The Indian Economy Blog

February 29, 2008

Farmers And Loans

So the UPA government is set to improve credit availability (and write off loans) for farmers. Laveesh Bhandari tells you why, if improving the livelihood of farmers is a policy goal, the Manmohan Singh and P Chidambaram are barking up the wrong tree.

Here lies the crux of the matter. If use of new seeds, fertiliser use, irrigated land, cropping intensity, and private capital stock growth are not rising fast enough, then where is this credit going? To put it another way, what is the Indian farmer doing with the extra credit if he is not using it in seeds, fertiliser, water, capital or land? [IE]

22 Comments »

  1. The debt is going in the pockets of Multinationals.

    Most of these farmers(Cotton in particular) have shifted to BTCotton seeds. There has been a tremendous growth in areas under cultivation for these seeds and the output also. However, the farmer has suffered. The cost of acquiring these seeds is very high and the yields are very poor.

    Bio-farming of cotton (natural seeds and no synthetics) gives a better yield and a quality that fetches a higher price internationally. However, the quantity is not there. Bio-farming has not been encouraged. Government only incentivises the acquisition of btcotton seeds by creating points of disbursal etc. on the back of lobbying (my guess) from MNCs. The result is higher debts and higher suicide rates.

    I would solicit comments from people.

    Comment by Sumeet — February 29, 2008 @ 3:59 pm

  2. Well ‘comrade’, I think that’s taking a very narrow perspective of the entire situation. The plight of farmers has been worsening across regions and crops. Its not just the cotton farmers but also sugarcane, wheat, rice and other crop growing farmers who are facing the brunt of poor productivity, predatory lending ( not by FOREIGN POWERS but our very own INDIAN ‘BROTHERS’), lack of education and opportunities to shift to secondary or tertiary sectors. I firmly believe that the farmers also want to move out of the cyclical debt trap that engulfs them every few years. We dont need to stuff them with cash and subsidies, rather provide enabling conditions to assist them in coming out of the clutches of poverty and indebtedness. What is needed is education, health facilities, rural infrastructure creation and reforms in retailing of the produce. Something like this has succesfully been practised by ITC e-choupal initiative. They educate farmers on scientific farming, provide seeds at correct prices, purchase the produce from farmers at prices close to the actual market prices and sell their products to the farmers at affordable rates. No farmer objected against Reliance Fresh, it were the damned middlemen who collude with APMC authorities to short-change the farmer. Contrary to the Left’s objections against Commodity Markets, the participation of farmers directly in the markets or through co-operative initiatives would help in better price discovery for the produce. Arranging farmers into self-help groups or co-operative units that would apply for loans from various RRBs (Regional Rural Banks), Co-operative Banks and Microfinance institutions would help to pull them away from the insidious influences of the local moneylender. This would be productive channelization of money and a lot better than doling out misdirected subsidies like those on power, fertilisers and irrigation. So, its not as simple as has been claimed by the author. There are many facets to this problem and only a comprehensive solution can emancipate the Indian farmers and produce the much-wanted 4% growth rate of agriculture.

    Comment by Satwik Sharma — February 29, 2008 @ 11:51 pm

  3. With sky-high commodity prices, it is a tragedy that the farmers are still so poor. In the US, there is a farming boom because of the high prices their output is getting. I saw some anecdotal evidence that so Chinese migrant labourers are moving back to their farms because in the face of food price inflation, it makes better sense to farm that work in the cities.

    With agricultural protectionism by richer countries, I don’t see India making much headway in the international markets for a long time coming. This information about BTcotton is news to me. I can see how it works.

    To answer the original question, considering the Indian propensity to blow up money, I would say that the extra money goes for conspicuous consumption.

    Comment by HmmBut — March 1, 2008 @ 7:23 pm

  4. There are number of flaws in granting freedom to farmers who defaulted their loan payments.
    1)Writing off loans without any penalty and or conditions that this is one time only offer
    2)Not clearly specifying anything about Farmers who are indebted to local lenders who charge higher interests.

    This policy of writing off loans will only encourage defaults by farmers in election years going forward.

    Either government should do away giving loans and enter into partnerships with farmers (just like normal stock investments) or do the right thing of collecting money back from farmers with easier terms.

    Populist budget policies such as this one sould be challenged in courts.
    I really don’t understand how this will encourage growth.

    Comment by sridhar kondoji — March 2, 2008 @ 2:23 am

  5. While aiming for 4% growth in the stagnant agricultural sector the FM needed to focus on proactive measures ,rather than reactive measures such as the writing off of farm debts .
    Clearly such measures would only hamper all round development of the small farmer.

    While short term benefits may accrue from the debt waiver ,a long term and an apolitical perspective would have demanded that the FM took measures to strengthen the credit dispensing mechanism in rural areas .This could have included incentives for rural microfinancial institutions to strengthen their credit mechanisms to empower the small farmers and measures to identify the disparity between the growth in credit supply and the poor growth of agriculture reflected thru agricultural performance indices such as the cropping intensity or technology use.

    The figures reflected thru the economic survey are indeed reflective of the glaring failures of our existing rural credit system.The supply chain of credit distribution has too many nodes ,bringing in corruption and inefficiency.Things on paper rarely get reflected on the ground.While the failure to repay a loan may indeed be hampering the growth of the Indian farmer by restricting the supply of future credit to him,there are more questions to be asked.What happened to the loan he took in the past?If it was for buying new technology why is not reflecting in the figures…why is he not increasing the area under crops ?
    Our finance minister has merely sought to inject a pain killer in to t he system,whereas what was needed was a vaccine…Maybe the vaccine would have been more politically beneficial as well..

    Comment by Harsha — March 2, 2008 @ 7:49 pm

  6. The main problem with Indian agriculture is distribution and the lack of involvement by the Indian corporate sector as yet.
    With people like Mukesh Ambani and Sunil Mittal entering, we will surely see a lot more productivity and the growing incomes in rural India.
    The best way to solve problems is not by subsidies or waiving debt, but involving the private sector.

    Comment by Yogesh "Happionaire" Chabria — March 2, 2008 @ 11:13 pm

  7. I think the crux of the problem is this: farming is looked upon as a means of subsistence rather than a business. Add to that if we continue to pamper these guys with taxpayers’ money (right from input subsidies, support prices to writing off loans) they will never have the incentive or the need to change.

    Even if one were to look at it from a humanitarian point of view, writing off loans doesn’t solve the problem – a bit like bringing down fever instead of treating the disease.

    This money would have been better spent had it been used to build rural infrastructure – atleast that would’ve provided some useful employment.

    Comment by photonman — March 3, 2008 @ 4:29 am

  8. Farmers are in distress without doubt, and farming is the only livelihood they have. But farming income is insufficient to meet all livelihood expenses, including social obligations. There is certainly no money left over for agricultural investments. The Loan waiver scheme addresses crop loans from banks, while moneylenders are the source for other loans. Even then, given the hue and cry on land acquisition, it is not obvious that farmers want to move off their land for better income prospects. Some form of commercial farming in partnership with farmers could improve their income, as is happening in pockets in the country. But continued resistance to reforms such as organised retail, corporate farming and privatisation of various areas creates a massive investment gap. Farmers everywhere in the world are given subsidies, so there is no reason that ours should not. At the same time, incremental investment will not help – a massive transformation in the way we link agriculture to markets is needed. This will also help attract corporate investment into agriculture.

    Comment by Sharmila — March 4, 2008 @ 9:46 am

  9. [...] possible ways to finance the Rs 60K Crore loan waiver and what each of them would mean. Even the Indian Economy blog has not covered it yet, although they do have an important post by Nitin wondering about the [...]

    Pingback by More on the budget « Reality Check India — March 4, 2008 @ 1:00 pm

  10. Sharmila I agree with most of your points, but don’t agree with your views on farm subsidies. Yes in the West farmers do get farm subsidies, but that isn’t int he best interest of world trade or economy.

    I personally feel agriculture is a great place to invest at the moment and the entire system can be revolutionized. Personally I have started looking at making investments in the agricultural sector as I feel they are going to be very profitable, and at the same time can empower farmers.

    Comment by Yogesh "Happionaire" Chabria — March 4, 2008 @ 6:54 pm

  11. @Satwik
    Thanks for pointing out me to be a ‘comrade’. I had to think my argument all over :-).
    I am trying to do a research on the plight of Vidarbha farmers. As such, not really against Multinationals. But definitely if there is anything that the corporate world (especially non-indian companies) can do for the Indian Farmer, they are NOT doing it. All that you have written is definitely true at the superficial level.

    Again, surely you would know that the problem is much severe with Cotton/ Vidarbha although suicides are happening everywhere Cash crops are grown (which indicates that Irrigation/ Infrastructure needs to be improved anyways)

    The 60000 Crore, i think will actually help farmers for the time being, which I feel is necessary, considering that they commit suicides for sums as paltry as 10K. How it will be implemented, is anyone’s guess.

    Again, I might be digressing from the topic here, but would like to highlight this to get at possible solutions that can be thought of for the problem. The challenge here is to incentivize them enough so that they stick to agriculture/allied, which they are best at. There are somethings like policy which might not be in our control, but there have to be somethings that we can do?

    Would request to review and comment please

    Comment by Sumeet — March 5, 2008 @ 12:50 pm

  12. In a fractional reserve fiat currency system people who produce real goods and services will always end up losers. Simply stated fractional reserve fiat currency system = slavery.

    Farmers can “liberate themselves” by rejecting fiat currency there is no other way, it will happen sooner than most people think, in less than a decade. The fractional reserve fiat currency system will be replaced with energy reserve currency system. This will establish a more equitable economic system.

    Reserve banks should have food/fuel/energy reserves otherwise they cannot be called reserve banks.

    Comment by General Public — March 7, 2008 @ 1:33 am

  13. Who here thinks that the 600b write off will solve suicide problem. I dont think there is anybody in there who commits suicide for not being able to repay a government bank. In fact, most villagers see bank loan more of charity rather than something to repay. The problem is that of loan sharks and the government should wean away people from them towards banks. But, by weakening the banks in the current situation of a global banking crisis is hardly the right way. The government could make use of this money to extend the availability of bank credit to more regions and more farmers or even better it could used to improve irrigation and productivity, in cooperation with the private sector. But, socialism refuses to die in India even after years of torturing our nation and taking it to near death a number of times, it is thriving. This week’s economist issue is covering this subject in detail with a cover story and 4 articles.

    Comment by Balaji Viswnathan — March 11, 2008 @ 8:21 am

  14. The upa govt has run out of ideas and in their desperate attempt to try to remain in power, they have resorted to almost trying to buy the votes. But will those farmer whose loans was waived really ever vote for them.

    Comment by daniel — March 15, 2008 @ 12:46 am

  15. Isn’t the problem the fact that there are too many farmers? I mean, in Canada, the people employed directly by the farming sector is miniscule, while the amount of space for agri is massive. In India, we have 600 million making a living off of farming, and we don’t have much space either comparatively. How are farmers supposed to make a living if they have only a few acres of land?? IMHO, these people need to be trained such that they can move to a different section of the economy. Maybe subsidised private education for these people is a better solution than loan waivers or free electricity (as we have in Punjab).

    Comment by Singh — March 17, 2008 @ 6:16 pm

  16. Waiving off the outstanding loans is not only going to encourage the defaulters to do the same every election year and at the same time would prove others fool who were otherwise paying off debt on time.
    It was nothing but a politically motivated step. What they were busy with when farmers were committing suicide in vidharbha and other areas of the country. This step should have been taken specially for areas which got affected badly by adverse climate/agriproduce that too with some relaxation in repayment terms.Waiving off partial loan amount could have been done to encourage good repayment track record holders.
    We talk of inclusive growth everytime for which we should equip our population with ways & means to become self sufficient rather than initiating a such trend.

    Comment by Mahendra Singh — March 21, 2008 @ 5:21 pm

  17. I completely understand Farmers need help. Instead of write-off’s, why doesn’t corporate banks become part investors along with farmer?
    Let the farmer do the hard core stuff and Corporate bank invest in it. Also provide consulting services and educate him about the markets and help turn profits.
    Corproate banks are loosing money anyways, so why not loose or gain by investing?

    Comment by sridhar kondoji — March 22, 2008 @ 12:49 am

  18. There is an excellent analysis on why Indian farmer’s are indebted at

    http://alternativeperspective.blogspot.com/2008/03/indian-budget08-when-is-sop-not-sop.html

    I copy excerpt from this blog, which to me make sense who is responsible for this crisis.
    “”…So why are Indian Farmers indebted?

    The decline in agriculture started during 1980′s, with the decline of public investment in the sector — in irrigation, marketing infrastructure like warehousing, mandis, etc, and seeds and extension services. From 16.4 per cent in 1979-80, plan outlay in agriculture and allied activities slumped to 4.9 per cent in the Ninth Plan (1997-2002), making farming, always the most privatised, independent business, a totally support-less venture in these liberalised, globalised times (the fact that this coincided with the IMF loan is a different story)

    Meanwhile, the global prices have dropped: from $216/ton in 1995 to $133/ton in 2001 for wheat, $98.2/ton in 1995 to $49.1/ton in 2001 for cotton, $273/ton in 1995 to $178/ton for soyabean, etc.

    The drop in global prices is not because of increased productivity, efficiency and competitiveness of other developed economies, but due to the agricultural subsidies doled out by the rich nations to their agribusiness corporations (e.g., Monsanto, Cargill, Syngenta, etc.).

    For instance, the U.S government pays $193/ton to US Soya farmers; 25000 cotton producers in the U.S are given a subsidy of $4bn annually, etc., leading to a subsidy of $ 230 per acre in the USA. In the process, the Indian peasants are loosing $ 26 billion or Rs.1.2 trillion annually. This is a burden their poverty does not allow them to bear. Hence the epidemic of farmer suicides.”

    Comment by Anil_R — March 22, 2008 @ 9:31 am

  19. A couple of articles arguing why Indian government should not only be waiving all the loans to the peasants but also the neoliberalism should be abandoned as quickly as possible:

    Praful Bidwai arguing that the waiver is not enough for the deep agrarian crisis:
    A budget for the urban rich, not farmers
    http://www.khaleejtimes.com/DisplayArticleNew.asp?section=opinion&xfile=data/opinion/2008/march/opinion_march29.xml

    The leading agrarian distress writer P. Sainath about the inefficiency of the waiver to meet the concerns:
    Oh! What a lovely waiver
    http://www.indiatogether.org/2008/mar/psa-waiver.htm

    Renowned economist Amit Bhaduri arguing that even the ‘guru’ of liberalization needs the ladder of waiver to win the election, which is unfortunately the only tool left for unorganized poor, who should be united together to eliminate the present corporate Indian state:
    Predatory Growth
    http://www.counterviews.org/Web_Doc/general/amit_bhaduri_predatory_growth.pdf

    Arvind Sivaramakrishnan feeling a pain over how the Indian establishment treats the peasants and poor as sub-human:
    Food insecurity: a form of violence
    http://www.hindu.com/2008/03/19/stories/2008031953011000.htm

    P. Sainath again brilliantly showing the ills of capitalist corporatization of the agriculture:
    Farm Crisis: Why have over one lakh farmers killed themselves in the last decade
    http://subalternstudies.com/?p=153

    Thanks,
    Amit

    Comment by Amit — March 22, 2008 @ 1:34 pm

  20. Just as there are tax amnesties, why not one for farmers?

    Farmers in the 3rd world countries cannot compete with US farmers who have the money, know-how, experience, subsidies and political clout. Where will you have these people work if the free-trade agreements tend to kill the agricultural industries of smaller nations.

    Comment by Travel Articles — March 26, 2008 @ 11:21 am

  21. Is there only farmer community what goverment is thinking of, free electricity, free loans, morethan 30% hike in a year in msp of wheat and other commodities for farmers,still they feel bankcrupt, no taxes , almost no burden, it seems that for survival in india, one must be farmer.Aren”t there midddle class families, are not there lacs of small scale units, who have been forced to shut down their shutters due to wrong policies of government.There is a feeling of unrest in majority of population, which shall be seen in the elections, and never ever this type of government should come to power.

    Comment by simran jeet singh — April 5, 2008 @ 10:25 am

  22. “To answer the original question, considering the Indian propensity to blow up money, I would say that the extra money goes for conspicuous consumption.

    Comment by HmmBut — March 1, 2008 @ 7:23 pm”

    I agree. Funds should be earmarked for specific purposes e.g seeds, technology, machinery, introducing new irrigation methods. Earmarking removes the potential for people (whoever they are, not just farmers) to think they know best and squander the money on someone else.

    Comment by pratik — April 5, 2008 @ 10:16 pm

RSS feed for comments on this post. TrackBack URL

Leave a comment

Powered by WP Hashcash

Powered by WordPress