PM Modi must think beyond loan waiver to stop farmer suicides

Hopefully, the new year will put an end to the demonetisation fever and various other issues which have taken a backseat will come up for discussion.

Prime Minister Narendra Modi said during his Maharashtra visit that Lutyens’ Delhi can’t be the benchmark of economic progress, and progress should be measured with the progress of villages. People in village are largely dependent on agriculture for their livelihood and roughly half of the population is directly or indirectly dependent on farming.

There is no ambiguity that if the economic condition of villages is to be improved then it can be done only by increasing farmers’ income. At the same time, it is also true that despite various initiatives taken by successive governments, farmers’ condition has only deteriorated.

There is speculation that the PM may announce a farm loan waiver scheme to distribute the benefits coming out of the demonetisation drive but there are certain questions which needs to be looked at in depth to understand the plight of the farmers.

Being the son of a farmer and having spent my initial years in a village, I can say that loan waiver may bring temporary relief to a handful of farmers but it’s not going to provide a permanent (or even long-term) solution to larger issues.

Farmers fear the (loan) recovery vehicle coming to their door and while they are not willful defaulters, it’s their economic condition which compels them to default on loans.

The UPA government had announced a loan waiver scheme in 2008 and if, after almost nine years, the government is again exploring similar options then it clearly means that the earlier scheme was unable to provide a sustainable solution.

According to a report released by National Crime Records Bureau (ministry of home affairs) in July 2015, only 20 per cent of farmer suicides are caused by bankruptcy and there are other farming-related issues which are worsening the plight of the farmer (refer chart 1).

The report further says that most of those who have committed suicide are small and marginal farmers (refer chart 2). It is pertinent to note that these small and medium farmers have very little access to formal credit and therefore a loan waiver will not benefit those who have borrowed from money lenders.

Going by the statistics it is clear that indebtedness is only one of the reasons behind the sad plight of India’s farmers. There are some factors and practicality which need to be considered while drafting any policy for revival of agriculture.

1) A significant number of marginal and small farmers are out of the formal credit net and are dependent on local money lenders (sudkhors) who charge exorbitantly. It is neither desirable nor practicable to waive-off the amount borrowed from local lenders but efforts should be made to bring these farmers into the bracket of government-sponsored schemes like Kisan Credit Card. Banks have a pivotal role to play in the entire process and going by my personal experience, I can say that getting a loan is not easy for an eligible farmer unless he bribes middlemen appointed by the bank officials.

2) Raising minimum support price (MSP) continuously will have very limited impact because of two factors. Firstly, a large number of farmers are engaged in subsistence farming and don’t have surplus grain to sell in the market, and secondly, increase in MSP impacts inflation also. Moreover, there is a corrupt practice developed by government agencies or cooperative societies in which they purchase grain from middlemen and show bogus procurement from farmers. Margin between MSP and purchase price from middlemen is shared among themselves and the poor farmer is left at his own peril.

3) Farming-related issues (like lack of irrigation facilities, pest control etc.) are another reason for farmer suicides and there has to be an institutional framework for dealing with these problems on a permanent basis. The Pradhan Mantri Fasal Bima Yojna (crop insurance) is a good scheme but the government has to ensure its implementation and administration (including monitoring of performance). Most farmers are not educated enough to understand the basics of the scheme and red tapism at government offices is known to all of us. Till the time we find a permanent solution for dealing with issues like drought etc., crop insurance can provide relief to farmers provided it is implemented in the same spirit with which it was launched.

4) It is often highlighted that farmers don’t use the latest technology which can increase productivity. For perspective, it may be noted that in India, we have fragmented land holdings and small farms are not suitable for using these equipment. The government should educate the farmers about benefits of cooperative/collective farming and even contract farming should be promoted, in which a body-corporate can pool the land and simultaneously farmers can be granted a minimum amount in return along with share in profits.

5) The price of any agricultural produce moves northward in the harvest season and the debt-ridden farmer is forced to sell his produce at whatever price he is getting. Even in case of a bumper harvest, a farmer gains a very small share because he can’t hold his produce for long and has to sell it at a throwaway price (we can see this with the price of potato now and in summers). In all these cases, middlemen and hoarders gain at the cost of the farmer, and lack of storage facilities coupled with absence of formal credit force the farmer to do so.

6) There should be an additional source of income for farmers and dependency of tilling the soil increases their vulnerability. The government has to encourage animal husbandry, fisheries, horticulture etc. and create basic infrastructure for this.

All efforts should be made to improve the condition of farmers and if the situation demands, relief should be given against farm loan even if it is labelled as a populist measure.

Agriculture not only provides employment to almost half of the population but it is related to our food security also. Inadequate (or at times negative) return in agriculture has caused steep rise in migration from villages which has its own disadvantages.

But at the same time, it has to be kept in mind that only a handful of farmers will benefit from the credit waiver scheme and honest efforts should be made to find a permanent solution to the problems faced by the community. Government schemes are undoubtedly good but their effectiveness is dependent on implementation and administration.

Also read: Why don't farmer suicides affect India any more?