Farmers' role as investors pushes them into debt trap: Govt can alleviate crisis by shielding them from risk

Most of Indian policy in response to agrarian distress since 1991 has been built on a set of assumptions that have never been challenged or reconsidered. This is despite the continued failure to address the maladies of acute agrarian distress and unabated farmer suicides, especially in certain regions and predominantly correlating to certain crops.

These assumptions are not factually wrong. The problems plaguing the agrarian sector are decreasing size of farm lands with successive generations, global warming leading to uncertain weather, sustained drought in over two-thirds of rain-fed agriculture lands, power scarcity, rising  input costs, over-dependence on fertilisers, chemicals, pesticides, and the lack of formal bank loans to most farmers, especially the small marginalised landholders and tenant farmers, falling MSPs, leakage and wastage in transit, fluctuating prices because of global imports-exports, lack of cold storage and adequate food processing, etc.

The most renowned Indian formula for making farming healthy and viable has been the MS Swaminathan Committee which, in its five different reports, recommended reimbursing farmers with over fifty percent of crop input price, among others.

However, policy thinking in this regard is complicated by the large numbers involved.  Farmers constitute the largest numbers of voters as a single professional block. The sector employs over half of the country’s population, and agrarian distress creates stress on the urban infrastructure, owing to migration for work opportunities.

Representational image. PTI

Representational image. PTI

One way to address the farm crisis across the country is the mental health perspective, which is a valid one. However, if one keeps this aspect aside and focuses on economic distress, the following change has to be brought into our policy making

Three distinct hats: Farmer, labourer and investor

The Indian farmer wears three hats simultaneously over a single farming season: those of an investor, labourer, and farmer. The farmer represents the entrepreneur, often bringing in inherited land holding (or working as a tenant farmer) and traditional knowledge. He or she runs the harvest cycle, but makes little to no profit. As labourers, farmers and family members often represent the underemployed, underpaid resource that works for almost free. In these two roles, the farmer represents the aspects of management and labour involved in an enterprise. However, these aspects largely do not push farmers to suicide.

Farmers are more often pushed to take their own lives in their roles as investors, due to agrarian distress and lack of business viability. Loans mount, interest climbs steeply, and the resulting sustained mental stress pushes some farmer-investors to commit suicide. Farmers ought not to wear the hat of investors, given the mismatch between their meagre resources and the high risk factor. If farmers do not become investors, they can sustain themselves in some cases, despite low or no profits and low to nil wages, by means of the food they produce.

Farmer-investors seek debt. They service loans with steep interest, not in the way businesspersons or a startup would go about it.

Government as external investor?

One of the least discussed aspects of of agrarian distress has been inflation affecting the input costs of agriculture. Seeds, fertilisers, urea, pesticides, water (also accounting for the vagaries of rainfall), fluctuating supply of electricity, not to speak of the less frequent capital investments in buying a tractor, have all been marked by disproportionate inflation over the last two decades.

Buying expensive seeds and other agricultural inputs through loans with high interest means that stress begins to mount at the very beginning of the crop cycle.

Following is an alternative way in which the agrarian process can be carried out.

An external investor, (for now, let us say the government), supplies all inputs as loans to be repaid in barter mode. The farmer, without incurring a debt, can kick start the crop cycle, and sow. The government can supply seeds and other inputs on a district-wise basis. The farmer just takes seeds, fertilisers and pesticides from the government on loan. This can be done in the form of digital coupons, at the existing private shops, based on land size.

In exchange, the farmer can give a part of the harvest to the government as repayment of the loan for the inputs. The government thus gets huge amounts of low-cost agricultural produce for its public distribution system.

There is a significant difference between a farmer buying agricultural inputs individually by taking a loan and a government buying them in bulk. Through this, overall costs go down.

The government then can procure an additional 50 percent of agricultural produce at a price which takes into account three factors – minimum wage, universal income and farmer viability. This is profit-cum-wage for farmers as they have made no investment and have no debt till the end of the harvest. If the crop fails, it is the government-investor which takes the hit. The government can  make up for the loss at a national level, as any strategic investor would.

By ensuring it controls what is sowed, the government can transform farmers in groups across specific districts into experts on millets, pulses, vegetables, flowers, horticulture, among others. As a big buyer of inputs, it can reduce costs and incentivise the supply chain.

Additional benefits

This method would greatly reduce rural debt for agricultural purposes (farmers can still take loans for healthcare, marriages, etc). Thus, the incidence of farmer suicides may be reduced. There are also significant benefits for the government.

Through this method, it can be ensured that farmers produce what the nation really needs. District-wise crop competencies can be built and can be linked to food processing industries. Crop rotation can also be carried out.

At the supply end, a better protein mix can be ensured in the public distribution system, positively impacting the intake of poor people and ensuring higher standards of preventive health.

Over a period of time, the government can work on district-wise inputs distribution and the collection of an ‘in-kind’ repayment linked to PDS through public-private partnerships.

Linking procurement to minimum wage, general inflation and the overall quality of living index, and freeing the farmer of loan and investment burdens, will enable elimination of agrarian distress. These measures will help achieve this faster than all the well-intentioned government policies supposed to benefit the farmers all these years.

Sriram Karri, author of the novel, ‘Autobiography of a Mad Nation’, is a novelist and columnist. His next novel, ‘One Farmer Less’ is forthcoming

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Updated Date: Mar 26, 2018 17:22:57 IST

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