How interest on loans kills Indian farmers
It is unethical on part of the commercial banks that in spite of crop failure, the farmer is pressured to pay off loans.
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Despite the emergence of the service sector as a major GDP contributor, farming remains a dominant segment that provides food and employment in rural India. But the persons associated with the occupation have been stuck with a socio-economic crisis due to crop failure, debt, inadequate remuneration for farm produce and drought, which ultimately causes severe disappointment among farmers and results in suicides.
Farmers made up 9 per cent of the suicides — a substantial share — recorded during 2015. Despite several remedial steps taken by the former and the current governments — in the way of MSP, fertiliser subsidy, insurance of crops, electrification of pump sets and many other welfare schemes — the trend of suicides among farmers continues.
While the welfare schemes have helped cultivators increase their production and income, they did not succeed in curbing farmer suicides.
Agriculture’s contribution to the GDP due to enhanced productivity methods has increased in the past few decades — from Rs 1,544 billion in 1991 to Rs 4,606 billion in 2001 to Rs 23,721 billion by March 2017.
With the increase in the GDP and per capita income of farmers, their debt has also risen significantly. The per capita income of farmers is Rs 61,000 but their outstanding agriculture loans run into twice their incomes — amounting to Rs 1,24,000 per farmer.
Meanwhile, farmers' debt has risen from 25.9 per cent in 1991 to 29.7 per cent in 2002, to 35 per cent in 2012. The pressure to repay loans has only worsened the trend of farmer suicides.
Placating farmers with waivers is no lasting solution to this crisis, as defaulters may get away while debt-ridden farmers continue to suffer. Photo: Reuters
According to data, in 2015, bankruptcy accounted for 38.7 per cent of farmer suicides. Impoverished farmers were forced to take loans for agriculture inputs like seeds, fertilisers and power supply for sowing crops as well as to sustain their families till the harvest.
The debt burden worsened as the source of the loans was not the cooperative sector but commercial banks (28 per cent), professional moneylenders (26 per cent), and cooperative societies/banks (25 per cent). These lent the requisite amount to cultivators at interest rates beyond their paying capacity.
Consequently, in rural areas, the share of debt above interest rates of 12 and 20 per cent is 64 and 32 per cent respectively. The trend of interest-free loans too has diminished in India over time.
According to a government survey report, the share of the interest-free loans in rural areas was 12 per cent during the year 1981, which shrunk to 5 per cent in 2012. Such high rates worsened the misery of farmers and further pushed them to the brink of suicide.
For curbing farmer suicides due to debt, the government has initiated several programmes, including waivers for small land-holding farmers and caps on limited amounts of loan.
But placating farmers with waivers is no lasting solution to this crisis, as defaulters may get away while debt-ridden farmers continue to suffer. The government needs to intervene and frame a mechanism so that the rate of interest is regulated through assessment of input and output in the farming sector.
In case of output, the profit is less than the input cost due to reasons such as crop damage or inadequate crop prices.
Therefore, interest rates on loans should be reduced to compensate for such loss.
It is unethical on part of the commercial banks that in spite of crop failure, the farmer is pressured to pay off, with compound interest, loans that were borrowed for sowing and drawing an income.
Banks need to be involved in participatory policies based on the sharing of the profit as well as loss incurred by farmers.
Such duties can be better performed through the existing National Bank for Agriculture and Rural Development (NABARD). Alternately, a statutory body could be established to assess the real situation on ground.
Ethical participation by lending agencies could have an impact on the farmer crisis and subsequently improve their socio-economic condition.