The tone of our conversation about addressing farmer loans needs to change

Over 30,000 farmers have marched from Thane to Mumbai in the past few days, seeking a complete farm loan waiver, along with drought compensation of Rs 50,000 to Rs 1 lakh per acre. A number of villages, based in districts as varied as Nashik and Marathwada, facing water deficits (over 30% on average), while being saddled with loans from investing in an underperforming kharif crop, are now seeing villagers seeking daily wage labour in nearby urban centres. My travels across the dessicated landscape of Vidarbha and many others, over the last few years, have highlighted the frail lives of India’s marginal farmers and their need for farm loan waivers (as detailed in my book, A Rural Manifesto). There is little hope from the upcoming rabi crop, given poor rains.

This is not a new trend. Just recently, in Bengaluru, thousands of farmers besieged the Vidhana Soudha, seeking waiver of farm loans. Meanwhile, up north, farmers like Rajinder Singh, a marginal farmer in the hinterlands of Bhatinda in Punjab, are attracting opprobrium from national media for the burning of crop stubble, instead of using mechanised implements to process it; an act of wanton destruction. Such arguments, however, ignore the skewed economics associated with mechanisation even in relatively well-off states.

The penalty of burning stubble on average is about ~Rs 2,500 per acre; in comparison, the cost of a stubble processing unit, including the rent of machinery, cost of diesel and associated labour charges, works out to be ~Rs 6,000 per acre (Kumar, R, Oct 2018). Given that stubble has no significant economic value currently and farmers are hard-pressed for loans, burning it makes economic sense. Meanwhile, the average outstanding loan in Punjab is ~ Rs, 119,500 (NSSO, 2013). Increasingly, farmers are simply stopping repayment of crop loans in Punjab, raising non-performing assets under agriculture to over Rs 9,000 Cr (PTI, Nov 2018).

We must retailor our mechanisms for dealing with agricultural distress. In post independent India, farm loan waivers have been a regularly used policy instrument. Even in a place like Punjab, where agricultural growth has arguably been foremost for decades, institutional mechanisms for mitigating uncertainties associated with agriculture have been developed significantly. Governments of every colour often resort to loan waivers for institutional debt; however, non-institutional debt (from moneylenders) continues to weigh the rural economy down.

While debt conciliation boards have existed for decades (provisioned from the Punjab Relief from Indebtedness Act, 1934) along with district debt settlement forums (from the Punjab Settlement of Agricultural Indebtedness Act, 2016), such institutions (along with their recent replacements — Divisional Debt Settlement Forums) have been stymied by fund and talent shortages. In comparison, Kerala’s State Debt Relief Commission has dealt with both institutional and non-institutional debt, while being empowered to declare an area as distress affected. The commission is also able to waive off a percentage of the debts, while declaring a general moratorium on debt repayments.

State governments should seek inspiration from the Kerala model, which creates well-funded debt relief commissions that can dole out a quick mitigation process, instead of pushing all such action on the burdened and apathetic executive. A comprehensive debt settlement model legislation is required to allow rural bankruptcy to be declared painlessly. We must not shy away from allowing farmers to declare themselves bankrupt — enabling a fresh start for individual farmers should be possible; after all, recent banking NPAs are allowing industrial chieftains to do the same anyway.

Further reforms in microfinance are necessary. We should encourage self-help groups, which create a safe avenue for savings (Hashemi et al, 1996; Rajasekhar, 2000), functioning like a small bank, lending money to members. Their positive economic impact is well attested, particularly on indicators such as average net income and employment (Puhazhendi and Satyasai, 2000), while inculcating a banking habit. Banks, however, have mostly failed to recognise their self-interest in promoting SHGs, given the lower information costs of lending to the poor through SGHs, avoiding adverse selection and moral hazard (SPS, 2006). To provide economies of scale, building on this linkage between SHGs and the banking sector is critical with studies (Nair, 2001) in Andhra Pradesh & Tamil Nadu showcasing the way — they have shown that SHGs can become financially viable by forming federations, achieving enormous economies of scale (SPS, 2006).

In addition, a regular unconditional basic income, scaled up through pilots, and rolled out slowly and carefully, would be ideal for marginal farmers. Having a regular basic income would help induce rational responses to crisis events (say illness or hunger) instead of forcing them into a vicious cycle of debt. It could even reduce the practice of child labour, with parents encouraged to send their children to schools, transforming villages and leading to a sustained increase in income (Sewa, Unicef, 2014).

The tone of our conversation about addressing farmer loans needs to change as well. India’s fiscal pundits seem to have a rather curious penchant for decrying the offering of any fiscal sops (grants, right to food, loan waivers) offered to farmers, while discounting those offered to the industry. We need to skew our national budget towards agriculture, boosting line items like the Agricultural Demand-Side Management Programme (this seeks to replace existing irrigation pumps with energy-efficient models). We should encourage a long term rural credit policy, offering flexibility for droughts and flooding events. Crop insurance, as proposed by the government, would be a welcome move to institutionalise the habit of insuring against market and weather volatility. Otherwise, the marginal farmer will continue to be born in debt, live through penury and die from such distress.

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