Debt – Farmers’ CompanionMarch 2015

Agricultural productivity depends a lot on access to credit. So does the welfare of the farmers. Although there are enough statistics to prove that the flow of credit to agricultural sector has been improving, unfortunately the same could not be said about farmers

The recent survey results of National Sample Survey Organisation (NSSO) are disturbing. The survey revealed that nearly 50 per cent of India’s 90 million farm households were indebted to either banks or money lenders. The most populous state, Uttar Pradesh enjoys the dubious distinction of having the highest number of indebted farm households at 69 lakhs.To make things worse, these are debts owed to moneylenders at usurious rates. One out of four households borrows money from moneylenders. In 2012, nearly 48 per cent of farmers who needed loans got it from informal sources such as moneylenders and landlords, according to the All India Debt Investment Survey.Among farmers who owned land parcels smaller than 0.1 hectares, 85 per cent had pending loans from such informal finance sources.In 2010, the task force on Credit Related Issues of Farmers said 36 per cent of debt had interest rates ranging between 20 per cent and 25 per cent. Another 38 per cent of finance was borrowed at interest rates over 30 per cent.

While borrowing money from informal sources at exorbitant rates continues to rise, farmer suicides are escalating critically. The phenomenon is not local but spread nationwide. The numbers, however, have peaked in certain parts of the nation. There has been an upward trend in cases of farmer suicides in Maharashtra, Telangana, Karnataka and Punjab recently, besides reporting of instances in Gujarat, Uttar Pradesh and Tamil Nadu.

As suicides have assumed the proportion of an epidemic, quick fixes such as loan waivers have become the common solution. Loan waiver scheme, over the years have become a more appealing instrument for the political parties which have used them quite deftly as part of vote bank tactics and less as a welfare scheme. While loan waivers promise instant solutions, we need long term arrangements which are self propagating and self sufficient. Access to finance, especially by small holders, is crucial for better and sustained agricultural performance.

Small and marginal farmers, particularly women, lack adequate access to credit, extension, insurance and markets. While every effort should be made to strengthen delivery of public services in their favour, the intervention likely to be most potent is support to group action by farmers themselves. The issue of profitability of small holding based agriculture has assumed importance in view of increasing proportion of small and marginal farmers in the country.

The share of long term investment credit in agriculture is going down as compared to short term crop loan. This is severely hampering the asset creation in agriculture and allied activities. In the interest of strengthening of the ground level tier, there is also need for considering disciplined refinancing of Primary Agriculture Credit Society (PACS) as stand-alone institutions, provided that these are member driven. With the continually rising cost of production, the credit requirements of the farmers are more than ever. This has increased the dependency on external sources of finance which mostly are informal sources. The farmers today are more vulnerable to debt. While the flow of credit to agriculture has increased, financial inclusivity still remains a distant dream for farmers and debt an unlikely companion.

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