Maharashtra: Can pledge loan scheme help tide over ‘tur’ crisis?

India is the world’s largest producer, consumer, and importer of pulses including ‘tur’ and Maharashtra is India’s largest tur-growing state. Photo: HT

India is the world’s largest producer, consumer, and importer of pulses including ‘tur’ and Maharashtra is India’s largest tur-growing state. Photo: HT

Could Maharashtra government and the Centre have mitigated Maharashtra’s tur (pigeon pea) crisis by facilitating and encouraging pledge loans? Yes, say farm sector experts, bankers, warehouse industry officials and former government officials.

Pledge loans are loans secured by farmers from banks against their farm produce deposited at a warehouse.

Timely government intervention to facilitate pledge loans could have checked the tur crisis early as the government found itself unable to procure the record output of 2.35 million tonnes at the promised price of Rs5,050 a quintal, experts said. They said a government-sponsored pledge loan scheme could still help it tide over the crisis and provide relief to farmers.

India is the world’s largest producer, consumer, and importer of pulses including tur and Maharashtra is India’s largest tur-growing state. According to the second advance estimates of the Union agriculture ministry, India produced a record 4.23 million tonnes this season, against 2.56 million tonnes in 2015-16. So far, the government agencies have purchased only 1.35 million tonnes at the minimum supported price (MSP), of which Maharashtra accounts for the largest share of 600,000 tonnes. Farmers, frustrated by government’s failure to buy at MSP on a large scale, have sold off their tur produce to traders at Rs4,100-4,200 per quintal in Maharashtra. Experts and tur market stakeholders say this could have been prevented.

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According to an official at the National Bulk Handling Corporation (NBHC), a leading provider of services like commodity and collateral management and which has more than 2,000 warehouses in 23 states with a total capacity of 34.7 million tonnes of farm commodities, banks have extended around Rs50,000 crore of pledge loans to farmers. He said NBHC managed farm commodities as collateral for 55 leading banks and the government should have intervened to promote pledge loans.

Farmers can take pledge loans in two ways. One, they deposit their produce with a warehouse accredited by the Warehouse Development and Regulatory Authority (WDRA). The warehouse issues a receipt to the farmers. The farmers take the receipt, which mentions details about the quantity and quality of the produce deposited, to a lending institution which offers them credit of 70-85% of the total cost of the produce based on its current market price. In the second option, the farmer can identify a buyer for his produce and get credit on a warehouse receipt—an agreement signed between the farmer and buyer as a future contract. The farmers can repay the loan on by timing the sale of their produce to market conditions.

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“It is not too late even now. The government should come forward with a tripartite agreement among farmers, lenders, and government. A small tur farmer may not be aware of the pledge loan option and lenders may be reluctant to give loan. So, the government should enter into an agreement with lenders and farmers saying it would buy tur at MSP at a later date and would also bear the rate of interest that the lender would charge on pledge loan. The farmer gets liquidity, tur is safe with warehouses, and the government gets to tide over the crisis,” the NBHC official said, requesting anonymity.

An agriculture expert and former government official, who requested anonymity, said Maharashtra had storage capacity of nearly 4 million tonnes in government-owned, private, and public-private partnership warehouses. K. M. Tope, manager, business development at Maharashtra State Warehousing Corporation (MSWC) which has the widest network of warehouses among Indian states and a storage capacity of 1.5 million tonnes, said the tur stock required warehouses with good ventilation and flooring. “The warehouse receipts which we issue are accepted by all banks to extend pledge loans against collateral. We have stocked up around 4 lakh tonnes of tur this season but it is the produce that the government has purchased from farmers,” Tope said.

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The agriculture expert said after 2010 when the rules of the amended Warehousing (Development and Regulation) Act were notified, pledge loans had emerged as one of the better solutions to the problems of storage, procurement, and price fluctuations. He recalled that in 2008, Maharashtra purchased 16 million quintals of cotton when the state had a bumper cotton yield and stocked up the entire produce in 250 warehouses of which 160 were operated by MSWC and the rest hired from the sugar factories. “The government procured cotton at MSP and stored it because it had the will to do this. Now, with the warehousing act rules in force, this storage capacity could have been leveraged to facilitate pledge loans to farmers. The government could do it even now,” the expert said.

A private sector banker, who handles financial inclusion for his bank, requesting anonymity, said the tur crop is very suitable for pledge loan as it is non-perishable with negligible quality issues. “The government should have tried this option on a large scale to help farmers hold on to their produce till they think the price is right for them to sell. Pledge loan, issued typically for a 6 to 9-month period, provides farmers with short-term liquidity while their produce is secure with accredited warehouses. The government too is not under pressure to buy tur at the minimum support price (MSP) if market prices fall,” he said.