Good rains may not take Bharat out of debt trap

A complete recovery in farm sector may require more than two favourable monsoons considering the severity of current stress, said rating agency India Ratings and Research.

Nearly 15 per cent of tractor loans disbursed during 2014 and 2015 were overdue for more than three months as of March 2016. “The average delinquency rate for close to 12 months seasoned loans was only nine per cent during 2009 amid deficient rainfall and low agri-GDP, and still it took nearly two years for the delinquency rate and agriculture output growth rate to completely normalise,” it said.

India Ratings believes that two monsoon failures have created a much more severe impact on the farm sector and tractor loans now than in 2009 and hence a recovery is likely to be protracted.

According to the rating agency, just one favourable monsoon may prove quite inadequate to completely restore the farm sector. This is because unlike the 2009 downturn, the current cycle has so far seen almost five years of muted growth in not only production and price but also acreage and crop yields.

During the 2009 slowdown, the production of all crops dropped 4 per cent year on year (YoY). However, over 25 per cent increase in minimum support price for both foodgrain and non-food grain crops and nearly four per cent drop in key input cost (diesel and fertiliser) lessened farmers’ problems.

In 2014 and 2015, not only did production suffer but the growth in minimum support price was low at a CAGR of below 3 per cent. “Even after factoring in the reduction in diesel prices in the last two years, farmers’ net profit has been growing at a CAGR of below 10 per cent since 2014 and hence the impact on farmers’ income has been more pronounced,” it noted.

The woes of the farm sector have also been accentuated by the glut in tractor financing, with tractor loans disbursement in 2015 being eight times of the 2009 loan disbursement volumes. Excess supply of vehicles in a subdued economy has resulted in reduced utilisation rates for tractors. The is borne out by proxy such as tractor wages growth, which dropped to five per cent in 2015 from over 15 per cent in 2009-2013.