Open Forum

New Delhi,  30 May 2008

Farmers Acute Debt Burden

TIGHTEN NOOSE ON MONEY-LENDERS

By Dhurjati Mukherjee

The increasing debt of farmers and also of small artisans has been a cause of concern all over the country, reaffirming the fact that the high growth rate has not reached the lower segments of society in the rural and backward regions. Estimates suggest over 18,000-20,000 farmers have committed suicide since the UPA Government took charge. Moreover, there are reports of death haunting farmers in Maharashtra’s Vidharba region, Karnataka, Andhra Pradesh and Punjab.

A survey by the Invest India Economic Foundation and IIM Dataworks last year revealed that the total debt of farmer households in the past two years is estimated at about 31 per cent. Also, most of the debts in the rural sector are due to monies generally taken from money-lenders as pointed out by another estimate. Of every Rs.1000 debt taken by farmer households, Rs 257-260 is sourced from money-lenders.

As is well known, money-lenders charge very high rates of interest which range from 20 per cent to 36 per cent or even more. The penetration of money-lenders is significant even in States like Andhra Pradesh, Tamil Nadu and Punjab which have adequate banks to disperse loans. As per available figures, loans from moneylenders in these States are 53.4 per cent, 39.7 per cent and 36.3 per cent respectively.

According to renowned economist and West Bengal Finance Minister Asim Dasgupta, the need of agricultural credit was to the tune of Rs 10,000 crores of which a mere Rs 800 to 900 crores came from institutional sources. Thus, the bulk of credit came from the rich peasantry to whom high rates of interest were the major source of extraction of surplus value. But the Left Front Government could do very little in developing alternative institutional sources of credit through cooperatives in the State. 

The reasons for indebtedness are not very difficult to assume as there has been an all-round crisis in the agricultural sector. These include: uncertainty over monsoon rainfall; low returns from crop cultivation; increasing cost of inputs and low returns; unremunerative prices for the produce because of dominance of middle men and increasing expenditure on medical services and other basic necessities.  

The increasing incidence of suicide by farmers in several States has highlighted the problem of indebtedness as the central issue. The Centre formed an expert group on agricultural indebtedness under the Chairmanship of the Director of the Indira Gandhi Institute of Development Research Radhakrishnan, to examine the problem and suggest measures to provide relief to farmers.

The expert group suggested increasing agricultural productivity, enhancing investments in agricultural infrastructure, research and extension and putting in place an effective system of rural mitigation, both in production and marketing. But the most important suggestion was that all States should enact a legislation that would require money-lenders to register with the authorities and fix the maximum rate of interest they could charge.

The model legislation proposed included: simple and hassle-free procedure for compulsory registration and a periodical renewal of moneylenders; a simplified dispute resolution mechanism to ensure better enforcement; the option of the rule of damdupat – which exists in five States --- restricting the maximum amount of interest chargeable by the moneylender and periodical fixing of the maximum rate of interest which should be notified by the State Government.    

To tide these problems, the Union Finance Minister Chidambaram announced loan waivers of Rs 50,000 crores for over 3.5 crore small and marginal farmers with holdings of not more than two hectares each and another Rs 10,000 crores has been set aside for bigger farmers who will get 25 per cent off on their loans if they pay the remaining 75 per cent. Pressure is now being put to increase the 2 hectares limit to cover more small farmers.

The Government has assured banks that they would be compensated in three years time and is likely to come up with a combination of bonds and other market instruments. Though the benefits will go to those who have accessed loans from the Government and cooperative institutions, nearly two-thirds of the farmers who remain at the mercy of money-lenders have been left out. For reasons best known to him, the Finance Minister has ignored the Radhakrishnan Committee report proposal of creating the Moneylenders Debt Redemption Fund.

There has been criticism on two scores. One, about the large segment of indebted farmers who have borrowed from money-lenders and have been left out. Two, whether the one-time waiver would help farmers in the long run. Clearly, the high interest charged by the money-lenders needs to be looked into and the maximum interest chargeable should be framed and those violating this dealt stringent punishment.

Meanwhile, the Parliamentary Committees on Finance and Agriculture have divergent views on who should be the beneficiaries of the farm loan waiver. The Finance Committee Chairman Ananth Kumar has argued against segregation of farmers and the waiver scheme should be available to all uniformly. However, the Agriculture Committee Chairman Ram Gopal Verma wants the limit of two hectares revised keeping in mind the difference in productivity of irrigated and non irrigated land. He also feels that farmers who had repaid their loans be given incentives such as interest subvention so that the scheme does not send any wrong signal to debtors.

Apart from undertaking plans of agricultural rejuvenation, it is also necessary that loans have to be made available to the 114 million small farmers at low rates of interest. Banks and cooperatives have to come forward to help the rural sector instead of acting as an instrument of transferring rural savings to metropolitan centres. Estimates suggest that over Rs 100,000 crores is being siphoned from rural branches to urban and metropolitan centres. There has to be some scheme whereby bank loans could be easily made available, preferably without any guarantee to small and distressed farmers or weavers. 

There is also an imperative need to regulate the interest rates charged by money-lenders, whether individually, in the garb of an NGO or self-help group. There has to be effective monitoring at the block and sub-divisional levels both by the administration and by the panchayats so that money-lenders cannot exploit poor farmers and artisans.

Significantly, the present policies which encourage expropriation of land, extinguish people’s livelihoods and confer benefits on big business may not lead to real development. It is thus imperative that the concerns of the farming community be addressed and a proper strategy worked out for alleviating the problems of small farmers. --- INFA

(Copyright India News & Feature Alliance)