Unseasonal rains, failed crops and farmers' suicides

In recent weeks, on account of unseasonal rains, crops have suffered in North India. According to reported estimates, rabi crops in about 113 lakh hectares have been damaged. However, crop failures due to floods, droughts, hailstorms and other natural calamities are a regular phenomena in India. To address such issues, the government has launched crop and weather insurance schemes.

As with any other insurance scheme, there are difficulties in making claims and availing appropriate amount in time. Finally, in most of the cases, the government announces relief to the farmers from the budget, impacting fiscal policy. And then, the government instructs the Reserve Bank of India to accommodate farmers of affected areas by permitting some interest rate relief. Commercial banks, especially public sector banks, will be advised to help by either waiving or restructuring loans, impacting monetary policy.

The insurance companies are also advised to proactively settle the claims. As agricultural activities support nearly 70 per cent of the population, there are political and economic implications for natural calamities impacting agriculture. Thus, there is a need to examine this issue in depth, analyse the implications and consider some long term remedial measures as this trend may not abate, given climatic changes due to global warming.

Simultaneously, there is a fear that such natural setbacks to agriculture can lead to farmers’ suicides.  On the one hand, we take pride in being a welfare state, regularly announcing schemes for social security and old age pensions, and making specific arrangements for providing minimum support price for many crops and assured procurement of their farm products. On the other, despite many facilities like subsidised power and fertiliser, opening of banking accounts, and direct transfer of benefits, the farmers are committing suicide owing to financial distress.

To understand the phenomenon of suicide by farmers, there is a need to understand the social and economic circumstances that prevail in rural economy. On the positive side, the terms of trade in agriculture have improved in recent years because of higher food prices.  This trend is expected to continue in view of increasing urbanisation and shrinking of available land for agricultural purpose, and increase in rural purchasing power because of numerous government schemes like the rural job scheme.

The increased availability of purchasing power can also be gauged from the fact that nearly 70 per cent of gold sold in the country is in rural areas. On the other side, indebtedness in rural areas is rising, because farmers tend to borrow from all available sources, including money lenders, on the pledge of standing crop. In the case of crop failure, debt burden on the farmer increases and therefore the stress level, which is ascribed to be a leading cause of suicides.

There could be another reason for reporting of debt-stress related suicides which need to be examined carefully. There are reports that causes of suicides ascribed to financial stress might really be cases of either natural death or death due to other reasons.
One of the factors that contributes to linking death to financial distress is the compassionate compensation policy of the government. On every financial stress related reported suicide, family of the deceased is provided a compensation of nearly Rs 5 lakh in addition to waiving of all loans outstanding with the public sector banks.

An alternative, which insulates monetary, fiscal, banking and financial sector policies from regular agricultural events, needs to be considered. First, the government could set up a National Financial Distress Relief Fund (NFDRF) which would provide due compensation after verifying the factors that led to the suicides, assessing genuine reasons of any financial stress on the deceased, including outstanding loans. This should be on the lines similar to the strict procedure required to claim money under the life insurance policy.

Crop Failure Relief Fund
The corpus of NFDRF should be formed by contributions made by farmers themselves through annual premiums or during the harvest season. Second, and more important, there is also need for a National Crop Failure Relief Fund (NCFRF) to be established which should also be adequately funded by the farmers during harvest and bumper crops.

The government, and others, including private entities, under the corporate social responsibility, could make initial contribution to the corpus of both these funds. The compensation would only be given to those farmers who regularly contribute to both these funds. The contribution to these funds can be operated through bank accounts in commercial banks and post offices.

Now, with the success of the Jan Dhan Yojana, there is need to extensively extend penetration of life and crop insurance in rural India. The highly subsidised contribution from farmers for the existing government insurance schemes for crops should be ensured. The coverage of crops under existing insurance schemes include food crops, oil seeds, and commercial and horticultural. The government needs to strictly monitor and evaluate the existing scheme of insurance operating in rural areas.

Also, food items that are covered by the Food Corporation of India (FCI) are generally fixed by the government on a long term basis. Rather, there should be flexibility in choice of food items on an annual basis. Illustratively, whenever there is a surplus production of food items, like potato, FCI could procure and store such food items for the market price to stabilise.

There should be zero-tolerance to genuine cases of farmer suicides due to financial distress. In view of the fact that suicides ascribed to financial distress have been questioned, it may be necessary to consider setting up sociological studies to examine factors that lead to suicides. For the six lakh villages in the country and about 16 crore rural households, it would be helpful if the National Sample Survey Organisation undertakes a survey to understand the factors that cause financial stress on the rural families.

(The writer is RBI Chair Professor of Economics, IIM-Bangalore. Views are personal)