The Indian farmer’s distress: Solutions beyond loan waivers

By Moin Qazi

With Maharashtra joining the farm loan waiver bandwagon, various state governments are expected to waive off $40 billion, or Rs. 2,57,000 crore, of farmers’ loans in the run-up to the 2019 Indian general elections, a Bank of America Merrill Lynch report stated. The report further suggested that farm loan waivers will amount to 2% of gross domestic product (GDP) by the 2019 polls.

Data from the Nation Crime Records Bureau (NCRB) shows that Maharashtra accounted for over one-third (4,291) of the total suicides by farmers and agricultural labourers in India (12,602) in 2015 — the highest among all Indian states. A staggering 43% of the suicides by farmers in Maharashtra were due to bankruptcy and indebtedness, while 18% suicides were due to crop failure. The concerns of the farmers are however quite justified.

The dismal state of affairs

According to the 70th Round of Situation Assessment Survey of Agricultural Households conducted by National Sample Survey Office (NSSO), 90% of India’s farmers have less than two hectares of land. The survey states the average farm household makes less than Rs. 6,500 a month from all sources of income. They are barely kept afloat by government schemes that fund money and the occasional farm loan waivers that discharge their liability to an extent.

To improve their standard of living, farmers need to go beyond agriculture and enter the manufacturing or services sector. Most small-scale farmers would happily sell their land, if only they could be provided employment in its place. India’s developmental failure since 1947 has been its inability to relocate people involved in agriculture to other industries and services. As the share of agriculture in the national output pie falls, any crisis hurts those dependent on it gravely.

Is waiving off loans the right step?

Loan waivers are both ‘bad politics’ and ‘bad economics’. Loan waivers have an insignificant role in ending the current abysmal situation. In a sense, loan waivers recite a story of unfinished reforms in India. The question should be why almost 55% of the population produces just 17% of agricultural output. Unless this share of the population is empowered, loan waivers will remain an unsuccessful recourse.

Indebtedness is the most acute problem faced by small and marginal farmers. However, they mostly borrow from moneylenders and hence a loan waiver does not serve their cause. Affluent farmers are the real beneficiaries of such populist policies. The problems faced by destitute farmers are complex and require a strong political will to address them. Their landholdings are below the economically viable threshold, thus resulting in recurrence of bad loans and poor rainfall. Loan waivers can do little to end these deplorable conditions.

Frequent debt waivers may push banks to invest in alternatives to farm lending such as the Rural Infrastructure Development Fund instead of reaching out to individuals farmers to meet their agriculture demands. This may indirectly boost the mushrooming of unscrupulous moneylenders.

Bankers’ plight

Bankers mourn over large sums being invested only to buy seeds or fertilisers, rather than to invest in mechanisation. India is the world’s second-largest producer of rice, wheat, cotton, and sugar. However, its productivity is well below the world average. Bankers stand and watch helplessly as there is a surge in the number of ‘wilful’ defaults among borrowers. Funds of agriculture end loans are diverted instead to marry off daughters, to become lenders themselves, build extensions for their farmhouses or to splurge on social occasions.

Scope for reforms

Farmers openly admit that the government knows they will sanction more loans and fall into the same trap again and will withhold repayment of these loans, waiting for the next election in hopes of a loan waiver. “The government knows we will take out more loans in the end and fall into the same trap again and will withhold repayment of these loans, waiting for the next election for the loan to be waived“, said Vital Mhaski, a cotton farmer in Maharashtra who owes Rs. 77,000.

The actions and resolutions taken by this country’s representatives and leaders may not only shape India’s agricultural future, but also its polity. India’s first Prime Minister, Pandit Jawaharlal Nehru said in 1947, “Everything can wait, but not agriculture.” Contrary to this, India is witnessing the reverse. All sectors of the Indian economy except the agricultural sector, are surging ahead.

Featured Image Credits: Quartz