This is part one of a two-part series that critically analyses NABARD’s financial inclusion survey. Read part two here.
On August 16, the vice-chairman of Niti Aayog released NABARD’s All India Rural Financial Inclusion Survey, appropriately named ‘NAFIS’
, which in Urdu means decent. NABARD management has truly acted ‘NAFIS’ by commissioning this detailed survey and then publishing its finding rather quickly. The survey was conducted between January 2017 and June 2017, covering 40,327 households in 245 districts spread across 29 states. The reference period for agriculture related data was from July 1, 2015 to June 30, 2016 (agriculture year, AY, 2015-16).
In its survey, NAFIS includes semi-urban places having a population of up to 50,000. At an all India level, NAFIS sample of households includes 84% rural and 16% urban households. But in several states, semi-urban households had a higher ratio (Kerala 57% and Tamil Nadu 40%). NAFIS defines an agricultural household as one that received value of produce exceeding Rs 5,000 during FY 2016 from agricultural activities. Other households were classified as non-agri households.
The National Sample Survey Office (NSSO), Ministry of Statistics and Programme Implementation, conducted a Situation Assessment Survey of Agricultural Households (SAS) in its 70th round (January – December, 2013). Data was collected from 4,529 villages in 35,200 households and it was published in December 2014 as ‘Key Indicators of Situation of Agricultural Households in India
’. Semi urban areas were not included in this survey and an agricultural household was defined as one that had received Rs 3,000 as value of annual agricultural produce.
It is clear that the two surveys are not entirely similar and as compared to SAS, NAFIS may have overstated the income of households because its level of threshold income to be categorised as an agricultural household is 67% higher than under the NSSO survey.
Any sample survey, however, has several limitations as the sample may not correctly reflect the reality of rural population in a complex scenario under which there are wide inter-state and intra-state variations of climate, cropping pattern, farm size, irrigation coverage, literacy, penetration of banks, procurement policies and population density. Thus, out of 97,825 villages in UP, NAFIS has collected data from only 192 villages. We do not know if all the agro-climatic regions in the states were covered. Despite its limitations, the country now has access to an independent source of data not only on farmers income, which is flavour of the season, due to the government’s promise to double farmers’ income by FY 2023, but also on consumption, household savings, investments, indebtedness, micro-finance and even financial knowledge of households. NABARD deserves compliments for this meticulous work
NAFIS finds that the monthly income of agricultural households in AY 2016 was Rs 8,931. As per SAS, average monthly income of an agricultural household in January-December 2013 was Rs 6,426. Based on this data, a government committee on doubling of farm income (Dalwai Committee) calculated that an average agri-household earned Rs 8,059 in 2015-16.
Even though SAS and NAFIS data are not comparable, there is an impressive increase of 39% in nominal income of agri-households between 2012-13 and 2015-16. This is even before the government’s implementation of new schemes of crop insurance (Pradhan Mantri Fasal Bima Yojana), e-NAM, soil health cards, Pradhan Mantri Krishi Sinchai Yojana and announcement of substantial hike in MSPs (in Kharif 2018).
The survey shows that incomes of agriculture households has increased on average. Credit: Well-Bred Kannan (WBK Photography)/Flickr CC BY-NC-ND 2.0
Income data presents a positive outlook
The data of income for states presents an even more positive outlook. In the three-year period, nominal monthly income of agri-households in Bihar increased from Rs 3,558 to Rs 7,175 (an increase of 101.6%) and in West Bengal from Rs 3,980 to Rs 7,756 in WB (increase of 94.9%). However, the income in J&K decreased from Rs 12,683 to Rs 9,355 per month, perhaps due to floods in September-October 2014. It is possible that agri-households in WB, a top performing state under MNREGS, may have earned relatively higher income from wages under the scheme. But Bihar continues to perform poorly under MNREGS and agri-households may have found employment in other states, which may have contributed to such a high increase in three years. In any case, wages under MNREGS in Bihar and WB in 2018-19 are Rs 168 and Rs 191 respectively, while the minimum wage fixed by these states are Rs 237 and Rs 234 respectively.
NAFIS has not provided segregated data of source of income of households for each state. Therefore, the real drivers of high growth in income of farmers in Bihar and WB remain unexplored. To get a fair sense of what is driving the income of agri-households in various states, we may have to wait for the next SAS and NAFIS, which will capture the data for AY 2018-19. One hopes that both the organisations will not change the methodology for collection of data so that actual progress in agriculture and in rural economy can be analysed.
NAFIS also provides information on distribution of households by monthly income. 50% of all households (in rural and semi-urban areas surveyed) earned less than Rs 5,500 per month in 2015-16. This low level of income confirms the impoverishment of rural areas and the urgency of increasing their income from sources other than cultivation of crops. The survey also shows that smaller the size of landholding in the household, larger is the share of income from livestock rearing. With rising incidents of violence against traders of animals, there is every possibility that future surveys of NSSO and NAFIS may show a decline in income from rearing of animals. It is likely to affect small and marginal farmers and landless households more adversely than other households.
This survey, like SAS earlier, confirms that wage labour provided 34% of income of agri-households. In case of marginal farmers, the share of wage labour was more than 40%. In case of non-agri households, 54% of income came from wage labour. It is clear that generating employment in labour intensive sectors like agro industries, construction and textiles is crucial for increasing the income of rural and semi-urban households. The downturn in construction industry would have hit the income of both agri and non-agri households and is likely to reflect in subsequent surveys.
Due to rising incidents of violence against traders of animals, there is a possibility that future surveys may show a decline in income from rearing of animals. Credit: Navaneeth Kishor/Flickr CC BY 2.0
Savings and indebtedness
The NAFIS data on household savings is not only surprising but also reassuring. About 55% of agri-households informed that they had saved money in the previous year. The north-eastern states showed higher level of savings with more than 90% households confirming that they had saved. Surprisingly only 21% households in Punjab and 23% households in Haryana mentioned any savings. It is surprising that the states having highest income are saving the least. It is however heartening that 94% savings are in institutional agencies. Out of annual income of Rs 1.07 lakh, the agri-households saved Rs 9,657 which is a handsome 9% of annual income. Poor households in rural India are thus setting an example for showing a mirror to much better off urban India!
Another important finding of the survey is high level of indebtedness (defined as presence of any outstanding loan). Similar to level of indebtedness in SAS, about half (52.5%) of agri-households confirmed in NAFIS also that they were indebted. The level of indebtedness rose with the size of landholding in the household. Bihar (48%) and WB (37%) show much lower level of indebtedness than AP (76%) and Telangana (79%). Thus the correlation between indebtedness and suicides is rather clearly established. It is, however, a matter of further research why agri-households in these two states are so highly indebted.
NAFIS has provided new insights into the conditions of households in rural and semi-urban areas which would be useful to policy makers in addressing specific challenges in various states. The data again proves that state specific policies are required to enable agri and non-agri households in rural and semi-urban India earn a decent income.
Representational image. Credit: CIAT/Flickr CC BY-SA 2.0
As an institution providing refinance to cooperative and regional rural banks for agricultural credit, NABARD’s interest in understanding the extent and width of coverage of farmers for obtaining crop loans is only natural. NABARD therefore devotes several chapters in its All India Rural Financial Inclusion Survey (NAFIS)
, to financial issues (household savings, investments, indebtedness, insurance and pension, microfinance and financial knowledge) of agricultural and non-agricultural households. Since indebtedness of farmers is considered a major factor leading to farmer suicides, a detailed examination of the survey findings would be in order.
The All India Debt and Investment Survey conducted by NSSO in its 70th round had found that as on June 30, 2012, 35% of cultivator households were indebted. NAFIS finds that in AY 2015-16, 47% of agri-households were in debt. Though the sample in two surveys is different we get a sense of increasing penetration of credit to farmers.
Launched by the A.B. Vajpayee government in 1998, the kisan credit card (KCC) scheme enables farmers to get credit limit to purchase crop seeds, fertilisers, diesel and other inputs at 4% interest (if loans are repaid in time). The farmer can draw money to the extent of limit sanctioned, as per requirement and as many times as she wants. For every crop cycle, the farmer does not have to go to a cooperative or bank for sanction of loan. NAFIS found that only 10.5% agricultural households held a valid KCC.
The Situation Assessment Survey of Agricultural Households during the NSSO’s 70th round (January – December, 2013) had found that out of 15.6 rural households in the country, nine crore were agricultural households. According to a reply given in Lok Sabha on March 9, 2018, there were 2.77 crore active KCCs as on March 31, 2017. Even though NAFIS left out agricultural households earning less than Rs 5,000 per month from agri and allied operations, the penetration of KCCs at 10.5% appears rather low. In states having poor coverage of KCC, a massive drive of inclusion is required to disseminate benefits of borrowing through KCCs rather than going to money lenders for loans.
The survey however, finds that agri-households which had a KCC, reported that against an average borrowing limit of Rs 1.39 lakh, amount drawn was Rs 91,000. It shows that the scheme has largely facilitated drawing of credit for agricultural operations by reducing procedural hassles of getting loan sanctioned for each crop cycle. However, lower drawings show that lack of confidence of earning enough profit to be able to repay the loan in time.
Indebtedness is one of the primary reasons for farmers’ suicide. Representational image. Credit: Katrin Park/Inernational Food Policy Research Institute
Borrowing from non-institutional sources
In a worrying finding from the survey, it is observed that 30.3% of agri-households still borrowed money from non-institutional sources like money lenders, relatives and input suppliers etc. About 9% agri-households borrowed from both institutional and non-institutional sources. In another encouraging sign of reducing dependence on money lenders, the NAFIS survey finds that out of average borrowing of Rs 1.07 lakh in AY 2015-16, agri-households borrowed about Rs 30,000 (28%) from non-institutional sources. Lengthy process for sanction of loans by institutions, demand for collateral security, and short term of (crop) loan were cited as reasons for seeking loans from non-institutional sources. NABARD has its task cut out for increasing the penetration to small and marginal farmers.
In another worrisome sign of dependence on money lenders, the NAFIS survey finds that out of average borrowing of Rs 1.07 lakh in AY 2015-16, agri-households borrowed about Rs 29,000 from non-institutional sources (27%). Lengthy procedure for sanction of loans by institutions, demand for collateral security and short term of (crop) loan were cited as reasons for seeking loans from non-institutional sources. NABARD has its task cut out for increasing the penetration to small and marginal farmers.
NAFIS also covers the penetration of crop insurance, finding that out of households which had taken any loan for agricultural operations, only 6.9% reported they had any crop insurance. It is thus a myth that banks deduct the insurance premium from all farmers who have taken loan on KCC. Premium is payable only on crops notified by the state government.
It is no surprise that only 1.7% of agri-households owning milch animals reported insurance for their livestock. The plight of uninsured agri-households who lost their animals and other agri-assets in the Kerala floods of August 2018 can only be imagined. In fact, while launching the Pradhan Mantri Fasal Bima Yojana (PMFBY), in April 2016, the government came up with a package insurance scheme under which in addition to crop insurance, the farmers had the option to buy insurance cover for fire, animals, pump set, tractor and personal accident. However insurance companies have not been successful in selling it due to high cost of marketing of diverse risks in a single insurance policy. The government has done well to keep premiums under PMFBY very low. Certain policy reforms in PMFBY and concerted effort by state governments (to conduct crop cutting experiments in a timely transparent manner) and insurance companies (to ensure timely settlement of claims) will surely result in increase in coverage of crop insurance and possibly other insurance products also.
Few farmers have insurance for their livestock. Credit: Reuters/Rajendra Jadhav
Reach of microfinance institutions
NABARD did well to seek information about reach of microfinance institutions (MFI) in meeting credit needs of households. At the national level, 23% of households had at least one member associated with an MFI, but the data is skewed. The all India average in high only because a few states like AP (61%), Telangana (65%), Odisha (44%) and Karnataka (40%) reported higher reach. UP, Rajasthan, Punjab and Haryana have less than 10% coverage of MFI. Odisha and Jharkhand (27%) have demonstrated that deep engagement with reputed NGOs (like Pradan) can help in increasing the reach of MFIs to even the most backward districts. The survey found that MFIs meet needs for personal loans for which institutional finance is not easily accessible.
Expansion of financial inclusion through Pradhan Mantri Jan Dhan Yojana has been one of the major achievements of Modi governments. About 32.17 crore accounts have been opened as on July 25, 2018. Out of these, 18.97 crore are in rural and semi-urban areas. But, in states like UP, where household earning is as low as Rs 6,668 per month, it is worthwhile to consider how many would deposit their cash income and then withdraw the same.
It is rather heartening that about 73% of survey respondents said they can use an ATM without anyone’s help and 52% can use internet banking. If it correctly reflects ground reality, it should be possible to switch to direct benefit of transfer (DBT) of food subsidy in states having high literacy, good road network and deep penetration of banks and telecom infrastructure. Rather than forcing beneficiaries to authenticate their identity through Aadhaar every month in states not having surplus food grains and poor internet infrastructure (like Jharkhand), the government should be switching to DBT in food surplus and developed states like Punjab, Haryana, AP and Karnataka.
A commendable attempt
NAFIS 2016-17 is a commendable attempt to collect and analyse data of rural and semi-urban India. There are several surprises in the survey and a more detailed analysis of data will require state level tables for every chapter covered in the report. In a vast country with acute disparities in literacy, income, availability of ground water, cropping pattern and marketing network, it is only natural that a uniform national strategy for agriculture sector will not work.
In March 2015, the government had set up a task force on agricultural development under Arvind Panagariya, then vice-chairman of Niti Aayog. Based on the work of the task force, a solitary paper titled ‘Raising Agricultural Productivity and Making Farming Remunerative for Farmers’ was published by Ramesh Chand in December 2015. The Niti Aayog had also asked states to set up state-level task forces to prepare reports suited to the specific state. Some states did prepare their reports, but the exercise was not pursued and a good opportunity to document the specific action points for each state was lost. This survey itself indicates that there are success stories in several states which need to be replicated in other states.
Like previous NSSO surveys, this meticulous effort will also have a short shelf life. It would therefore be appropriate for NABARD to quickly organise a conclave to reflect on the findings and tweak policies to make farming viable.
Siraj Hussain is former secretary of Agriculture and Farmers’ Welfare (GoI) and currently visiting senior fellow at ICRIER.