'DNA' investigation: A suicidal move for farmers

The Centre’s restructuring/ repositioning of Nabard (National Bank for Agriculture and Rural Development) violates the mandate for the country’s premier rural credit institution and could cause an increase in interest rates even as farmer suicides continue unabated, DNA has found.

Several MPs and bank employee organisations have raised concerns about the plan, warning that it may result in interest rates for rural credit shooting up. But the government has turned a deaf ear to these warnings.

The restructuring of Nabard was initiated on the basis of a plan drawn up by the Boston Consulting Group (BCG), a global management consulting firm. The process began in 2010, purportedly to improve the scope of the bank’s operations. BCG was appointed to guide Nabard in the process for 18 months. The consultancy’s tenure ended last December.

DNA has copies of letters written by several MPs who, cutting across party lines, have urged finance minister Pranab Mukherjee to put the restructuring on hold. Among those expressing concern is also a Congress MP, PT Thomas.

In one such letter dated October 22, 2011, Tapan Sen, Rajya Sabha member, says, “The repositioning/restructuring design must be subjected to the review and scrutiny of the appropriate forum, including the Parliament, which gave birth to Nabard through an Act.”

The RBI has already stopped its funding of Nabard through the National Rural Credit (long-term operations) Fund and the National Rural Credit (Stabilisation) Fund (NRC). According to experts, channelling resources to these funds is critical to sustain investment credit for agriculture. In fact, the RBI is also violating a statutory obligation under sections 42 and 43 of the NABARD Act, 1981, by not financing these endowments.

What really worries the MPs is that if NABARD enters into the direct financing business and starts raising money from the open market (away from the two sheltered borrowing facilities from RBI), it will have to raise interest rates for the loans it gives to the rural masses.

It is well documented that a major reason why farmers are committing suicide is the lack of credit at lower rates. “NABARD plays an indispensable role in providing credit to farmers and should be repositioned in a democratic manner,” says Basudeb Acharya, chairman of the parliamentary committee on agriculture.

A letter signed by 35 MPs of various parties and sent to the finance minister says, “We understand that NABARD is being repositioned/restructured on the basis of recommendations of the BCG into a commercial entity devoid of its social banking mandate. We are afraid that if the ongoing repositioning exercise continues in full swing, NABARD will cease to exist as a Development Finance Institution (DFI) and will become a direct financing institution competing with other financial entities like commercial banks, cooperative banks, and regional rural banks (RRB). This will lead to diluting the basic mandate and purpose for which NABARD was formed by an Act of Parliament.”

The letter was signed, among others, by Mulayam Singh Yadav of the Samajwadi Party, Sharad Yadavof the Janata Dal (United), former prime minister HD Deve Gowda, and Acharya.
The moot question, as a Nabard official put it, is: why is the restructuring process silent on the restoration of NRC funds? The MPs have urged Mukherjee to look into the matter personally.
According to Nabard, the board of directors, after discussing the matter of repositioning, had approved a two-pronged strategy. KR Nair, chief general manager, corporate communications, said both these strategies were within the institution’s mandate and fortified its role. “The’repositioning’ initiative did not replace or modify the traditional credit and development functions of Nabard. It only served to increase the efficacy of its interventions,” he claimed.

BCG is also believed to have recommended administrative restructuring of Nabard, including severe curtailment of staff at all levels. “Based on [these] recommendations, the management has reportedly put on hold the recruitment process for clerical staff (development assistant) all over India, the examination of which was conducted on May 22, 2011. This will create immense frustration among the youth of the country,” the letter signed by 35 MPs says.

Nair admitted that in December Nabard’s directors had approved the cancellation of the process of recruitment of group B (clerical) staff. “This was based on thechanging needs of manpower for Nabard, which needs to conceptualise, design and constantly upgrade its products and services for the benefit of the rural population,” he said. “These require recruitment of qualified and experienced professionals, which would not be possible at the group ‘B’ level.” Further, while a NABARD official said that in the name of improving the institution’s age profile, the management is forcing some staff to retire ‘voluntarily’, Nair denied it.

According to a reply to a question in Parliament, Nabard’s board, at a meeting on September 18, 2008, approved a proposal to undertake a strategic action plan titled ‘Repositioning NABARD’to further the objectives of the Nabard Act’.

The action plan proposes to cover aspects such as articulating a vision for Nabard in 2020, and preparing benchmarks to be achieved by 2012 and 2015 on various areas, including products and services, delivery mechanisms, structures and processes. To fulfil this, Nabard roped in BCG.

DNA has a copy of the letter written by a Nabard general manager to the general secretary of the All-India NABARD Employees Association (AINBEA), in which he had assured that the consultant would interact with a cross section of the staff. But no such interaction took place.

Subsequently, the All India NABARD Employees Association (AINBEA) also submitted to the management of NABARD two detailed responses on the proposed restructuring of NABARD — one in July 2010, and the other in September 2011.

DNA has a copy of both the responses which proposes in detail the steps that can be undertaken to restructure NABARD. “These proposals have been ignored as it has exposed the retrograde character of the recommendations of the BCG,” said a senior official of the AINBEA.