Maths of debt relief

When the American Civil War ended in 1865, US cotton production revived, resulting in a lack of demand for Indian cotton. Cotton adoption by farmers in the Bombay presidency fell, settlement demands rose with moneylenders refusing to give farmers credit or charging usurious rates. This triggered riots across India, with the Deccan revolting in 1875 at Supa, a village near Pune. Angry peasants attacked moneylenders and set homes on fire. The revolt affected over 30 villages. Police posts in villages soon drove the peasants into submission, but the countryside continued to fester for months.

The Bombay presidency established the Deccan Riots Commission in 1878, whose report makes riveting reading. It says: “The constantly recurring small items of debt for food and other necessaries, for seed, for bullocks, for government assessment... do more to swell the indebtedness of a riot than an occasional marriage.” To reduce farmers’ debt burden, it recommended abolition of imprisonment for debt, exemption of small residential quarters for sale for debt recovery, along with clauses to stop court processes being abused to extort huge sums from debtors. It seems the state of peasants has hardly changed in India.

In post-Independence India, farmer-friendly schemes are nothing new. In 1989, the Janata Dal government floated an agricultural loan write-off plan that waived loans upto Rs 10,000. By 1992, it had benefited 44 million farmers at a cost of Rs 6,000 crores. In 2008, the Agricultural Debt-Waiver and Debt Relief Scheme benefited over 36.9 million small/marginal farmers, along with 5.97 million large farmers, for Rs 71,600 crores.

Similar steps were taken at the state level. Tamil Nadu waived off loans for small and marginal farmers recently, while the outgoing Uttar Pradesh government waived off Rs 50,000 crores of crop loans from state cooperative banks. Thus the new UP government’s move to waive loans for needy farmers is welcome. But it isn’t enough — such waivers must be extended to small and marginal farmers across the country.

India’s 121 million agricultural holdings are with 99 million small/marginal farmers, with a landshare of just 44 per cent and a farmer population share of 87 per cent. With multiple cropping, such farmers account for 70 per cent of all vegetables and 52 per cent of cereal output. With seed application rising, given intensified cropping patterns, farmers also face rising seed costs. Arhar prices tripled from Rs 27/kg in 2004 to Rs 73/kg in 2013. Cotton saw a massive five-fold jump, from Rs 396/kg to Rs 1,860/kg, with the switch to BT cotton. Maize, ridden with crop failure, saw a jump from Rs 20/kg to Rs 99/kg. Even staple crops like paddy, soyabean and sugarcane have seen huge jumps. The old days of farmers handing seeds as family heirlooms to their sons are long gone.

Fertiliser prices have also risen. The cost of human labour, often a substitute for agricultural machinery, has shot up substantially. Hiring a labourer costs at least Rs 20/hour, excluding the rates when NREGA is prevalent, compared to Rs 6-9/hour earlier. Animal hire rates have also increased. The cost of plant protection through pesticides has gone through the roof — up five times for arhar (from Rs 281/hectare in 2004-05 to Rs 1,138/hectare in 2012-13). Understandably, cultivation costs have gone up substantially, from Rs 20,607 per hectare for paddy in 2004-05 to Rs 47,644.5 per hectare in 2012-13.

Our farmers fail to realise the market value of their crops. A 1972 study in Kolkata found just two per cent of the end-user price of an orange reached the farmer — marketing channels consume most of the value. In more robust regulatory environments, where the marketing chain is shorter, the price spread is far smaller. A farmer in Madurai would mostly get 95 per cent of the end-user price. Agents typically account for 41 per cent of marketing margins in Jammu, Amritsar and Delhi.

Mechanisation, by making rentals for farming equipment cheaper, is the way to go. India’s farm equipment policy must be retailored, with a “Make in India” focus on manufacturing farm equipment and implements that are now imported. Subsidies can be rerouted to ensure lower collateral requirements, longer moratoriums and payback periods, leading to lower interest rates. Companies with a CSR focus on agriculture can be encouraged to invest in capacity-building initiatives and skill development. The Indian Council of Agricultural Research should establish standardised norms for farm equipment and implements. Any pricing cartel issues, as seen in subsidised markets, can be resolved through an open list of manufacturers and their equipment prices on a Central portal, available for state and panchayat-level access. A credit guarantee fund for strengthening credit outflow in the machinery sector should be devised for this sector as well.

Our agricultural policy should encourage integrated pest management, an approach that focuses on combining biological, chemical, mechanical and physical means to combat pests, with a long-term focus on eliminating or significantly reducing the need for pesticides. Kenya has piloted a “push-pull” system, called “vutu sukumu”, with farmers mixing maize with legumes and planting a variety of grasses on farm borders. The system has been highly effective —  legumes released natural chemicals that drove away pests; grass borders pulled in predators through natural chemical odours. The combination was also successful in combating striga (also called witchweed). In Vietnam, millions of Mekong Delta rice farmers adopted a “no spray early rule”, curbing insecticide applications in the first 40 days of rice planting.

India’s fiscal pundits have a penchant for decrying any fiscal sops for poor farmers, while discounting those offered to industry. Let the facts speak for themselves.

According to the RBI, between 2000 and 2013 over Rs 1 lakh crore worth of corporate loans were written off, 95 per cent of them being large loans; in comparison, the SBI’s recent settlement scheme for tractor and farm equipment (a 40 per cent haircut on such loans) for loans upto Rs 25 lakhs each is expected to cost Rs 6,000 crores. India’s NPAs aren’t due to the lack of a credit culture with farmers; over 50 per cent of NPAs are those given to medium and large enterprises. The critics should consider the historicity of agricultural loan waivers in India before criticising them for destroying an embryonic credit culture.

In my travels across this hinterland, the consequences of exploitation have long been marked in distended bellies and orphaned children. Without corrective actions, our farmers’ fate will remain uncertain and Hobbesian.