Farmers and farming are a politically sensitive subject in India. In 2004, soon after Bharatiya Janata Party (BJP) leader L.K. Advani uttered those ill-fated words—India Shining—his party received an unexpected drubbing at the hustings. The spate of suicides by farmers in Andhra Pradesh and Vidarbha region of Maharashtra were blamed for its electoral woes. The next decade saw a return to the roots in policymaking. The United Progressive Alliance government spent huge sums of money for the rural poor, farmers included.
The sum of all this is that whenever there is any hint of farmers being in distress, governments take notice. Last week, the National Sample Survey Office (NSSO) released a report that showed that an estimated 52% of households are indebted with the average amount of debt being Rs.47,000. In some states the number is exceptionally large. In Andhra Pradesh (AP), for example, 93% of the households are indebted with an average debt of Rs.1.23 lakh. Other states such as Jharkhand and Chhattisgarh have reported a low level of indebtedness.
Seen in isolation, it is easy to paint a scary picture. But these states—both at high and low levels of indebtedness—are outliers and any claims based on using these figures should be taken with a pinch of salt. There are other indicators that should be used to understand the state of Indian agriculture.
Three salient features emerge from the NSSO report—Key Indicators of Situation of Agricultural Households in India. The report is based on the 70th National Sample Survey round (January-December 2013).
One, the extent of under-insurance in Indian agriculture is very high. In 2003, 4% of farmer households availed crop insurance. In 2013, this figure has only marginally. For example, in case of rice, 4.8% farmers were insured. In case of crops with greater risk, cotton for example, the extent of insurance was slightly higher (around 10%). In yet other crops such as sugarcane, there is virtually no insurance (only 1.3% of farmers were insured). There can be a number of reasons why this is so. Sugarcane cultivation, for example, requires extensive irrigation and is unlikely in the more risky agro-climatic zones. A big reason for indebtedness is crop failure. Farmers are then unable to repay loans raised for working capital. The answer here is a careful assessment of risks and an appropriate insurance product tailored to meet the risk. Unfortunately, governments only wake up to risks after farmers are hit and then the solution is a loan waiver. This is how climate risks end up as risks for the banking system.
Two, agriculture is not a loss-making activity. Assertions like this are in defiance of any understanding of economics. Farmers are like any other firm engaged in generating output. Only if the difference between a farmer’s revenue and his costs is negative can it be said that agriculture is a loss-making activity. No farmer will plant crops in that case. The NSSO report (statement 22 on average monthly expenses and receipts for crop production per agricultural household from July 2012 to June 2013, page 36) shows the difference between receipts and expenses to be positive for all states covered in the survey. The question to be asked is why agriculture is more remunerative in some states and less in others.
Three, the role of moneylenders and non-institutional sources of credit in agriculture. In 2003 (based on the 59th NSS round), the share of non-institutional/informal sources of credit, quantified as share in per Rs.100 of outstanding loans to farming households was Rs.42.3. In 2013, this figure declined marginally to Rs.40. Within these informal sources, moneylenders accounted for approximately Rs.26 in 2003, a figure that was the same in 2013. There are good reasons why in spite of all the rhetoric and actual institutional action, moneylenders and informal sources continue to play an important role in providing rural credit. On the credit providers’ side, these local lenders have a much better understanding of the credit market than any institutional lender can hope to. On the borrower’s side, the expression “informal” says it all. Interest rate is not the only yardstick of borrowing cost here.
There is no doubt that the Indian farmer gets into trouble every now and then. But that should not lead to moral opprobrium over moneylenders and indebtedness. Farmers have survived for millennia and they will for a long time in the future.
Source - http://www.livemint.com/
