Wretched of the Earth

The worst af­fected in In­dia's farm cri­sis are small, mar­ginal and ten­ant farm­ers. It's time to strengthen their hands


In­dia must en­sure its small farm­ers get cheaper loans and are cov­ered un­der Cen­tral schemes

AGRARIAN DIS­TRESS is not limited to a sin­gle year or a par­tic­u­lar place in In­dia. Even in the highly pro­duc­tive East Go­davari dis­trict of Andhra Pradesh, paddy farm­ers suf­fered losses in 19 out of 36 years, which forced them to de­clare crop hol­i­days from time to time. In 2011, farm­ers de­clared crop hol­i­day on a mas­sive 40,468 hectares. Such acute farm dis­tress of­ten re­sults in sui­cides. Ac­cord­ing to the Na­tional Crime Records Bureau, at least 8,007 farm­ers in the coun­try killed them­selves in 2016 alone.

To pro­vide suc­cour to farm­ers, Te­lan­gana, Andhra Pradesh, Ma­ha­rash­tra and Ut­tar Pradesh had ear­lier an­nounced loan waivers. Though such a mea­sure pro­vides im­me­di­ate re­lief, stud­ies show that fre­quent loan waivers are not a so­lu­tion for in­debt­ed­ness, which ac­counts for 40 per cent of farmer sui­cides. In the long run, waivers dis­cour­age re­pay­ment by those who can af­ford to pay back. There is an­other draw­back. Due to low re­pay­ment rates, banks ei­ther stop giv­ing loans, es­pe­cially to smallscale, mar­ginal and ten­ant farm­ers, or use tac­tics like de­layed sanc­tions, high col­lat­er­als and re­duc­tion in the loan quan­tum.

This leaves them at mercy of loan sharks

Re­fused by banks, small-scale and ten­ant farm­ers of­ten ap­proach money­len­ders to buy seeds, fer­tilis­ers and pes­ti­cides. Some­times, they also re­quire money to dig borewells, to meet health­care needs of fam­ily mem­bers, marry off their chil­dren and pay for their ed­u­ca­tion. Dis­guised as farm in­put sell­ers, traders and com­mis­sion agents, money­len­ders hike in­put costs and sup­press out­put prices, caus­ing huge losses to the farm­ers. Money­len­ders are present in ev­ery vil­lage. They are pop­u­lar, as they pro­vide in­stant loans without pro­ce­dural de­lays and doc­u­men­ta­tion. The flip side is they charge ex­or­bi­tant in­ter­est rates, some­times up to 60 per cent per an­num and re­sort to co­er­cive means to col­lect pay­ment.

Com­pared to money­len­ders, banks mostly meet the needs of wealthy farm­ers, who can pro­vide col­lat­er­als. They also deal with big loan amounts in­volv­ing com­plex pro­ce­dures and doc­u­men­ta­tion pro­cesses that take sev­eral months for sanc­tion and re­lease. Over the past 50 years, suc­ces­sive gov­ern­ments have tried to re­move money­len­ders from the ru­ral credit mar­ket by na­tion­al­is­ing banks, en­cour­ag­ing co­op­er­a­tives and strength­en­ing the net­work of re­gional ru­ral banks. How­ever, for­mal in­sti­tu­tions have not been able to meet the in­creas­ing loan de­mands of farm­ers and to­gether con­trib­ute to less than 50 per cent of their credit needs.

Dur­ing the 1990s, mi­cro­fi­nance in­sti­tu­tions spread their op­er­a­tions mostly in the south­ern states of In­dia. Though their in­ter­est rates are much lower than those of money­len­ders, they still charge at more than 25 per cent per an­num. To re­cover loans, these in­sti­tu­tions of­ten use cruel tac­tics like crim­i­nal in­tim­i­da­tion, sex­ual ha­rass­ment and labour without pay.

In re­cent years, a few states like Andhra Pradesh and Te­lan­gana have in­tro­duced Loan El­i­gi­bil­ity Cards (lecs) to make ten­ant farm­ers el­i­gi­ble for for­mal loans. Un­der this process, the list of farm­ers is pre­pared by of­fi­cials with the rev­enue or agri­cul­ture depart­ment with the help of gram

sab­has. Then it is sent to banks for loan sanc­tion. Un­der lecs, ten­ant farm­ers can avail loans on the value of the crops raised but not on the land, while the landown­ers can take loans based on the land, over which they have own­er­ship rights. But even lecs are plagued with prob­lems.

First, not all ten­ant farm­ers ap­ply for lecs. Sec­ond, among those who ap­ply, not all are is­sued cards and only a few man­age to fi­nally get the loan. For ex­am­ple, in Andhra Pradesh, only 21 per cent of the ten­ant farm­ers pos­sess lecs. Only 15 per cent of them re­ceived bank loans in 2016.

One of the rea­sons lecs are spar­ingly used is due to their mul­ti­ple re­stric­tions and the term of lease rate; ten­ant farm­ers have to pay up to 30 per cent of the gross in­come earned from the to­tal pro­duce to the landowner. Be­sides, some 90 per cent of land lease mar­kets in the coun­try is not recorded, and hence, ten­ants are in no po­si­tion to of­fer lands as col­lat­er­als while seek­ing bank loans. As ten­ant farm­ers are more vul­ner­a­ble to agrarian dis­tress, in­clud­ing them in the for­mal agri­cul­tural de­vel­op­ment pro­grammes is cru­cial for bring­ing down the num­ber of farmer sui­cides. I think there is a need for lib­er­al­is­ing, le­gal­is­ing and pop­u­lar­is­ing lecs to make ten­ant farm­ers el­i­gi­ble for gov­ern­ment schemes like credit, crop in­sur­ance, in­put sub­sidy and other ben­e­fits.

Im­prove bar­gain­ing power of small farm­ers

It is a dire sit­u­a­tion out there. The re­cent Na­tional Sam­ple Sur­vey Of­fice on farmer sit­u­a­tion as­sess­ment says 40 per cent of farm­ers would like to quit agri­cul­ture if al­ter­na­tive em­ploy­ment op­por­tu­ni­ties are made avail­able to them. To en­sure that farm­ers con­tinue with their pro­fes­sion, a few steps must be taken. Farmer co­op­er­a­tives, farmer pro­ducer com­pa­nies, self-help groups, farmer in­ter­est groups, land pool­ing, col­lec­tive farm­ing and mar­ket­ing should be pro­moted to al­le­vi­ate dis­tress and im­prove the bar­gain­ing power of small-scale pro­duc­ers.

The Union gov­ern­ment should en­act a law to en­sure that in­ter­est rates charged by both for­mal and in­for­mal fi­nan­cial in­sti­tu­tions do not ex­ceed 8 per cent per an­num for farm­ers. The gov­ern­ment also needs to sub­sidise losses and ad­di­tional ex­penses in­curred by fi­nan­cial in­sti­tu­tions while dis­burs­ing loans. In the long run, mar­ket-based in­stru­ments should be de­vel­oped to over­come agrarian dis­tress. In­sur­ance schemes should re­place loan waivers in case of crop fail­ure and all farm­ers should be en­ti­tled to claims. Right now, in­sur­ance schemes only ben­e­fit loa­nee farm­ers. The Prad­han Mantri Fasal Bima Yo­jana must cover all farm­ers ir­re­spec­tive of their loan sta­tus. At present, it is com­pul­sory for loa­nee farm­ers and vol­un­tary for the non-loa­nee. Cov­er­ing all will re­duce pre­mium rates and sub­sidy costs on the part of the gov­ern­ment.

The Union gov­ern­ment should en­act a law to en­sure in­ter­est rates charged by both for­mal and in­for­mal fi­nan­cial in­sti­tu­tions do not ex­ceed 8% a year. The Prad­han Mantri Fasal Bima Yo­jana should cover all farm­ers ir­re­spec­tive of their loan sta­tus


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