Launched in May 2008, the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS), 2008 aimed to address the problems and difficulties faced by the farming community in repayment of loans taken by them and also to help them ”qualify for fresh loans”. At the time of launching the scheme, the Department of Financial Services (DFS), Union Ministry of Finance had estimated that about 3.69 crore marginal/small farmers’ accounts and about 0.60 crore other farmers’ accounts would be covered under the scheme.

A performance review of the implementation of the scheme during the last four years by the Comptroller and Auditor General of India (CAG) has shown that up to 31 January, 2012, Government of India had extended Rs 52,131 crores (provision figure as reported in a communication from DFS to CAG) as debt waiver/relief. The audit report makes an observation that the implementation of the scheme appears to have stressed on the task of achieving targets for waiver and relief. It states that by defining outcomes/ outputs only in terms of likely number of beneficiaries/ accounts that received some form of debt relief, those who framed the scheme led the lending institutions to be concerned about achieving such targets only. There was little or no monitoring to ensure that the other objective, namely extension of fresh loans, was achieved.

An Indian farmer prepares food for fodder. Credit: Azhar Feder via Wikimedia

The audit report stated “As regards the issue of re-finance, it could not be vouched that all the beneficiaries having ADWDRS certificates were given fresh loans, wherever they applied for it, as no record of loan application receipts which were rejected/ accepted by lending institutions was being maintained”. These ADWDRS certificates were to be issued to beneficiaries by the servicing bank with an intent to enable them to obtain fresh credit.

Being driven by target setting in terms of number of beneficiaries/accounts, the planners of the scheme also assumed that a month was all that lending institutions would need to draw up a list of 4.29 crore farmer accounts, who were to be extended benefits under the scheme. The CAG audit remarked that “the timeline of 30 June 2008 was unrealistic and fraught with risk of errors as eventually seen in audit”.

DFS sought to brush aside this observation by stating in its reply dated April 2012, “The scheme was circulated to the banks on 28 May 2008. Thereafter, certain queries were received from banks which were clarified on 18 June 2008. In any scheme clarifications are issued on an ongoing basis. In the scheme guidelines, the criteria of eligibility for relief has been prescribed and the benefits of the scheme extended to the beneficiaries. In view of this, time for making the list of beneficiaries as per bank records was not short.”

Paying those who were ineligible, depriving those who were eligible, overpaying some beneficiaries and paying less than what was due to others, clearly seem to indicate acts of omission as well as of commission.
When such acts are found out to affect almost 22 percent of the sample, it raises serious questions about the robustness of governance of agricultural loans and of the monitoring role performed by the RBI and NABARD.

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However, the views expressed by banks at the exit conference in Punjab were contrary to DFS as they squarely blamed the time allowed by the GoI for the implementation of the scheme as a major constraint. CAG notes that similar views were expressed by ICICI Bank, Canara Bank and Land Development Bank, Uttar Pradesh.

The performance review carried out by CAG from April 2011 to March 2012, covered 25 states involving field audit of 90,576 beneficiaries’/farmers’ accounts, across 715 branches in 92 districts. It was revealed that in 20,216 accounts (22.32 per cent of the sample) out of the 90,576 accounts test-checked in the performance audit, there were lapses/ errors. Discrepancies amounting to Rs 20.50 crore were noticed in 6822 accounts (8.5 percent of the sample) out of 80,299 accounts test-checked, wherein ineligible farmers, i.e. farmers who had taken loans for non-agricultural purposes, or whose loans did not meet eligibility conditions, were given benefits under the scheme.

Out of these, in 1174 loan accounts, benefits of Rs 4.57 crore were allowed in the form of debt relief or waiver, for purposes not allowed under the scheme, such as against personal loans, loans for vehicle, loans for business, loans for shop or purchase of land, advances against pledge or hypothecation of agricultural produce other than the standing crop, or agricultural finance to corporate firms, partnership firms or societies other than co-operative credit institutions.

Another 4826 accounts were extended incorrect benefits. While 3262 farmers were extended excess benefits totaling Rs 13.35 crore, there were 1564 farmers who were extended Rs 1.91 crore less than what their due would be as per the scheme. On the other hand, 1257 accounts (13.46 percent of the sample) out of 9334 accounts test-checked, were found to be eligible for benefits worth Rs 3.58 crore under the scheme, but were not considered by lending institutions while preparing the list of eligible beneficiaries.

Further, in the case of 6392 accounts, certain charges amounting to Rs 5.33 crore which should have been borne by lending institutions themselves as per the scheme guidelines, were claimed from the government. Such charges included interest in excess of principal amount, unapplied interest, legal charges, inspection charges, miscellaneous charges etc. Loans amounting to Rs 154.60 crore were waived off in violation of guidelines.

Shortly after the CAG of India submitted a draft audit report based on these findings on 8 May 2012, the Department of Financial Services (DFS), MoF filed a reply on 29 June 2012. In its reply DFS contested that 7242 audit objections had been verified by them and banks had contested the audit objections in 2415 cases. Since DFS did not intimate the specific audit objections that were contested by banks, CAG requested on 6 July 2012 to provide the necessary details. Therefore, DFS directed all the banks to reconcile their differences with Audit by providing relevant details and supporting documentation of the cases.

Subsequently, Audit took up a re-verification exercise (which lasted for three months) during which initial records and documents submitted by banks relating to 6371 cases (including the 2515 cases contested as per DFS reply) were examined and discussed in detail with the representatives of the banks. The result of this cross verification exercise again was that audit objections were sustained in 5857 cases and only in 514 cases, contestations from banks appeared to be genuine and were hence dropped.

Paying those who were ineligible, depriving those who were eligible, overpaying some beneficiaries and paying less than what was due to others, clearly seem to indicate acts of omission as well as of commission. When such acts are found out to affect almost 22 percent of the sample, it raises serious questions about the robustness of governance of agricultural loans within the banking sector and of the monitoring role performed by the Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD).

The CAG audit also observed that the Department of Financial Services, MoF was totally dependent upon the nodal agencies (RBI and NABARD) for monitoring the compliance of its instructions to lending institutions issued from time to time for implementation of the scheme. However, the nodal agencies themselves were relying on certificates and data of lending institutions without conducting independent cross checks on such data and certificates to verify the claims. Consequently, the CAG report notes that “This raises an issue of conflict of interest, since in effect, the lending institutions were performing a dual role, first implementing and then monitoring their own work”.

These revelations come at a time when the ruling government is advocating direct cash transfers as a remedy for many problems; Biometric identification and UID (Unique Identification Number) are being trumpeted as a cure-all for systemic ills and the same financial institutions (banking sector) are being seen as effective distribution channels. The aforementioned report clearly points to the hollowness in these claims and outlines the possible dangers in relying entirely on these institutions without plugging loopholes in their system. In the light of the above findings, it seems only reasonable to ask that the central government fix the responsibility in each case of violation reported by the CAG audit report on Agricultural Debt Waiver and Debt Relief Scheme before it embarks on the direct cash transfer scheme. Farmers’ groups must also come forward and demand that all those eligible beneficiaries who were deprived from the benefits of the scheme are now extended the same in a time-bound manner.