fares, and projects like dedicated freight corridors to be completed. Private sector play in train operations and station redevelopment will fast-track infrastructure to global standards and bring efficiency.
Mining sector reforms:
- Opening up the coal sector for commercial mining, along with enhancing domestic oil and gas production and exploration, will reduce India’s dependence on imports of fossil fuels.
- In allocating these blocks, the focus should be on production, rather than revenue maximisation.
- Tourism is an area where significant growth and employment opportunities emerge.
- While India has many destinations, we do not have many circuits.
- Developing the ‘Buddhist Circuit’, by providing air connectivity through UDAN (Ude Desh ka Aam Naagrik) to destinations such as Kushinagar and Bodh Gaya, will help us capture the burgeoning East Asian tourist market.
- India needs to bring down GST on hotel rooms from 28% to 18%, and reduce visa fees to $25, so that we can offer attractive and competitive packages.
Improving saving and investment levels:
- For India to grow at 8-9% over the coming years, the structural reforms need to aim at boosting domestic investment and savings levels, especially from the private and household sectors.
- Domestic infrastructure creation, funded through non-tax revenues, can ‘crowd-in’ private investment.
Ease of business:
- Similarly, stability, predictability and consistency in policies can boost and maintain investor confidence.
- Reforms in ease of doing business must continue with the aim of making India one of the easiest places in the world to do business.
- Tax laws need to be simplified, the processes fully digitised, and the tax research unit needs to be manned by professional tax experts.
Enabling private sector:
- Finally, we need to do everything possible to unleash the animal spirits of the private sector.
- Wealth creation on a sustained basis requires the private sector to play a key and significant role.
GS Paper III: Economy
Section : Editorial Analysis