Complexities of farm debt burden

The debt burden and consequent reliance on informal source of credit are recognised as the core problem.

Farmer’s distress and the infamous rural debt burden was in existence for centuries as is evident from the legislations enacted by the colonial government at the turn of the 19th century.

The Land Improvement Loans Act, 1883, and the Agriculturists Loans Act, 1884, were enacted to regulate agricultural credit. The Cooperative Credit Societies Act, 1904 and 1912, targeted the establishing of cooperative credit societies. The Usurious Loans Act, 1918, was the first of much legislation that attempted to protect the farmer from exorbitant interest. The Madras Debtors Protection Act, 1934, prohibited compound interest. So historically, it was accepted that agricultural credit had complex socio-economic dimensions that was vulnerable to informal lending and dire consequences.

Farmers’ suicide is a global phenomenon today. Canada, Sri Lanka, USA, Australia and the UK associate farming as a high stress profession with a relatively high suicide rate in comparison with other professions.

Physical environment, stress associated with family responsibilities, mental health issues, illiteracy, economic stress, alcohol addiction, crop failure, inad-equate irrigation facilities, successive droughts, uncertainties and lack of alternative income are problems customarily associated with farmers' suicides.

The debt burden and consequent reliance on informal source of credit are, however, recognised as the core problem. Private moneylenders unconscionably charge between 24 per cent and 60 per cent per annum, and in some instances, the farmers have to pay a sizeable portion of their agricultural produce as well. Many a time, when the farmer cannot pay the debt, the moneylender takes a portion of the farmer’s land.

Lower returns are directly proportional to increased credit and increased debt burden. Increasing costs, glut in the market, faulty or expensive inputs, non-availability of or costly technical know-how and vagaries of weather patterns are directly linked to lower prices. Further, the farmer is linked to the local markets through the middleman who gains at the expense of the farmer’s produce price. There is a huge gap in the basic price the farmer gets for his produce and the market price.

Most farmers in India own less than one hectare and can barely survive on their produce. It is they who are vulnerable to socio-economic pressures associated with marriage of their daughters or an illness in the family. Such expense can cause deep debt traps driving them to  suicide. Farmers’ suicide is a prevalent evil, exacerbated with the collateral damage – the widow and children not only have to deal with the loss of a husband and father, but inherit his debt burden too. Farmer’s adversity is a consequence of economic, social and ecological traumas, which in the present times has morphed into a more complex causation.

Globalisation, a catalyst

In the more recent years, globalisation was the common catalyst that increased the number of farmers’ suicides in England, Australia and India. In a wider context, globalisation promotes agrarian capitalism. Governments promote the link with the global markets, which in turn has negatively impacted the growth of agriculture. Small and marginal farmers are unable to sustain in an agriculture trade liberalisation environment.

The extensive use of hybrid seeds, which requires intensive use of pesticides and fertilisers, increases costs. Further, the seeds are engineered or patented, which again is an increased cost as the farmer has to invest in new seed every planting season, as opposed to the earlier use of cost free farm saved seed. Sometimes these corporate seeds are untested or unadapted to Indian conditions which results in crop failure and debt.

In India, the intensity of the farmer’s suicide crisis began even before the globalisation era. In 1980s, farming was losing its importance when policies favoured urban trade over agriculture, and encouraged  corporate welfare. The constant increase in rates of agricultural inputs and reduced price of produce is a direct attribute of agricultural policies of trade liberalisations favouring agri business corporations.

Agrarian history is replete with legislations and schemes targeting farmer’s distress. Analysing past efforts and focussing on the success or failures would be the perfect guide forward. Policy on institutional credit is ineffective as it fails to check the proliferation of exploitative informal credit.

Despite government initiatives to increase rural credit and decrease rates of interest, the small and marginal farmer is unable to access formal credit. Banks are unenthusiastic about agriculture credit. The high risk associated with agriculture and lack of collateral security are the main deterrents hanging low over formal credit.

There is a direct link between credit accessibility and increased agricultural productivity. The government needs to redouble its effort and effectively structure policies to enforce the availability of formal institutional rural credit. India is an agrarian country hosting the world’s largest group of small farmers who are on the brink of vanishing unless drastic, effective and protective measures are swiftly implemented.

(Mathias is a legal consultant and Jain is Associate Professor, School of Law, Christ University, Bengaluru)