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 | More controls can't tackle rural distress Our Correspondent You can trust the powers that be to offer the worst solution to every problem the nation is facing. Consider the grave issue of farmer suicides. After thousands of farmers taking their own lives and many governments making myriad promises, the Reserve Bank of India (RBI) has propose an unprecedented solution—unprecedented not only in India but all over the world. The central bank wants to regulate village money lenders. A group, set up by the RBI , has recommended legislation to regulate money lending, fixing maximum interest rates lenders charge and making it compulsory for all States to register them. Such views are the product and function of two beliefs: first, moneylenders are rural Shylocks, a la Kanhaiya Lal in Mother India, incessantly oppressing and exploiting peasants; and, second, it is possible and desirable to control everything in the financial sector. Both beliefs have shaky foundations. While there are cases of rural money lenders charging exorbitant interest rates and fleecing poor farmers, the phenomenon of rural lending should be seen in its proper perspective. After all, the phenomenon is largely determined by market forces. Whether it is cities or villages, the interest rates depend on the creditworthiness of borrowers—the poorer the borrower, the higher the interest rate. Since farming in general is not a very remunerative vocation, and its remunerative capacity is decreasing by the day, it is not unnatural to find higher interest rates in the countryside. The problem of rural lending was recognized long ago. The government set up institutions like Nabard. Commercial banks also have the responsibility to offer cheaper, easier loans to villagers. Yet, rural distress could not be checked properly; in the recent past, it has actually increased in magnitude. The failure of the financial infrastructure, of course, is a factor. But the chief reason is something else: agriculture has become sick as a profession, as evident from the fact that while almost two-thirds of the population in involved in this sector, their income is less than one-fifth of the national income. This sickness can only be cured by a good dose of economic reforms in the sector. Which means that controls pertaining to agriculture have to be loosened, if not done away with right away. This brings us to the non-tenability of the second belief. If the earlier controls in the farm sector, as elsewhere, have failed, it makes little sense to introduce more of them as a remedy. In any case, rural credit is only part of the problem; the real issue is the entire policy mechanism pertaining to agriculture. The grammar and the paradigm of this mechanism has to undergo a major change. Posted on : 7/26/2007 Mail this article to your friend |