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The Debt Relief Package of Rupees 60, 000 crores ($ 15 billion): Can it stop the farmers’ suicide in the country?
by Sushovan Dhar
10 May 2008

55-year-old Dattu Chaudhary, who owned 3 hectares of land committed suicide in Nara village in Maharashtra, India on March 4, 2008 barely four days after the Finance Minister of India, P. Chidambaram announced a mammoth loan waiver for farmers. Two other farmers also ended their lives on the same day. All three were dry-land cotton farmers in Vidarbha, a region synonymous with farmers’ suicides in India as cotton growers have been driven to death by debt. Chaudhury gave up hope when he saw that he was above the Finance Minister’s cut-off mark of 2 hectare (1 hectare=approx 2.46 acres) for the bank loan waiver. With 3 hectares, he could only have got a 25 percent rebate on the loan. The two other farmers who killed themselves by consuming pesticide were, as reports indicate, out of the institutional credit structure. Their loans were from private moneylenders. Chidambaram’s package is only for borrowings from public banks. [1]

The recent suicides of farmers are fresh additions to the stock of 1, 50, 000 peasants who have already take their lives in the last decade and are the glittering symptoms of the grave agrarian crisis that the country is undergoing. It is simply not a mystery, but a shame for a nation that is hailed as an ‘emergent superpower’ with an annual GDP growth rate of 8% followed by an explosion of air conditioned shopping malls, luxury hotels, restaurants and apartments, private cars, world class cities where the poor would be made invisible. It is further baffling since the suicides continue unabated even after the decision to write off farmers’ loans worth Rupees (Rs) 60, 000 crores ($ 15 billion) which according to media hype is the panacea to all evils happening in the Indian agricultural sector. Indeed, the announcement came with a huge fanfare but, why has it failed to elicit positive response from desperate farmers?

With polls round the corner, the Government on February 28, 2008 announced a Rs 60,000 crore ($ 15 billion) package for waiving off of loans of 30 million debt-trapped small and marginal farmers and one time settlement of dues for 10 million farmers. There are about 750 million farmers in the country. Presenting the Union Budget for the year 2008-09, the finance minister P Chidambaram said that all agriculture loans of 30 million small and marginal farmers that were disbursed by banks till March 31, 2007 and were overdue on December 31, 2007 and remained unpaid till February 29, 2008 would be waived off. According to government’s estimate these unpaid loans would aggregate to Rs 50,000 crore ($ 12.5 billion). For another 10 million farmers, the government has decided to offer a one time settlement package for clearance of their outstanding loans relating to these dates. The package would offer a 25% rebate to farmers for payment of the balance 75%. Farmers, whose loans were restructured and rescheduled in 2004 and 2006, will also be eligible for benefits of a waiver or one time settlement package. The package implementation is expected to be completed by June 30, this year. But in the meantime the farmers who get the assurance for waiving of his loans or who enter into a one-time settlement of loans can avail fresh loans from banks. Marginal farmer has been defined as having holding up to one hectare and small farmer as having holding up to two hectare.

The decision to write off farmers’ loans is a belated acknowledgement of the serious agrarian predicament, which has driven 150,000 farmers to suicide in a decade. The write-off is welcome. But it’s not enough. Full waiver only applies to loans from commercial banks, regional rural banks and cooperatives by farmers owning two hectares (five acres) or less. But half of such farmers borrow from local moneylenders. Seventy-seven per cent of marginal farmers owning less than 1 hectare depend on moneylenders and therefore, a majority of farmers are excluded from the waiver. The Economic Survey [2] presented on the eve of the budget made out a case for a Debt Relief Package for Farmers, which was expected to be unveiled in the Budget presentation. In a separate column on Farmers’ Indebtedness, it said that the National Sample Survey Organisation [3] pointed out that 48.6 per cent of the farm households were indebted. Of the total number of indebted farmers, 61 per cent had operational holdings of below one hectare. It is estimated that 57.7 per cent of the outstanding amount was sourced from institutional channels (including government) and the balance 42.3 per cent from moneylenders, traders, relatives and friends. The Radhakrishnan Expert Group [4] had also estimated that in 2003 non-institutional channels accounted for Rs. 48,000 crore ($ 12 billion) of farmers’ debt, of which Rs. 18,000 crore ($4.5 billion) was taken at an interest rate of 30 per cent per annum or more. It is largely apparent from the various indicators that a large amount of farmers who borrowed money from non-official sources are ineligible for the waiver and hence, excluded from governmental relief measures. Any hope on this was quashed when the Agriculture Minister, Sharad Pawar stated firmly that the government had no scheme to cover loans taken from moneylenders or deal with the issue of landholdings more than those covered by the farm loan waiver package. [5]

Secondly, only the loans of farmers owning two hectares or less are written off. There’s 25 per cent debt relief to bigger landholders provided they repay the remaining 75 per cent. But it’s unrealistic, if not mean, to expect highly indebted farmers to repay that 75 per cent. They wouldn’t have borrowed the money unless they were desperate in the first place. There is huge number of farmers in the drier areas of India- as in Vidhabha which had witnessed the maximum incidences of suicides – where the soil is less fertile, a large number of farmers own more than 2 hectares and produce a single crop in a year. However, most Vidarbha farmers are outside the limit. As farmer Vitthal Elkunchwar, 60, in Bhadumri village in Yavatmal district, puts it, “The total loan waiver is for 2 hectares farmers, but thousands of farmers like me have land holdings of five acres, or just over 2 hectares.” The agriculture department’s statistics show that roughly half of Vidarbha’s 3.5 million households have up to 2 hectares of land. Of this, 760,000 farmers have less than 1 hectare. It is not clear how many get bank loans. By one estimate, more than half of Vidarbha’s distressed farmers are out of the formal credit basket. Often poor farmers are not the land owners, and hence ineligible for bank loans. Most land holders do not bother to transfer holdings to their name. Farms are shown as undivided in village records even years after it was partitioned among family members. Apart from Vidharbha in large areas of the country, a large proportion of India’s heavily indebted farmers cultivate un-irrigated, low-quality land with small yields above the two hectares ceiling

The Radhakrishnan Expert Group also estimated that of the total outstanding amount, 41.5 per cent was taken for purposes other than farm-related activities. It is estimated that 30.6 per cent of the total loan was for capital expenditure purposes and 27.8 per cent was for current expenditure in farm-related activities. Therefore, the eligibility is further reduced. There is an overwhelming feeling that a far better alternative would have been to write off loans in inverse proportion to holdings and yields - say Rs 30-50,000 for the poorest, Rs15-30,000 for the less poor, and a smaller sum for others.

Apart from the very low utility of the package presented by the Finance Minister it is as well an ambiguity about the origin of the funds for the debt waiver. The revenue source for this write-off is unstated and it is clearly an off-the budget operation. The solution may lie in directing the banks to do it. However, it is unlikely that the banks would be fully compensated for the write-off. It’s in nobody’s interest to weaken the public banks, unless there is a hidden agenda to set them up for privatisation. The other option would be to borrow the money from other sources which would in turn increase the public liability. The Finance Minister in his speech to the Parliament on March 14 [6], has amply indicated that he would resort to borrowings if tax revenues and non-tax revenues i.e dividends, interests, royalties and fees; non-debt capital receipts i.e recovery of loans and advances, premium on sale of sequestered assets and initial listing of public sector enterprises prove inadequate. In case, the borrowings are done by issuing bonds, it will be an addition to the ever-increasing internal debt. Otherwise, the government would have to resort to external borrowings. Any loans from the multilateral agencies like the IMF, World Bank or the Asian Development Bank can prove costly since it would not only increase the external debt but would also have political or structural impacts. The impacts are clear if we pay attention to the World Bank’s opinion about the Indian agriculture contained in its Development Report-2008 with the theme Agriculture for Development released on February 8, 2008 which stated in no uncertain terms that subsidies on fertilisers, electricity, water, and credit have caused high fiscal cost. It even criticised over-regulation in agriculture like public grain procurement and land markets and also put much more emphasis on market development, equity and exit strategy. The Bank further prescribed the adoption of more cash crops and greater private sector participation among others to reinforce Indian agriculture. It must be noted that one of the root causes of the Indian agricultural crisis is its shifts from subsistence farming to export oriented cash crops followed by high input crops for a greater yield and the associated risks of the price volatility in the international commodity market.

In case the government decides to borrow from foreign currency accounts with the government, viz. NRI Rupee account, Diamond Imprest account, Foreign Currency account (highly probable since according to current estimates the reserves exceed $ 312 billion [7] ), etc. it shall serve to increase the foreign debt.

Overall, it seems that the Debt Relief Package for Farmers announced by the government is highly ambiguous – a sort of a desperate pre-election populist measure and would contribute to nothing in terms of addressing the farmer’s crisis, let alone solving it. Commenting on the loan waiver scheme, the director of the National Centre for Agricultural Economics and Policy Research (NCAP), PK Joshi said, “It is clear that to some extent it is good for few farmers in the short run. But what is the guarantee that such a situation would not arise again.” Others feel that a low-cost input farming coupled with better returns for farmers can be the ultimate solution.

For sure, the crisis is accentuated on one hand with the larger corporate interests in agriculture and the resultant usage of costlier seeds, fertilisers, pesticides, etc. and the volatility of the prices in the international markets. Between1990-91 and 1995-96, chemical fertilizer costs increased by113% and pesticides by 90%, whereas the wholesale price of wheat went up only 58%. Minimum Support Prices for all crops, except sugar, were 38% to 50% lower than the actual cost of production. It is no wonder that India’s ‘National Commission on Farmers’ recently reported: “40% of Indian farmers would like to leave farming if it is possible to do so”. This summarizes the enormity of the present agricultural crisis and the challenge facing the nation: how to safeguard agricultural incomes or provide alternative livelihood support to a quarter billion people who are potential future economic and ecological refugees – uprooted by mounting farm production costs and a rapidly degrading natural resource base. In such a scenario, what we need from the state is not a populist approach but, a comprehensive financial package to deal with the current crisis including each and every section of the distressed poor farmers and an overhaul of the existing financial policies that contribute to such crisis. Evidently, this entails a radical rethinking of the existing agrarian practices and walking in the opposite route to the one prescribed by the multilateral financial institutions and the trans-nationals that have high interests in the agricultural sector in terms of seeds, fertilisers, pesticides, etc. No piecemeal solution can stem the rot, rather a holistic resolution of the problems and the contradictions are imperative to eliminate the crisis.....

Footnotes :

[1DEVELOPMENT-INDIA: Cotton Farmers in Distress - Relief Given Elsewhere - Jaideep Hardikar See the article

[2The Economic Survey of India is published by Central Statistical Organization which consists of general economic health of the country. It focuses on various micro and macro economic sectors with complete statistical data and analysis. Each year such survey is conducted to show the status of economic scenario of the country

[3The National Sample Survey Organisation (NSSO) carries out socio-economic surveys, undertakes field work for the Annual Survey of Industries and follow-up surveys of Economic Census, sample checks on area enumeration and crop estimation surveys and prepares the urban frames useful in drawing of urban samples, besides collection of price data from rural and urban sectors

[4A four-member expert group headed by R. Radhakrishnan, Chairman of the Indira Gandhi Institute for Development and Research, Mumbai, to look into the issue of indebtedness of farmers and suggest measures to provide relief to them.

[5The Financial Express, April 21, 2008

[6The Hindu Business Line, Saturday, Mar 15, 2008

[7Indian Express, May 5, 2008

Sushovan Dhar