Problem of farmers’ suicides goes beyond credit: Reddy

Problem of farmers’ suicides goes beyond credit: Reddy
PTI
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First Published: Thu, Oct 18 2007. 04 52 PM IST
Updated: Thu, Oct 18 2007. 04 52 PM IST
Washington: Amid concerns over suicides by debt-ridden farmers, RBI governor Y V Reddy has said the problem “goes beyond credit” and blamed the lack of risk mitigation mechanisms against natural calamities and other failures like pesticides for the crises.
Addressing a gathering at the Peterson Institute of International Economics, Reddy said shortage of skilled manpower and absence of modern infrastructure were “the most critical barriers” to the India economy, which expanded by 9.4% last year, and called for urgent education reforms.
He said the issue of credit to the agricultural sector is a “very important one” but would have to be pursued as a larger effort.
“There is need for enhancing but greater credit in agriculture has to be a part of a larger effort,” Reddy, who is here for the annual meetings of the World Bank and the International Monetary Fund, said during the interactive session.
“Suicides are occurring in the states where the credit is highest, where the bank credit is highest; and the bank credit is highest where there is commercial agriculture,” the Reserve Bank of India chief said.
“Our diagnosis of the problem is that it goes beyond credit. It goes to the issue of Risk Mitigation Mechanism and that has to be addressed. The major issue is the Risk Mitigation Mechanism,” Reddy said.
In India, Reddy said, there are not enough risk mitigating mechanisms either against natural calamities or against failures like seeds or pesticides or power supply by the government or water supply. “There are so many uncertainties, there are so many risks,” he said.
Reddy said financial penetration did not mean just credit. “It is transactions and as people are moving in we have to see the whole penetration of the banking system.”
Bank lending to agriculture is 18% but the RBI chief pointed out and that “in aggregate the rural areas give more deposits and take less money”.
In his formal presentation, Reddy argued that India’s economy since independence has been on a path of “gradually self-accelerating development accompanied by reasonable stability” and that there has been a noticeable acceleration in the level of confidence and performance of the economy in the 21st century.
While India’s demographic profile of India placed it favourably in terms of manpower availability, “emerging talent supply shortages” have become a critical problem, he said.
“The sustained acceleration in the services and the manufacturing activities is leading to incipient pressures on the supply of good quality skilled labour,” he said.
Pointing out the impressive performance of star services sector stemmed from the availability of skilled and cheap labour in India, the central bank chief said the country could not afford to lag behind in education reforms to build its talent pool and remain competitive in the global economy.
“Only 10% of the relevant age group is getting enrolled into institutions of higher learning in the country as compared with 40 to 50 percent in most developed countries,” he said at the conference, adding less than half of the Indian secondary school students pursued college education, he said.
Reddy said the quality of education imparted in several colleges and universities in India “remains less than adequate to meet the emerging demands for skilled professionals.
“In order to reap the benefits of the demography dividend, substantial expansion and reforms in the education sector would be needed on an urgent basis,” he said.
Reddy was also critical of the “less than adequate progress” in key infrastructure sectors, including power and roads.
“Urban infrastructure is a vital element in the growth process,” he said, calling for “strengthening the management of cities” in India.
On Capital Account Convertibility, the RBI chief said he is more interested in the “pre-conditions” prescribed for a successful capital account convertibility being fulfilled.
“I am only looking at the timetable by which the pre-conditions are fulfilled. Once the pre-conditions are fulfilled full capital account convertibility and liberalisation will follow,” Reddy said in response to a question.
“Purely from a management point of view, it is far easier to manage a liberalized capital account than a capital account controlled. We have to recognise that trade is getting more and more open and if we have more and more open trade, more and more current account, it is very difficult to manage the capital. We have to recognise that,” he added.
“But if there are some policies which are so risky, those have to be addressed first,” Reddy said.
Reddy was asked not only about the prospect of the intervention of the RBI on the Rupee-Dollar exchange rate but also of which was of greater concern--the appreciation of the rupee or the potential threat of inflation.
“When it comes to the exchange rate it is like my view of God. I cannot define God but I can recognise the devil and we can fight it,” he said.
“On the subject of which inflicts greater pain, I think you would have to see (how) the metabolism of the Indian economy is responding to these dynamics,” the RBI Chief said.
“The short term prospects despite recent global uncertainties continue to be by and large benign for India,” Reddy said.
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First Published: Thu, Oct 18 2007. 04 52 PM IST