Agrarian distress is widespread in India. Even in the highly productive East Godavari district of Andhra Pradesh, paddy farmers suffered losses in 19 out of the last 36 years, which forced them to declare a crop holiday.
The National Crime Records Bureau states that 8,007 farmers committed suicides across the country in 2016 and points out that farm indebtedness from private moneylenders is the main reason for farmers’ suicides, accounting for about 40% deaths.
Most of the small, marginal and tenant farmers borrow money from moneylenders at about 10% interest rate per month and fall into a debt trap due to unprofitable agriculture. A recent NSSO report stated that about 40% of farmers wish to quit agriculture if alternative employment is created in rural areas.
Studies reveal that though debt waiver provides immediate relief and enables farmers to gain access to fresh loans, in the long-run it causes a moral hazard — encourages farmers, who can afford to repay, to not clear dues expecting waiver. Due to low repayment rates, banks don’t give further loans especially to small, marginal and tenant farmers, when the need for money has increased in farming with rising prices of seeds, fertilizers, pesticides, etc.
Most moneylenders operate under the guise of farm input sellers, traders and commission agents. This inter-locked credit-input and output market increases the scope for exploitation by moneylenders as they artificially hike prices of inputs and suppress prices of farmers’ output, causing losses to farmers.
Failure of Formal Sector
Though the government is strengthening formal financial institutions, these are not able to meet the growing credit needs of farmers. They together contribute to less than 50% of the need.
Moreover, formal institutions mostly help big landlords, who provide collateral and take large loans. Small, marginal and tenant farmers mostly require small amounts for immediate needs, but sometimes they do need large amounts for digging borewells, marriage of children, medical expenses and education.
Moneylenders chase these opportunities to grab agricultural land and other assets from the defaulting farmers by charging exorbitant interest rates or by inducing them to accept larger credits than they can manage.
There is little difference between moneylenders and microfinance institutions as MFIs charge over 25% per annum and both use usurious practices to recover loans.
Loan Eligibility Cards
Tenancy is increasing over the years and has reached 42% of cultivators in Andhra Pradesh and 18% in Telangana. This is true in many States. Over 90% of the land-lease market in India is not recorded, hence tenants are in no position to offer land as collateral for bank loans. So, they borrow from moneylenders with high interest rates, leading to debt traps and suicides.
Realising the difficulty of tenant farmers in getting loans from the formal sector, many State governments, including AP and Telangana, introduced Loan Eligibility Cards (LECs) to make such farmers eligible for loans from the formal sector. The list of tenant farmers is prepared by revenue / agricultural authorities with the help of gram sabha. Under this, a tenant farmer can take a loan on the value of the crop raised, but not on the land, while the land-owner can still take loan on the land.
But LECs have many problems. These include (i) not all tenants apply for LECs, (ii) of those who apply, not all are issued LECs, (iii) of those who possess LECs, only a few get bank loans. For example, only 21% of the tenant farmers got LECs, of which only 15% got loans from banks. It indicates only 3% of the tenant farmers’ availed loans from the formal sector. Reasons for less use of LECs are restrictions and regulations on cards, terms of lease rate — it should not be over 30% of gross income and tenure of the lease.
The Model Agricultural Land Lease Act, 2016, removes all these restrictions and gives flexibility to both landlords and tenants to mutually decide upon the terms and conditions governing lease agreement.
The government should promote tenancy as an institution as it temporarily transfers land from the landlord who isn’t interested in cultivation to landless/marginal farmers interested in cultivating and earning a livelihood from it while simultaneously benefiting landlords with a rent. This increases efficiency in agriculture as well as the cultivated area and cropping intensity.
Sharecropping as an institution also needs to be promoted, in which both tenant and owner share benefits and risks in monsoon-dependent agriculture, resulting in lesser burden on the tenant in case of crop loss.
Yet, tenant farmers are vulnerable during agrarian distress. Their inclusion in the formal agricultural development programmes is crucial for reducing suicides and distress. There is a need for liberalising, legalising and popularising LECs to make tenant farmers eligible for all government schemes like credit, crop insurance and input subsidy, etc.
Farmers’ collectives can alleviate distress and improve the bargaining power of small farmers. These collectives can take any shape like farmers’ cooperatives, farmers’ producer companies (FPCs), self-help-groups (SHGs), farmer interest groups (FIGs) or even land-pooling, collective farming and marketing.
The Central government needs to enact a law to ensure that the interest rates charged by both formal and informal financial institutions do not exceed 8% per annum. The losses/additional expenses in serving small and tenant farmers need to be subsidised by the government.
In the long-run, market-based instruments need to be developed to overcome farmers’ distress. Crop insurance should replace knee-jerk loan waivers, which benefit only loanee farmers so that all farmers can get their losses covered.
The Prime Minister Fasal Bima Yojana should be popularised and streamlined to cover 100% of the farmers irrespective of loan status. Currently, it is compulsory for loanee farmers and voluntary for non-loanee farmers. Covering all farmers will also reduce premium rates and subsidy costs.
(The author is Director – Monitoring and Evaluation, National Institute of Agricultural Extension Management (MANAGE), Hyderabad)