Punjab is a northern state in India, comfortably nestled with five rivers flowing through the state. With a history of having several of its regions a part of the great Indus Valley Civilization, the state always boasted of its extremely fertile soil making agriculture a significant part of its economy. Rice, sugarcane, and cotton are grown in the state with wheat being the largest grown crop. Fruits and vegetables are also widely grown in the state. Punjab is considered the “Wheat bowl of India” since it produces up to 164.720 lakh net tons of wheat.
However, recent events like mounting farmer debt have been putting tremendous pressure on the tillers of the land and loan-waiver is not a permanent solution to the problem. Reportedly, earlier this week thousands of farmers staged a protest squatting on the railway tracks at Jandiala near Amritsar.
Heaven screaming for help
The state that paved way for the Green Revolution in the 1960s, has witnessed a drastic fall in the agricultural output over the years, with the farmers drowning in debt. The cost of inputs like labour, fuel, and fertilizers have increased over the years with the price of output remaining stagnant. The once fertile soil has turned to be running out of water-retention capacity due to increased use of chemicals and pesticides. Inadequate rainfall adding to the woes of the farmers. The groundwater is being used to irrigate 73% of the land in the state which has led to a sharp decline in the groundwater levels. In addition, there are no regulations on the digging of tubewells.
Wheat and Paddy come under the category of crops with a guaranteed minimum support price (MSP). However, growing paddy is stripping the land of water that affects the fertility of the soil in the long term. The prices of other crop are uneven and unregulated. When the farmers try growing other crops, marketing and earning from them becomes tricky. With farming becoming increasingly impracticable, the small farmers are leasing their land instead of farming it to avoid losses. For all the reasons mentioned, the farmers resort to debt from the financial institutions or private moneylenders. These debt-ridden farmers when unable to repay the loans succumb to the pressures and commit suicide.
Farmers and the Government
There are around 10.93 lakh farmers across Punjab, of which 2.04 lakh (18.7%) are marginal farmers (those having less than 2.5 acres of land), 1.83 lakh (16.7%) small farmers (those having 2.5 acres or up to 5 acres), and 7.06 lakh (64.6%) farmers have more than two hectares.
Captain Amarinder Singh, the Congress candidate, before 2017 Assembly Polls promised that his government would eradicate the instances of farmer suicide with a complete loan waiver scheme however with coming to power the scheme came with a catch.
The loan waiver scheme covered only those loans that were taken from banks and cooperative societies. It provided relief to marginal and small farmers for loans up to Rs 2 lakh availed from the lending institutions.
An astounding 900 farmers and labourers have reportedly committed suicide in the last two years.
This is according to a data compiled by Bharti Kisan Union (Ugrahan) from several news clippings related to farmer suicide appearing in five Punjabi newspapers since the Congress government took over in 2017. Sukhpal Manak, Press Secretary of Sunam block of the union, who prepared the list, said that the actual number might be higher as they have not included the suicides reported in local and news channels, Hindi and English newspapers and web portals.
The reports of several farmers committing suicide over a period of two years hint at the government’s failure to provide a safety financial cushion to them. The farmers who resorted to extreme steps of taking their lives have either not been covered under the waiver-scheme or had taken loans from private moneylenders. The Tribune reported that a 40-year-old debt-ridden farmer Gurmel Singh committed suicide after he was unable to repay the farm loans. In his suicide note, the victim cited mounting debts as the reason and stated that the state government did not provide any relief.
State Government’s reaction
Chief Minister Captain Amrainder Singh indulging in political blame- game, said states alone cannot do everything and they need assistance from the Centre as well. He was speaking during the launch of the third phase of his government’s loan waiver scheme at Anandpur Sahib on 24 January.
An extension to his existing scheme it now includes farm laborers and landless farming members of Primary Cooperative Agriculture Service Societies providing relief to nearly 2.85 lakh farmers.
A permanent fix from the Experts
Senior Agricultural Economist, Professor Gian Singh says that loan waiver was not a permanent solution to farmers’ miseries. According to him, a permanent solution would be when the farmers do not need to take loans in the first place or if, at all they do, they are able to repay it with ease.
Director, Institute for Development and Communication, Professor Pramod Kumar said, “The answer does not lie in debt waiver, it lies in increasing the MSP [Minimum Support price] to increase the productivity. Therefore, the need is to rethink over the agriculture policy. The basic question is how to double the income of farmers that is the fundamental question which all these governments have started addressing now. The need is to involve policies which can increase the farmer’s income or double it so that farming as a venture becomes profitable or liveable.”
He also suggests that more emphasis should be given on technology transfer also by providing the farmers with the social security and safety cover so that the farmers are not compelled to borrow money from private moneylenders, which will again get them into a debt trap.
“If this is not done they [farmers] will never be able to emancipate themselves from the vicious debt cycle. The governments will come and waive-off loans but the farmers will continue to live under a debt trap till their income is not doubled.”
The high dependence of a farmer on debt along with low savings rate (driven by poor profitability) make the balance sheet fragile and, at times, unsustainable.
Budget 2019 brought along a relief package for small holder farmers with direct income support of Rs 6,000 per year. This was a much-awaited announcement, given the current state of farm distress, and the government must be complimented for its initiatives towards farmer welfare. However, the challenge continues to be in making farming remunerative to Indian farmers. The lack of predictability in farm incomes and volatility in farm gate prices is adding to farmers’ woes. The government has set a target to double farmer income by 2022. The intent is right and praiseworthy, but the approach needs some tweaks and refinements.
This article attempts to decode a farmer’s balance sheet, cost of capital, P&L account, and the role of innovations in improving a farmer’s financial health. A disclaimer on the numbers presented in this article – the numbers are “directional” and not accurate to the tee because of lack of an adequate number of data points needed for constructing a farmer’s financial statements.
Constructing a farmer’s balance sheet
A farmer is an entrepreneur; farming is his enterprise. Like for any other business enterprise, return on capital employed (ROCE) in farming should be attractive enough for a farmer to remain invested in the business of farming. A holistic approach to improving a farmer’s financial situation requires dual focus – improving his income and ROCE. However, it is a paradox that there are not enough data points to construct a balance sheet for farming as a business activity.
In the absence of, data particularly on the value of fixed and long-term assets (such as land, cattle, agri machinery etc.), a representative balance sheet is attempted on the basis of current assets and current liabilities, not an ideal or financially correct approach, but good enough to assess the financial health.
Some of the data points are taken from Nabard’s All India Financial Inclusion Survey -2016-17 (NAFIS), which covered more than 40,000 rural households in 245 districts in 29 states. NAFIS is probably one of the most exhaustive surveys of rural households in recent times. We need more such surveys for obtaining data on the financial health of rural households on a continuous basis.
The survey has useful data points for constructing a farmer’s balance sheet and P&L account (with some interpretations and assumptions plugged in). The survey covers both – agricultural and non-agricultural households. For the purpose of constructing a farming balance sheet, the data for “agricultural household” is taken into consideration.
The balance sheet for a farmer with average ownership of about one hectare of land is represented below taking (only) current assets and current liabilities into consideration.
Table: Balance sheet for a farmer with ownership of one hectare of land
% of Agricultural Households
Amount (INR)
Weighted Average INR)
Source / Assumption
Liabilities
Equity (retained earnings)
55%
9,657
5,311
NAFIS (taken as savings for last one year)
Debt
52.5%
1,04,602
54,916
NAFIS (most likely this represents debt is towards crop loan which is outstanding for the current and previous crop seasons)
Total
60,227
Assets
Physical and financial assets
10.5%
62,734
6,524
NAFIS (investment in physical and financial assets in last one year)
Current assets
53,703
Balancing figure (This is likely to be inventory of inputs, output for sale / self-consumption and value of the crop in the field)
Total
60,227
The striking part of the balance sheet is high leverage (debt:-equity ratio in excess of 10). The high dependence of a farmer on debt along with low savings rate (driven by poor profitability) make the balance sheet fragile and, at times, unsustainable (which leads to a need for loan waivers or restructuring). It is interesting that only 53 percent of households reported having taken a loan as per NAFIS survey. It means the balance 47 percent households either do not need debt or do not have access to debt. There is a high probability that it is more of an access issue, reflecting low levels of financial inclusion among a large section of the farming community.
Only about 10 percent of agricultural households reported investments in physical and financial assets, implying limited or negative surplus with farmers, leaving little money to invest in productive assets. A farmer’s limited ability to make investment builds a strong case for substantially increasing level of public and private investment in the sector. The current assets figure is derived to balance the balance sheet. Current assets are most likely to include an inventory of inputs, output, and the value of WIP crop in the field.
The balance sheet presented above is for a farmer with about one hectare of landholding. The balance sheet health is likely to be healthier for farmers with larger land holdings and worse for smaller hand holdings. There are about 70 percent farmers (approximately 6.5 crores) with farms smaller than one hectare and there are about 2 crores tenant farmers in India with no land ownership, so one can imagine the balance sheet health of about 8.5 crore farmers (with < 1 hectare land or no land). This calls for a surgical approach to improve the situation.
What is the cost of capital to a farmer?
Like for any other business, it is important to understand the cost of capital in the farming business and whether a farmer is making enough profit to beat the cost of capital. The weighted average cost of capital (WACC) in farming business comes out to be 18 percent with the following assumptions.
Table: Weighted average cost of capital
Cost of Capital
Share
Cost
Assumption
Equity
Risk-free rate
8%
Long-term savings rate
Beta
2.00
High risk because of lack of market linkage and dependence on monsoons
Market returns
15%
Long-term market returns
Cost of Equity
22%
Debt
Institutional sources
65%
7%
Interest rate on Kisan Credit Card
Non-institutional sources
35%
36%
Interest rate on unsecured loans from non-institutional sources
Cost of Debt
17%
Weighted average cost of capital
Share of Equity
8%
22%
D:E ratio as per the balance sheet above
Share of Debt
92%
17%
Weighted average cost of capital (WACC)
18%
Its not a surprise that cost of capital for a farmer is higher because of higher cost of equity (due to inherent risk including lack of market access, monsoon dependence etc.) and high cost of debt (due to continued dependence on informal credit with steep interest rate – varying from 24 to 48 percent per year). To beat the WACC of 18 percent, a farmer should have ROCE in excess of this figure, let’s say at least 20 percent. However, this is not the case as we look at the P&L account in the following section.
Farmer’s P&L account: how much money does he make?
A farmer’s P&L account is constructed with data from NAFIS on income and household expenditure. Occupational expenditure is assumed on the conservative side.
It is interesting to note that only about one-third of a farmer’s income comes from cultivation; the rest is contributed by income from wage labour, livestock, other business, and jobs. With the assumptions tabulated below, for an average of 1 hectare land holding, the return on capital employed is about 11 percent, much less than the cost of capital which is about 18 percent.
EBIDTA (Earnings before interest, depreciation and tax) is positive, but is not good enough to serve the interest; that’s why there is always a concern of default on loan payment. Although non-institutional debt is unsecured, the lender (usually local money lender) has the first right on the sale of farm produce so he is able to recover principal and interest through the sale of produce. It is quite a contrast that unsecured loans in the farming business seem to be more secure than a secured loan from institutional sources.
Table: Farming P&L account for a farmer with a farm of about 1 hectare
Income
Income/expenditure per month (INR)
Income/expenditure per year (INR)
Source
Cultivation
3,140
37,680
Income and household expenditure data points from NAFIS
Livestock rearing
711
8,532
Other enterprise
489
5,868
Wage labour
3,025
36,300
Govt / private service
1,444
17,328
Other sources
122
1,464
Total
8,931
1,07,172
Expenses
Household expenditure
7,152
85,824
Occupational expenses
15,000
Expenses assumed for agricultural inputs per hectare of land excluding labour, irrigation
EBIDTA
6,348
Depreciation
0
Assumed zero, as few farmers have fixed depreciable assets
EBIT
6,348
Interest
9,444
Weighted average interest paid on credit from institutional and non-institutional sources
PBT
-3096
Tax
0
No income tax on agricultural income
PAT
-3096
ROCE (EBIT / Capital employed)
11%
It will be good to research further on the size of land holding at which ROCE becomes higher than the cost of capital. My guess is that inflection point may occur between 3 and 5 hectares. Even if inflection point is at 3 hectares, only about 10 percent of the farming population is likely to have ROCE higher than the cost of capital.
Improving balance sheet health for a small-holder farmer
The numbers shared in the financial statement, as I said earlier, are “directional”. They can be debated, challenged, and further refined with better availability of data, but the message is clear that a farmer’s balance sheet is in deep red and needs to turn green for agriculture to remain a sustainable occupation.
Farmers are not growing food just to feed the billion-plus population but to make money to sustain, survive, and grow like any other business enterprise. It is paradoxical that on one hand, food demand is growing steadily with consumers willing to pay price for good food and, on the other hand, the producers of food are bleeding with little motivation to continue farming.
How do we solve a problem of this magnitude? For me, the priority areas to improve farmer’s balance sheet health include the following, in the order mentioned below:
Improve access to intuitional credit
Enable access to market and diversification of income sources
Optimisation in the cost of inputs
Innovations will play a key role in achieving these three goals. Let me summarise how innovations can catalyse the three interventions. D.1 Access to institutional credit
As discussed above, a significant part of the farming community does not have access to credit. About one-third of credit (among those who borrowed) continues to be from non-institutional sources with steep interest rates. Such high-interest cost depresses the bottom line and has a negative indirect impact on the top line as well since the lenders do not allow farmers to sell farm produce at a time and place to maximise price.
Innovations can go a long way in improving the credit access in the following manner:
I) Building an Agristack:Agristack essentially means linking “farm id” to “farmer id”, and can be a game changer in improving banker’s access to farmers. Farm id is nothing but the location and size of the farm. Many startups, including CropIn, Satsure, Agnext, AgRisk, Farmguide, and Harvesting, have demonstrated success at scale in identifying and marking farm boundaries using satellite imagery, which is necessary to build farm id. However, the challenge lies in linking farm id to farmer’s id, and the government has a key role to play.
Another option to satellite imagery is the use of drones, which can capture a much higher resolution of farm images. In my estimate, the cost of flying drones with cameras to capture images over 200 million hectares of gross cropped area and processing them will cost about Rs 3,200 crore, which is a small investment in the context of potential usability of this data by government, bankers, insurers, and many other supply chain members.
The priority sector lending target for 2017-18 was about Rs 11.65 lakh crores (approximately $170 billion). Investment into building an Agristack in context of this target is worth pursuing. It can enable bankers to lend, monitor, and democratise the access of credit, particularly to smallholder farmers.
II) Linking credit to input sales: The agricultural inputs market (including seeds, fertilizers, agrochemicals and machinery) is worth approximately Rs 200,000 crore (approximately $30 billion). Farmer purchase of inputs is a good indicator of his income potential, which can be used in building algorithms and credit scoring models for farmers. The input sale data can be captured at the point of sale or with the assistance of local partners. There are a few startups, including Jai-Kisan, FarMart, and PayAgri, who are piloting such solutions.
In my estimate, access to institutional credit has the potential to reduce a farmer’s interest burden by Rs 4,000 to Rs 8,000 on a per hectare basis. D.2 Access to markets and diversification of income sources
Farming in India is one of the few businesses where the product is being manufactured (as in growing crops) on faith and optimism, not on the basis of nature and pattern of market demand. Till we get to a stage of availability of accurate and real-time demand supply data (it may take another decade for this to happen at a pan-India level), the only other way we can solve demand-supply asymmetry is by having credible and reliable farm produce aggregators to link farmers with markets. The likes of Ninjacart, Waycool, Kamatan, Crofarm, Loop, DeHaat, Gram Unnati, Agrowave, Farm Taaza, Our Foods, Jumbotail, Superzop, Shopkirana, Krishihub, Krishilok, Freshokartz, and Ergos are trying to solve this problem by building tech-enabled linkages between farmer and consumer to align supply with demand. Given the stage of development of these new-age supply chain organisers, the volumes are relatively small relative to conventional channels (all farm-to-fork startups put together aggregate less than 2,000 tonnes per day in a market which is estimated at 1.5 million tonnes per day at a pan-India level for fresh produce and staples).
However, even at the current rate, it is clear that farmers benefit in terms of better and more predictable prices in closed-loop models. Farmers have reported an increase in income by 20-50 percent while working with these startups, which means additional Rs 5,000-15,000 in the farmer’s pocket. Also, market inclusion can play a pivotal role in driving financial inclusion as bankers can draw comfort with buyback arrangements in place before lending. Samunnati Finance, one of the most successful NBFCs in the agricultural space, has built its book by enabling financial inclusion through establishing market linkages.
These startups are trying to organise fresh produce and staples supply chain, similar to what Amul and NDDB did in the last few decades in organising the milk supply chain. While milk cooperatives had government support, these startups lack that kind of support. One way the government can play a catalytic role in driving organisation of the supply chain is by accelerating the scaling of Farmer Produce Organisations (FPOs).
Theoretically, India needs about 200,000 FPOs (assuming membership of 700 farmers per FPO and 14 crores total number of farmers) to organise the entire farming community. We have only about 30,00 FPOs with few of them operational on the ground. Another big advantage of FPOs is they can also bring many tenant farmers into formal credit structure, which they are deprived of because of lack of land ownership.
Diversification of income source also needs to be targeted to boost and de-risk farmer’s revenue. Indian farmers have been able to survive in the last few decades on the back of three decisive movements – green, white, and horticultural revolution. Dairy and horticultural are the two biggest diversifications Indian agriculture has seen in the past few decades; they not only helped the farmer to earn more but also improved his working capital cycle (both milk and vegetables can be sold on a daily basis unlike field crops).
What next? There are plenty of diversification opportunities for farmers like beekeeping, sericulture, aquaculture, herbs, silage production etc, which are waiting to happen at scale. Each of these opportunities is worth billions of dollars. The growth of poultry (both broiler and layer) in the last decade or so has demonstrated that farmers are open to diversification into newer areas. My guess is that diversification into newer areas will be driven by market players willing to backwards integrate (as demonstrated in poultry by Suguna, Venky’s, Godrej). Diversification of income sources can help a farmer earn a few thousand rupees extra and further reduce his dependence on cultivation income. D.3 Optimisation of farm input applications
The current input applications by farmers need to become more scientific. For example, flood irrigation is the norm in most areas because a majority of farmers do not measure soil moisture and end up feeding crops with more water than needed. Similarly, in many places, urea application is disproportionately higher and much more relative to other vital nutrients (urea continues to be out of nutrient-based subsidy so is relatively cheaper than other fertilisers on per unit basis). Measurement of soil nutrition is needed to correct sub-optimal applications of fertilisers, critical for improving soil health.
Many startups building factory-to-farm models for input sales such as Agrostar, BigHaat, Unnati, Gramophone, Behtar Zindagi, Agroy, and Salesbee are integrating advisory services for customised applications of inputs with the help of technology. Technology is evolving fast for real-time and affordable measurement of soil moisture, pH, nutrients, local weather parameters, early detection of pest attack etc. It is now possible to templatise the data collection and reporting formats so as to develop a customised input application plan for each farm. Scientific, data-driven customised application of inputs can reduce costs by 10 to 30 percent. This can result in savings of about Rs 2,000 to 5000 per hectare.
The objective of this article is not to be conclusive, but to build a discussion platform on possible ways to integrate innovations in Indian farming and improve a farmer’s balance sheet. The three interventions discussed in the article can potentially benefit farmers with a surplus in the range of Rs 15,000-30,000 per hectare, per year basis – a handsome amount to address financial distress.
In addition to the focus on improving farmer’s income, we also need to work towards improving ROCE to at least 20 percent and simultaneously bringing down the cost of capital to a single digit for farming business. The improvement in the health of a farmer’s balance sheet is critical to keep him motivated to pursue agriculture as a business enterprise.
Innovations in output, input, and data, anchored by digital tech, ae the way forward. Fortunately, we are blessed to have about 1,000-plus agritech startups in the country now and quite a few committed investors who can drive scaling of these innovations. Progressive and long-term policy framework from the government can further accelerate the integration of innovations in the supply chain to benefit farmers. (Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)
Authors
Hemendra Mathur
Hemendra Mathur is an investor, mentor, and board
member with many agritech start-ups in India. He works
as Venture Partner with Bharat Innovation Fund and is C…
‘Nothing succeeds like success,’ first written by Sir Arthur Helps in Realmah in 1868, is going to guide political parties while they draft manifestos for the next parliamentary election. It seems that the Rythu Bandhu (RB) scheme – also known as the Telangana model of direct investment support (DIS) to farmers – has caught the imagination of our politicians. Odisha and Jharkhand have already announced a modified and improved version of this scheme while teams from various states have been visiting Telangana to study the RB model – a welfare programme to support farmer’s investment for two crops a year.
But did the RB model alone help the Telangana Rashtriya Samiti (TRS) sweep the recent assembly elections? Farm loan waiver
In its manifesto, the TRS promised to waive farm loans of up to Rs 1 lakh. In fact, in the 2014 assembly elections also, the party had made a similar promise. The outstanding crop loans in 2013-14 were about Rs 14,897 crore. Initially, the government did not want to include loans taken against gold or gold jewellery, post-harvest loans and the ones to tobacco and sugarcane farmers.
However, due to widespread protest by farmers, all these were included in the write-offs and finally, the government paid Rs 16,124 crore to fulfil its promise. This is estimated to have benefitted nearly 36 lakh farmers. But due to budgetary constraints, the loan waiver was done in four instalments spread over 2017-18.
The fresh promise of loan waiver, made in the 2018 TRS manifesto in Telangana, is estimated to cost the state Rs 24,000 crore. So it is not Rythu Bandhu alone which likely influenced rural voters to side with the TRS.
A question thus arises: why could the Rs 16,124-crore waiver not achieve its objective of making farmers debt free? Also, how will a waiver of another Rs 24,000 crore make their farming viable? Rythu Bandhu scheme
The state government undertook a massive exercise of updating land records for the implementation of the Rythu Bandhu scheme. Teams of officers from the revenue and agriculture departments visited over 10,800 villages and verified 72.13 lakh land titles in order to free them from litigation. As part of the scheme, the state spent a total of Rs 12,000 crore during Kharif and Rabi seasons – Rs 4,000 per acre was given to land-owning farmers for each cropping season, irrespective the of size of land holding.
Refusing to learn from Punjab’s water crisis – which was aggravated due to free electricity – the Telangana government also announced that free power would be made available to farmers starting January 1, 2018.
The effectiveness of four years of loan waivers and one year of Rythu Bandhu in Telangana would be known only once data on over dues of farm loans and farmer incomes is released by NABARD, RBI and NSSO. The first two will do well to release detailed data on loan waivers so that the country gets to know the impact of frequent loan waivers on repayment behaviour of borrowers, and the benefit it brought to various crops grown by farmers. Procurement of agricultural produce
Direct investment support on the lines of Rythu Bandhu is surely a better model than physical procurement of agricultural produce (except wheat and rice, which are required for PDS) or price deficiency payment, both a part of the Pradhan Mantri Annadata Aay SanraksHan Abhiyan. Price deficiency payment scheme was tried in Madhya Pradesh in Kharif 2018, but it failed in its objective because extensive paperwork and monitoring of mandis was required to make it effective. Moreover, traders’ collusion artificially depressed the mandi prices in Madhya Pradesh.
Telangana chief minister K. Chandrashekar Rao. Credit: Twitter
It does not, however, mean that states with a robust procurement infrastructure (like Punjab, Haryana, parts of UP, MP, AP, Odisha and Chhattisgarh) should immediately abandon procurement of paddy and wheat and take to DIS in lieu of procurement. This will result in an immediate crash in prices as the arrivals in mandis is concentrated over a short period of 3-4 weeks. DIS cannot compensate for this price crash and the farmers in these states, accustomed as they are to selling at MSP, are not going to accept such a situation.
Also read: Fact Check: Has the BJP Really Fulfilled Its MSP Promise as It Claims? State-wise policies
So, the government has to evolve policies suitable to a particular state and fine tune them to local needs. In the last three years, especially after demonetisation, farmers have been hit hard due to the crash of prices in mandis. Neither loan waiver nor DIS addresses this problem sufficiently. Sustained reform of marketing of agricultural produce in mandis is necessary in order to free agricultural trade from the clutches of middlemen who decide the price a farmer gets at a mandi.
Several years ago, the National Egg Coordination Committee created a demand for eggs by highlighting its nutritional benefits. A similar campaign for processed and refrigerated food may create a demand for fruits and vegetables frozen through individually quick frozen (IQF) items. In a glut market, perishable produce can be bought by processors to be used for IQF. The country is now used to buying frozen peas and there is no reason why similarly processed vegetables and fruits cannot succeed in the market.
While repeated farm loan waivers will surely destroy the repayment culture, even a blanket DIS is unlikely to succeed in alleviating the distress of farmers if manipulation of mandi prices continues unchecked.
Ironically the solution to farm distress has to come from the non-farm sector which can absorb surplus manpower and reduce the burden on agriculture.
Siraj Hussain has worked as secretary of agriculture and food processing to the government of India. Presently he is visiting senior fellow at ICRIER.
https://www.livemint.com/Politics/8SzF3qtBCbJWo6DboaXRNK/Punjab-farmers-find-no-solace-in-farm-loan-waiver.html
The farm loan waiver terms make little sense in Punjab where average landholding is over three times the national average.
Punjab farmers find no solace in farm loan waiver
The farm loan waiver terms make little sense in Punjab where average landholding is over three times the national average
Mon, Dec 24 2018. 09 47 AM IST
href=”https://www.livemint.com/Search/Link/Author/Sayantan%20Bera”>Sayantan Bera
Jagdeep Singh with a photo of his father, who committed suicide on 11 December, at Sangatpura village in Patiala. Photo: Sayantan Bera/Mint Patiala/New Delhi: All that Jagdeep Singh wants is a few hours of peaceful sleep. The 24-year-old from Sangatpura village in Punjab’s Patiala district had no clue that the morning of 11 December would change his life forever. At six in the morning that day, he woke up to the sudden death of his 45-year-old father, a farmer and village head, who drank pesticide while his mother was getting the tea ready. The father had run up a debt of ₹40 lakh following several years of losses in farming and dairy businesses, and a failed attempt to find Singh a job in Dubai, which cost nearly ₹14 lakh.
Singh, who holds a master’s degree in history, returned from Dubai after a 11-month wait to find a driver’s job and took to farming. He now gets up at four in the morning. The nights go by worrying how the family land mortgaged to banks can be freed. After a hard day’s work tending to the cattle and the wheat crop, his eyes swell up by evening. Singh repeatedly grasps his hair while speaking. “I am hoping my (younger) brother will find a job… but that may not be enough to pay back the arthiya(commission agents in wholesale markets who advance credit to farmers).”
Since April last year, eight state governments, including Punjab, have announced a staggering ₹1.9 trillion in farm loan waivers. However, no relief has reached the Singh family so far. In June 2017, the newly elected Punjab government led by Amarinder Singh of the Congress approved a farm loan waiver packageestimated to cost ₹10,000 crore. However, a year and a half later, just a fraction of farmers has benefited because of the strict conditions put up by the state.
Exactly a week after the death of Singh’s father, on 18 December, Congress president Rahul Gandhi upped the ante against Prime Minister Narendra Modi. Gandhi said he would not let Modi sleep till the centre announced a nationwide farm loan waiver. Gandhi cited the example of newly-elected state governments led by the Congress in Madhya Pradesh and Chhattisgarh, which signed on farm loan waiver schemes within hours of taking charge, in line with the party’s pre-poll promise, and said that the Congress would announce a national farm loan waiver scheme if the party were voted to power in the 2019 Lok Sabha elections.
The Punjab experience, however, does not inspire confidence. Till date, ₹3,500 crore loans of 428,000 farmers have been waived, according to Jasbir Singh Bains, director of agriculture in the state government. The farm loan waiver has covered less than a fifth of the 2.6 million farmers in Punjab. The total disbursal is just 35% of the promised ₹10,000 crore.
Though Jagtar Singh and Jaswant Singh of Namana village fulfil the condition for debt relief set by the Punjab government, they are still waiting for their loans to be waived.
“During the election campaign, Amarinder Singh promised to waive loans of all farmers, but a set of conditions imposed during the rollout ensured that most were left out,” said Jagmohan Singh, state general secretary of the Bhartiya Kisan Union, Dakaunda, a farmers’ group.
The conditions for availing the farm loan waiver make little sense in a state like Punjab where the average landholding is more than three times the national average. For instance, according to the agriculture census released this year, the average landholding in Punjab is 3.6 hectares (ha), but the state government decided to waive loans up to ₹2 lakh for only small and marginal farmers, who own up to 2ha. This ensured that farmers like Jagdeep Singh, whose family owns 2.4ha, were excluded.
There’s more. The conditions say that only those loans taken by small farmers (who own between 1-2ha) will be waived where the principal and interest overdue did not exceed ₹2 lakh. This meant that a 1.5ha farmer, who owed banks even a rupee over ₹2 lakh, was excluded.
During the Punjab election campaign, Captain Amarinder Singh promised to waive loans of all farmers, but a set of conditions imposed during the rollout ensured that most were left out. Photo: PTI
“With costs of farming going up and returns plunging, a waiver of ₹2 lakh means little to us; we will be back to where we are in no time,” said Nirmal Singh, a farmer from Narmana village in Patiala’s Nabha block. “But this farm loan waiver is more a formality and less a reality… it’s like luring a hungry child with a toffee and then taking it back,” he smirked.
A crowd of farmers gathered around Nirmal Singh complained that as most families did not divide their land between members (say, a 3ha farm is still shared by the father and an adult son and his family), the waiver has eluded them.
In retrospect, the Punjab farm loan waiver scheme appears skilfully designed to exclude more farmers than those included, driven by the lack of fiscal space to deliver on the poll promise (in August last year, the chief minister requested the centre that it be allowed a one-time exemption from the Fiscal Responsibility and Budget Management Act, 2013, which restricts its borrowing to a maximum of 3% of state gross domestic product or just ₹12,819 crore, so that it can implement the debt relief scheme).
Congress would announce a national farm loan waiver scheme if the party were voted to power in the 2019 Lok Sabha elections, party president Rahul Gandhi has said.
For the once-prosperous farmer in Punjab, the cradle of India’s Green Revolution, a debt of ₹15-20 lakh is common and debts of more than ₹40 lakh in a single family are not unheard of. While part of this is driven by the need to keep up with societal pressures—such as spending ₹25 lakh on a daughter’s marriage—the debt crisis deepened as a result of commercial banks flushing farmers with credit to meet their lending targets. Desperate for a solution, the government is now contemplating an Act that places a limit on the number of guests attending a marriage and a forensic audit of the agriculture credit portfolio of commercial banks.
Data from the draft state farmers’ policy released earlier this year shows that Punjab’s requirement of crop loans is around ₹24,000 crore per season, while outstanding loans advanced by banks is ₹60,000 crore.
“There are around 26 lakh (2.6 million) farmers in the state, but banks have issued more than 40 lakh (4 million) Kisan Credit Cards. Over a period of 11 years (2004-05 to 2015-16) the credit offtake has increased by around eight times, while the value of production rose just three times,” said Ajay Vir Jakhar, chairman of the state farmers’ commission.
The 23-year-old Kiranjit Kaur of Mansa district, whose father committed suicide in 2016, adds yet another dimension to the crisis. “I have seen scores of families losing everything to pay for private education and health emergencies… More than loan waivers, we need better public health facilities and schools,” said Kaur, who now helps families, in which farmer suicides have taken place, receive state compensation.
https://m.economictimes.com/news/elections/telangana-assembly-elections/why-telangana-election-might-just-become-a-proxy-battle-between-trs-and-farmers/articleshow/66898051.cms
ET
Why Telangana election might just become a proxy battle between TRS and farmers
By CR Sukumar, ET Bureau | Dec 01, 2018, 11.00 PM IST
Agriculture is a major economic activity in the state, where about 41.75 lakh hectares or 37.25% of land is under cultivation.
Telangana Chief Minister K Chandrashekar Rao (KCR) seems to be on a damage-control mode. With assembly polls due on December 7, he has been on a whirlwind tour of the state to ensure that a scheme his government launched to help farmers does not backfire.
ADVERTISEMENT
Rythu Bandhu, the farmers’ investment support scheme announced in February, offer cash benefit of Rs 8,000 an acre (Rs 4,000 each in kharif and rabi seasons) annually to agricultural landowners. The scheme, however, excluded “tenant farmers”, or those who till the land but have no legal ownership on it.
The government issued “pattadar passbooks” to beneficiaries, the landowners, while deleting the column on tenants from the passbooks. The government said the idea was to clean up land records and help identify owners of the land. The state, which has earmarked Rs 12,000 crore for the scheme in 2018-19, said if the passbooks are not linked with Aadhaar, the land concerned could be considered benami.
Civil society activists and farmers’ union representatives, however, say it is a deathblow to tenant and tribal farmers in the state as they will not get any money despite being the cultivators. A sister scheme called Rythu Bheema offers group life insurance.
Telangana has 57 lakh agricultural landowners, according to government records. But there are no official records on the number of tenant farmers; estimates, however, say a large number of farmers are tenants.
ADVERTISEMENT
Untitled-19
Agriculture is a major economic activity in the state, where about 41.75 lakh hectares or 37.25% of land is under cultivation. In the 1980s and ’90s, thousands of landlords, mostly in the northern region of the state, had left their villages due to Naxal violence. The rebels distributed lakhs of acres owned by these landlords to poor and landless farm labourers. But these marginal farmers do not have the title to the land.
The tenant farmers pay the landowners rent or give them a share of the produce. The cultivator bears the risk of crop failure. With the fire of discontent due to Rythu Bandhu threatening to spread across the state, the KCR-led Telangana Rashtra Samithi has promised alleviating measures.
ADVERTISEMENT
The party’s manifesto committee chief K Keshava Rao says the issues being faced by the poor farmers will be addressed. The final manifesto that will be released by December 2 will take care of the small and marginal farmers, he says.
KCR has promised to address the issues of tribal farmers and give passbooks to them, too, within six months of coming to power. He continues to be silent over the fate of tenant farmers. Downplaying the issue, TRS’ deputy floor leader in Parliament B Vinod Kumar says the government has after a deep and careful study decided to delete the “possession” column from the pattadar passbooks. This column was deleted to clean up land records and because the column was also leading to disputes between landowners and tenant farmers, he says.
Untitled-20
“The government will extend the Rythu Bandhu and Rythu Bheema benefits to tenant farmers provided there is a formal tenancy agreement with landowners.” To matters worse for tenant farmers, banks disqualify them from loans if their names are not on the passbooks. Having the government-issued loan eligibility cards is another way for these people to get credit access.
“The KCR government’s move has taken away the limited privileges that tenant farmer had for decades,” says Kanneganti Ravi, a member at the Centre for Sustainable Agriculture and convenor of the Telangana Rythu Joint Action Committee. “Forget about getting Rythu Bandhu money, now these tenant farmers cannot even claim any government benefits or relief measures. They cannot access bank loans either.”
Almost all political parties are promising to extend the scheme to other sections of farmers and also increasing the sop to Rs 10,000 a year from Rs 8,000 now. However, an association of the scheme’s beneficiaries, Rythu Bandhu and Rythu Bheema Labdidarula Samakhya, has raised objections.
Untitled-21
L Pandu Ranga Reddy, president of the body, says it will be difficult to identify tenant farmers as the column in the passbooks pertaining to tillers has been removed. “No landowner would give in writing to a tenant that the land has been leased.”
In June, the TRS government said new passbooks were being issued to some 57.24 lakh farmers and cheques have been issuedto 52.64 lakh farmers who have linked their passbooks with Aadhaar. About 90% of the beneficiaries have been covered and the balance 10% would be covered as soon as some technical errors were sorted out, it said.
The state has released Rs 6,000 crore in the first round. The second round of Rythu Bandhu cheques have also been disbursed but details of the number of farmers and amount aren’t available. The scheme has only helped rich landowners get financial assistance running into lakhs, says Bhutham Veeraiah, general secretary of the Telangana Rythu Kooli Sangam, an affiliate body of CPI-ML. During the first tranche of Rythu Bandhu cash disbursals, in May, there were several news reports of rich farmers coming to their villages in high-end cars to receive the cash benefit.
“The Rythu Bandhu scheme has benefited the absentee landlords more than the cultivating farmers,” says Veeraiah. Nearly 80% of agricultural land in villages are being cultivated by tenant farmers, he said, though government records show otherwise. A large number of tenant farmers have plots up to three acres to cultivate.
“The scheme was not made applicable to tribal farmers either — this section cultivates on about seven lakh acres of forestlands. Similarly, tenant farmers cultivating around 1.5 lakh acres of endowment lands and waqf lands were also denied the scheme.”
Untitled-22
In a state that comes second in farmer suicides, after Maharashtra, says Ravi, tenant farmers bear the brunt all the time. Land revenue officials had even stopped recording the names of tenant farmers for several years now, he says.
A study by his non-government organisation, Rythu Swarajya Vedika, and Tata Institute of Social Sciences showed more than 75% of the farmers in Telangana who killed themselves between June 2014 and April 2018 were tenant farmers, and 94% were marginal, small and landless farmers. The study also found that most farmers who killed themselves had no access to bank loans and were heavily dependent on moneylenders. Nearly half of these farmers had no outstanding bank loans but had an average of Rs 4 lakh per head of private loans.
“Our study showed that most of these tenant farmers couldn’t benefit from the loan waiver schemes often announced by governments as they were denied formal bank loans. Though the Andhra Pradesh Land Licensed Cultivators Act-2011 provided loan eligibility cards to tenant farmers, it was not implemented effectively. In some instances, thanks to certain proactive district collectors, a few thousand tenant farmers were granted loan eligibility cards.”
Referring to the body blow from the TRS government, Ravi says, “Some 20 lakh tenant farmers across the state are now frustrated that they have been denied Rythu Bandhu support, bank loans and loan waivers.” Rythu Bandhu has made landlords return to villages. They are threatening the tenant farmers tilling their land, says Veeraiah of CPI-ML.
“In many instances, the absentee landlords, now back in control as their names are on the pattadar passbooks, have forced the tenant farmers to buy their land.” He says the distress is high in the districts of Karimnagar, Warangal, Komuram Bheem-Asifabad, Adilabad, Khammam, Bhadrachalam-Kothagudem, and Jayashankar-Bhoolapalli, and some parts of Mahabubnagar and Medak. The situation has started getting more politicised now.
In its election manifesto, the Congress led coalition, People’s Front, has promised to extend the benefits of Rythu Bandhu to tenant and tribal farmers. “There has been widespread discontent among the farmers in Telangana since the TRS government’s land regularisation scheme recognised the rights of historical owners of the land rather than the tenant farmers, who account for over a third of the farmers in the state,” says Mallu Bhatti Vikramarka, chairman of Telangana Pradesh Congress Committee’s Campaign Committee.
Land rights were always central to many critical movements in the region, including the peasant rebellion of the late 1940s and the Naxal movement in 1960s and 1970s.
“The ensuing elections in Telangana will be a fight between the common people and feudal forces,” adds Vikramarka. In a communique dated October 13 that was distributed in the affected areas, state secretary of Communist Party of India (Maoist) Haribhushan said: “The TRS government has retrieved land from Dalits, tribals and downtrodden communities in the guise of land resurvey and handed the lands back to the landlords. The Rythu Bandhu and Rythu Bheema schemes were actually aimed at benefiting the rich farmers and landlords. These schemes have hurt the poor farmers.” Echoing similar views, Telangana Jana Samithi President M Kodandaram says thousands of farmers across the state have lost their rights because of the government’s programme.
“In many cases, farmers weren’t issued passbooks. They could not get Rythu Bandhu money or bank loans. The state’s farm sector is under severe distress today as agriculture products are not getting remunerative prices. The loan waiver promised by TRS is yet to come.”
Another factor has added to the farm distress. Tenant farmers who agree to pay landlords higher upfront rent to grow commercial crops such as cotton and chillis ended up with huge losses as market prices were unremunerated, says Veeraiah. Adverse feedback from lawmakers and ruling party cadre on the growing distress at the ground level may have made the chief minister rethink on denying benefits to tenant and tribal farmers, says political analyst Manchala Srinivasa Rao.
“For the first time, KCR has acknowledged the issues facing tribal farmers. At public meetings in north Telangana, which has a high population of tribal farmers, he was seen repeatedly promising them that he would soon confer them with rights to the forestlands that they have been cultivating on for decades,” adds Rao.
The farmer discontent comes even as the state is yet to address the woes of at least 50,000 farmers who lost their lands to government projects — especially the Kaleshwaram irrigation project and Singareni Coal Collieries’ open cast mining — but have not received compensation according to the Land Acquisition Act 2013, says Rachna Reddy
Bollu, the advocate who has fought dozens of farmer cases in various courts. Going by the turmoil in rural Telangana, the forthcoming elections might well turn into a battle over cultivating rights of agricultural land, and, therefore, a proxy battle between the KCR-led TRS and distressed farmers.
This is the final part of a two-part series exploring the phenomenon of farmers’ indebtedness in India. Read the first here.
One of the key indicators NSSO uses in order to measure indebtedness is the debt-to-asset ratio, or the ratio of total outstanding loans to total assets as on the date of survey. Essentially it tells us how much money a household owes to others, for every Rs 100 worth of assets that it owns. According to the website Investopedia, a DAR of under 40% is considered to be ideal, and if it is over 60%, it is considered to be alarming.
In this section, I look at the mean debt to asset ratio, who is likely to have a higher DAR, and who is likely to have a DAR in excess of 60%, i.e., be over-indebted. Before I proceed, I would like to point that this the above criterion for being over-indebted seems to have been drawn with urban populations in mind; nevertheless, I felt that this might be a good starting point to gain some perspective into farmers’ indebtedness. Debt to asset ratio among farmers
Debt to asset ratio among farmer households is less than that of the non-farmer households. However, households that have casual labour as their primary occupation (based on net income earned from the occupation) are likely to have a significantly higher DAR than the other rural households.
Also read: Dimensions of Farmers’ Indebtedness: Who is Indebted?
SC households were likely to have 8.5% higher DAR than households belonging to the general category; and OBC households were likely to have 7.7% higher DAR than general category households. Among farmer households, SC households were likely to have 15.2% higher DAR and OBC households 7.8% higher DAR than those belonging to the general category.
In short, from the data, indebtedness is likely to be higher among farmer households belonging to SC and OBC categories than among those belonging to the general category. Farmer households for whom casual labor is the principal occupation, i.e., households which have farming operations but derive their primary income from casual labor, are likely to have a significantly higher number of standing loans than the other households among the rural population.
Mean Debt to Asset Ratio Among Rural Households (%) All figures are percentages. Source: NSSO 1992, 2003, and 2013
Perhaps the clearest sign for the rising indebtedness among farmers is when we look at DAR over time. A farming household in 2003 was likely to have 17% higher DAR than a farmer household in 1992; and one in 2013 more than 630% higher (this is not a typo) than one in 1992. This is an astounding figure that begs an explanation. What accounts for this giant leap?
One possible explanation could be that borrowing among farmers has grown exponentially while the value of their assets remained stagnant or at least not growing as fast as the liabilities are piling up. If the value of assets is way below that of the liabilities, what prompts lenders to extend credit to the farmers? During my conversations in Anantapur, Andhra Pradesh and Sangareddy, Telangana, I was told that lenders often assessed the value of the land before extending credit to the farmers. Now in rural areas, land has the highest proportion in the total asset value. Seemingly, rising prices of land assure the lender of its value as security against loan.
That being the case, it might point to the possibility of debt being the current day tool for primitive accumulation. But then the question is, if the value of land has been increasing is it not adequately captured in NSSO? Could it be possible that the method of valuing land by NSSO underreports the actual value of land?
NSSO values land as per its “normative/guideline values,” when in reality the value of the land might be significantly higher, in no small measure owing to speculation over it. So, would the debt to asset ratio be lower, at least in places like Sangareddy and Anantapur, which are closer to major urban centres (Hyderabad and Anantapur town respectively) if the real value of land were taken into account by NSSO?
It may. But it still does not explain the skyrocketing debt to asset ratio over the two decades between 1992 and 2013. Nor does it take anything away from the fact that over a period of time, farmers find themselves with one loan too many, and are forced to juggle them by borrowing from one source to pay off another. They find themselves in an inexorable debt trap, and when they reach a tipping point, drastic measures like suicides ensue. These are mere possibilities and it is beyond my modest knowledge to fully explain the startling growth in the debt to asset ratio among farmers.
Among the states, farmers in Andhra Pradesh, Rajasthan, and Tamil Nadu are likely to have a significantly higher DAR than those in other states. It seems almost uncanny that farmers from these states have been protesting and demanding relief from the growing debt burden.
A related aspect that I look at is the kind of households that are likely to be in the ‘over-indebted’ category, i.e., have a DAR in excess of 60%. A farmer household is about two percentage points less likely to be in this category. To rephrase, a farmer household is almost as likely to be in the over-indebted category as a non-farming one. A farmer household in 2003 was 3.52 percentage points more likely to be over-indebted, in relation to 1992; while a farmer in 2013 was nearly 9 percentage points more likely to be in this category. A farmer from Andhra Pradesh was more likely to be in over-indebted than any other state in the country.
Negative correlates to over-indebtedness
Being dependent on debt to a high extent can prove to be physically, mentally, economically, and environmentally detrimental to the households themselves and to rural communities at large. There is scholarly work which shows that those who are in debt tend to show poorer psychological health indicators than those who are not. In rural India, being unable to clear one’s debt is negatively correlated with social status.
During my conversations with a farmers’ family in Sangareddy district, Telangana, I was told of an instance where a farmer was looking to borrow some money so that he could repay another loan that he had taken from a public sector bank. However, the moneylender he regularly depended on refused to lend him any further amount until he had cleared an outstanding loan. Despite pleas, the moneylender did not relent. Fearing a loss of face, this farmer committed suicide.
Instances of informal moneylenders or representatives of micro-finance institutions publicly shaming people who are unable to pay their monthly instalments; or of public sector banks seizing assets like livestock in lieu of unpaid loans are also not unheard of. From my conversations with farmers in both Telangana and Andhra Pradesh, such incidents are seen by farmers as bringing shame to them and can push them to take drastic steps.
Another consequence of high debt is that farmer households are forced to work under increasingly stressful conditions for meagre pay. A recent article in The Wire mentions how farmers migrated from Odisha to Sangareddy, Telangana to work in brick kilns for extremely meagre pay, so they could clear their loans back home. Such stories are heard even in Andhra Pradesh and Telangana. Farmers in Anantapur narrated that if the rains were sub-par even in one season they would have to migrate to either Bangalore, Tirupati or even Kerala, in search of daily labor so that they can keep servicing their loans back in their village.
In many cases, the moneylenders determine what crops are to be grown, how they are grown, what inputs are to be used, and where those inputs have to be procured from (mostly from the moneylender himself). This forces the farmer to cede her agency over farming decisions. What also became apparent to me was that mounting debt exacerbates the unviability of agriculture as an economic activity and pushes farmers into a seemingly endless spiral of debt.
Farmers need credit to access the other means of agricultural production, viz. seeds, fertilisers, draught power and so on. In a place like Anantapur where rainfall has becoming unpredictable and where chances of a cropping season failing are high, farmers tend to depend on debt not only to fund agricultural inputs but also their daily needs like food or monthly groceries. This piles on already high debt burdens. And as the debt burden mounts, farmers are forced to resort to more intensive agricultural practices which in turn forces them to depend on debt to fuel such practices.
As I conclude I am reminded of a phrase in Telugu that often cropped up during my conversations with farmers in Anantapur: “appe teerchaalana, thinde tinaalana” – literally translating to “with the limited money that we have, should we feed ourselves or spend it clearing our loans?” This statement encapsulates the frustration that farmers experience – of having to make hard choices between servicing a loan and saving face, and the future prospects of getting another loan or surviving and meeting family expenses.
In the process of trying to find the balance between these competing demands, farmer households often find that their horizons of planning have shrunk and they are forced to deal with the here and now, disregarding future costs and consequences. Many times, this results in them making decisions like having their children drop out of schools, giving up agriculture altogether, leaving their families behind and migrating to cities to work on a construction site under hazardous conditions, or taking one’s own life. This shrinking of choices is perhaps the most tragic outcome of indebtedness. The author would like to thank members of All India Kisan Sabha, Anantapur and Sangareddy, and to Rahul M. of PARI.
Sandeep Kandikuppa is a Doctoral student at the University of North Carolina, Chapel Hill.
Providing income security to farmers and boosting investment in agriculture are the two things that are needed to help Indian farmers in distress, said noted agricultural economist Ashok Gulati on Monday.
“While there can’t be two opinions about the farmers’ plight in our country, increasing minimum support price (MSP) cannot be the solution. We may have to bring in science and our understanding to solve their problem,” Gulati said while participating in a panel discussion on a newly-released book, Farmers under Modi Raj: Double Income or Double Jeopardy, written by political scientist and social activist Yogendra Yadav and others.
The maximum of “higher the cost, higher the MSP” will only make farming an outlier, said Gulati, who is the Infosys Chair of Agriculture at the Indian Council for Research on International Economic Relations.
“If 50 per cent more than the C2 cost of produce (comprehensive cost, including the imputed cost of land rent) is given as floor price for all 23 commodities under MSP, there will be a crisis in the country,” he said, adding that on average the price differential between A2 + family labour (used for calculating MSP currently) and C2 is about 38 per cent.
According to Gulati, providing income support to farmers would be a better option than giving price support as it would not adversely impact the market. China, for instance, gave away $22 billion as income support to farmers on the basis of land the farmers owned, he said, adding that India could emulate the model.
Apart from global commodity prices, which are down 25 per cent from their peak in 2014, India’s pro-consumer policies and total disconnect of its trade policies are factors keeping prices of agri produce depressed. It is high time governments stopped distributing rice and wheat at ₹1 or 2 a kilo. This will automatically improve the conditions of Indian farmers, Gulati said.
Citing a study that ICRIER carried out, the noted agricultural economist said that even though India doesn’t tax agriculture, Indian farmers ended up paying 14 per cent tax on gross farm receipts in the last 17 years.
Earlier, opening the discussion on his book, Yadav said the current regime under Narendra Modi was the worst anti-farmer government that India has seen. Not only are its vision and deeds anti-farmer, even policy changes that it has been making have been putting farmers into more and more distress, Yadav said.
“Helping farmers in times of distress caused by natural disasters has been a tradition of all democratically elected governments at the Centre. The Narendra Modi government, on the contrary, told the court that it was not its responsibility but that of State governments’,” he said.
Gulati, however, disagreed with Yadav and said the NDA government was not anti-farmer by design. Though it had initiated some measures which it thought would benefit farmers, it didn’t have systems in place to implement them, he said. In the last one or two years, it took steps to have a relook on these initiatives, Gulati added.
The cost of land degradation can be substantial for India where agriculture is a large contributor to the country’s Gross Domestic Product.
Dry land around the Narmada Dam area is pictured in Kewadiya Colony, near Rajpipla in western Gujarat state | Sam Panthaky/AFP
Land degradation can exacerbate climate change and threaten agricultural productivity, water quality, biodiversity, sustainable development, and the living conditions of humans and wildlife, among other effects. Globally, a third of our land is degraded, affecting three billion people, and it is expected to worsen with rising demand for food.
As a signatory to the United Nations Convention to Combat Desertification, India is committed to reducing its land degradation and desertification. In fact, India’s goal is to achieve land degradation neutral status by 2030 whereby increases in land degradation would be offset by gains in land reclamation
To address this issue, ISRO’s Space Applications Centre in Ahmedabad had released the results of a project in 2016 in the form of an Atlas mapping the extent of land degradation and desertification across the country, including the processes involved, the severity, and the changes in degradation. Not only does this Atlas facilitate India’s reporting to the United Nations Convention to Combat Desertification, it also highlights vulnerable areas for mitigation to policy makers, managers, planners, and researchers.
The report-cum-atlas showed that during 2011-2013, the most recent time period to be quantified, 29.3% of the country was undergoing land degradation. Compared with 2003-2005, the country experienced a 0.57% increase in land degradation and more land has been degraded than reclaimed. A few states were afflicted with more than 50% of their area under desertification. The increase in degradation compared with 2003-2005, was high for Delhi, Himachal Pradesh, and the northeastern states while four states showed a drop in degradation.
Better regulation of lands and stepping up watershed management initiatives will help combat the rising trend of degradation, experts say.
What is land degradation?
According to the United Nations Convention to Combat Desertification, land degradation is the “reduction or loss of biological or economic productivity..resulting from land uses or from a process or combination of processes, including…human activities.” When land degradation occurs in dryland areas, more specifically arid, semi-arid and dry sub-humid areas, it is referred to as desertification. Around 69% of India falls under drylands.
Land degradation within dryland regions is known as desertification. The map shows the dryland regions of India, which comprise 69%. Original source: National Bureau of Soil Survey and Land Use Planning, Bangalore. Credit: Map extracted fromDesertification and Land Degradation Atlas of India.
“The universal definition is the processes of land degradation that varies with the time and space,” explained Milap Sharma, a professor at the Centre for the Study of Regional Development at Jawaharlal Nehru University, New Delhi, who was part of the project. “The basic definition of land degradation which we used to prepare the Atlas is deterioration of the original quality of land and deterioration or total loss of the production capacity of the soil.”
Land degradation is driven by both by changes in climate or human activities. S Dharumarajan, a scientist at the Indian Council of Agricultural Research-National Bureau of Soil Survey and Land Use Planning in Bengaluru, who was involved in the project, pointed out. “Overexploitation of natural resources is the main reason for increasing land degradation in India,” he said.
Absence of soil and water conservation measures in Muttala, Anantapur district Andhra Pradesh leads to desert. Photo credit: S. Dharumarajan
The cost of land degradation can be substantial for India where agriculture is a large contributor to the country’s Gross Domestic Product. As a result, lost productivity can weigh heavily on the economy. A study by Delhi-based The Energy and Resources Institute or TERI estimated that the economic losses from land degradation and change of land use in 2014-’15 stood at 2.54% of India’s GDP or Rs 3,177.39 billion (Rs 317,739 crore or $46.9 billion) for that year. Land degradation alone accounted for 82% of those costs.
Mapping degradation
ISRO’s Atlas maps degradation and desertification from Indian Remote Sensing Satellite Advanced Wide Field Sensor or AWiFS data at a scale of 1:500,000 during 2003-2005 and 2011-2013 for all Indian states including the processes of degradation (ie water erosion, wind erosion, etc), their severity levels, and the changes between the two time frames – a period of eight years.
Funded by the Ministry of Environment, Forest and Climate Change and led by ISRO’s Space Applications Centre, the project involved a team of almost 100 scientists and staff members from 19 state government departments and academic institutes throughout the country.
The Atlas classifies the type of land cover, which included forest or plantation, agriculture, grassland, scrubland, barren, rocky area, sandy area, glacial, periglacial, and others. In addition, ground truthing or field observations were performed to ascertain that the satellite images were consistent with features on the ground.
In the Atlas, the processes of degradation/desertification are listed as vegetation degradation from deforestation, forest-blanks, shifting cultivation and grazing or grassland; water erosion resulting in the loss of soil cover mainly due to rainfall and surface runoff water; wind erosion causing the spread of sand which can erode soil; salinity of soils in cultivated areas due to excess evapotranspiration, drought, excess irrigation, and overuse of fertilisers; waterlogging or the accumulation of standing water for long periods caused by floods, excess irrigation, and incorrect planning of drainage; frost shattering referring to the breakdown of rocks because of differences in temperature; frost heaving where ice lens form under the soil; mass movement delineating the movement of masses of soil and rock due to gravity; and manmade causes such as mining, quarrying, brick kilns, industrial effluents, city waste, and urban agglomeration. These are further classified into their level of severity, either high or low.
Soils are eroding faster than its formation – Area affected by water erosion in Chamarajanagar district, Karnataka. Photo credit: S. Dharumarajan
Increase in degradation and desertification India-wide
In 2011-2013, India’s land degradation area totaled 29.3% of India’s total land area, representing an area of 96.4 million hectares. This is an increase of 0.57% compared with 2003-2005, which amounts to 1.87 mha – an area larger than the state of Nagaland. Although 1.95 mha of land was reclaimed or restored between 2003-2005 and 2011-2013, 3.63 mha of productive land degraded during this period.
“Land reclamation is bringing back the degraded land into its former state by adopting suitable management practices,” explained Dharumarajan.
Changes in the desertification and land degradation status between 2003-2005 and 2011-2013. More land has been lost than reclaimed. Credit: Chart from ISRO’sDesertification and Land Degradation Atlas of India
The top processes leading to degradation/desertification in the country in both time periods were water erosion (10.98% in 2011-2013) followed by vegetation degradation (8.91%) and wind erosion (5.55%). Overall, the areas affected by vegetation and water erosion increased by 1.02 mha and 0.49 mha respectively in 2011-2013, while there was a slight drop in the total area degraded due to wind erosion and salinity, indicating improvement.
Chart shows the changes in the processes leading to desertification/land degradation between 2003-2005 and 2011-2013. Credit: Chart from ISRO’sDesertification and Land Degradation Atlas of India.
The area under desertification (dryland areas) was 82.64 mha in 2011-2013, which rose by 1.16 mha from 2003-2005. While wind erosion was the main process leading to desertification in the arid regions, vegetation degradation and water erosion dominated in the semi-arid and dry sub-humid regions.
Land degradation increased in most states
In terms of India’s total geographical area, the states of Rajasthan, Gujarat, Maharashtra, Jammu and Kashmir, and Karnataka have the highest area of lands undergoing degradation/desertification, amounting to 18.4% (out of India’s total 29.3%) while all the other states each had less than 2% of degraded lands.
Comparison of the changes in desertification/land degradation status between 2003-2005 and 2011-2013 as a percentage of the country area. Credit: Chart from ISRO’sDesertification and Land Degradation Atlas of India.
But when considering the area within the states, Jharkhand followed by Rajasthan, Delhi, Gujarat, and Goa, had the highest area of degraded lands, representing more than 50% of their area. In comparison, the land area undergoing degradation/desertification in Kerala, Assam, Mizoram, Haryana, Bihar, Uttar Pradesh, Punjab, and Arunachal Pradesh was less than 10%.
Sharma explained that Rajasthan and Gujarat are large states with desert regions featuring an arid climate while “Delhi and Goa are comparatively smaller states, but overexploitation leads to a higher area under desertification.”
Overall, land degradation/desertification in 87% of 30 states increased from 2003-2005 to 2011-2013. Four states, however, improved slightly in their degradation status over the eight-year period. Among these, Uttar Pradesh had the highest restoration of 1.27%, mainly due to a drop in salinity, while the other three – Rajasthan, Odisha, and Telangana – improved by less than 1%.
Map: Kartik Chandramouli/Mongabay. Source: Desertification and Land Degradation Atlas of India (SAC, ISRO)
Delhi had the third highest level of desertification (60.60% of the state) in the country and it also experienced the highest increase in land degradation (+11.03% ) over the eight-year period from 2003-2005. “In the case of Delhi it is not strictly desertification, but prime land degradation arising from settlement growth, which turns productive areas into non-productive ones,” explained Sharma.
Desertification in the northern states such as Himachal Pradesh (+4.55%) and Jammu & Kashmir (+1.94% ) rose more compared with the eastern states such as Bihar and West Bengal both of which experienced an increase of less than 1% in land degradation. According to Sharma, the “harsh climate and hilly terrains in Himachal Pradesh and Jammu & Kashmir are dominated by physical processes” such as slope erosion, mass-movement, and frost shattering.
The northeast part of the country had notably large increases in land degradation over the eight years from 2003-2005. Land degradation in the states of Nagaland, Tripura, and Mizoram shot up by 8.71%, 10.47%, and 4.34% respectively. In fact, Tripura and Nagaland had the second and third highest increase in degradation country-wide. The driving force for the sharp rise in these states was mainly because of a surge in vegetal degradation of forests.
This may be linked to “low or lack of watershed management interventions in the region from the beginning,” said V Ratna Reddy, Director of Livelihoods and Natural Resource Management Institute who was the author of a 2003 article on land degradation in India.
In contrast to the north and northeast, degradation/desertification in the southern states rose by less than 1% from 2003-2005 to 2011-2013. Dharumarajan explains that “unlike the northern states like Rajasthan or Gujarat” that feature arid climates, “southern states are mostly under semi-arid and dry sub-humid regions where the land degradation process is low.” But he warns that recently “due to overexploitation of land resources and mismanagement, desertification/land degradation processes in the southern states are growing at a faster rate.”
Stunted crop growth due to high salinity in Chamarajanagar district.Photo credit: S. Dharumarajan.
Among the southern states, Telangana showed an improvement in the area undergoing degradation/desertification by 0.52%. This is mainly because of a drop in the area of un-irrigated agricultural lands featuring low severity of water erosion, which is influenced by land management practices, says Dharumarajan. “But the main problem in Telangana is increasing salinity which is due to bringing non-conventional areas into irrigated agriculture,” he adds. Varying degradation estimates and definitions
Surinder S. Kukal, a professor and dean of the College of Agriculture at Punjab Agricultural University, Ludhiana, said that the current estimation of land degradation at 29.3% is much lower compared with an earlier 1994 estimate of 57% by the National Bureau of Soil Survey and Land Use Planning.
This variation, according to Dharumarajan, arises due to differences in methodologies and definitions. The earlier estimate was likely based on extrapolation of sample surveys but the most recent figure is based on high-resolution remote sensing data, he points out.
Kukal has some concerns about the classification of the processes of degradation. He points out that the process of vegetation degradation leads to water and wind erosion. In other words, “the water and wind erosion are the outcomes of vegetation depletion.” And, although manmade degradation is stated separately in the Atlas, he believes that most land degradation is manmade.
Rampant salinity and alkalinity in tank and canal irrigated areas. Development of salinity and alkalinity in Bukkarayasamudhrum, Anantapur district. Photo credit: S. Dharumarajan.
“It all started when nomad humans started animal and crop husbandry by destroying natural vegetation to pave the way for present-day agricultural lands,” he stated. The best example, he says, is the practice of shifting cultivation in the northeast. Man-made degradation continues until today, he asserts, with agricultural lands being converted into settlements, industries, and highways.
“The impact of land degradation varies with time and space. It depends on the intensity and amount of rains which cause soil erosion by water,” Kukal says. “The increase/decrease in area under land degradation does not matter anymore because of the severity of various components of land degradation. The mudslides in Jammu & Kashmir (Ladakh) and Uttarakhand during the last few years are sufficient to remind us that things are going from bad to worse every year,” he said.
One of the reasons for the mudslides, explained Kukal, is “deforestation in the catchment areas of many natural and manmade reservoirs,” which “has led to their decreased capacity to hold water in them due to unabated soil erosion by water in the catchment areas.”
Reclaiming degraded lands
So what needs to be done to reclaim degraded lands?
According to Reddy, to combat soil loss by water erosion, which is the largest process leading to land degradation in India, and to restore degraded lands, there is a need to initiate watershed interventions immediately. Watershed management initiatives include afforestation and other programmes aimed at conserving soil and water.
“Watershed management has been dropped from the priority of natural resource management initiatives over the past five years at the national and state levels,” Reddy noted. “This is not a good sign for NRM [natural resource management], given that water erosion is on the rise. Systematic implementation of watershed interventions should be a long-term priority in order to check soil erosion, improve soil moisture, increase recharge, stabilise river basins (catchments) and making agriculture and communities climate resilient.”
Indeed, “watershed management programmes have greatly helped restore degraded lands in Himachal Pradesh,” noted Sharma, citing a case where the state forest department along with the panchayat-level watershed development group planted trees in vulnerable areas, which have resulted in large positive changes over the past two to three decades.
According to Dharumarajan, reducing the severity of degradation/desertification can be achieved by establishing a “proper land use policy, protection of prime agricultural lands and regular monitoring of highly vulnerable areas.”
Kukal also stressed the importance of implementing a strict “land use change policy” at the state level. “Anybody can convert agricultural land into a settlement colony, anybody can install a factory on agricultural land,” he stated, noting that this problem was rampant in Punjab.
In order to reduce soil erosion by water, he proposed harvesting of rain/runoff water – a watershed management practice – stressing that “this needs to be a part of our policy both in urban as well as rural areas.”
“The harvested water could be stored in reservoirs at the individual or community level or used for recharging the groundwater depending on the situation. Every household needs to be sensitised for rooftop rainwater harvesting. The best example of this is Junagarh area of Gujarat, where even the small houses have rainwater harvesting reservoirs, the water of which is used for all household chores including drinking purposes,” he elaborates.
The period of time required to reclaim degraded lands can be lengthy. “If restoration work is scientifically initiated and properly executed, it will take approximately 25-30 years for a visible restoration. But in some areas such as housing colonies may not be possible to restore within such time limits,” said Sharma.
“This Atlas was prepared using visual image interpretation that may vary from eye to eye,” said Sharma. “Therefore, there is some inconsistency in mapping and identification in terms of intensity.”
Also, Dharumarajan points out that the Atlas “only helps for state-level planning.” To prepare a degradation combating plan at the district or village-level, he says, we need to map land degradation at a finer scale.
Around 78 vulnerable districts were selected for detailed mapping at a scale of 1: 50,000, which Dharumarajan says is better for preparing combating plans aimed at afforestation and conserving soil and water. These districts have already been mapped. Semiautomatic techniques were used for mapping the districts, said Sharma. In the next step, such high-resolution mapping and analysis would be carried out for all districts in India, he adds. This article first appeared on Mongabay.
Support our journalism by subscribing to Scroll+ here. We welcome your comments at letters@scroll.in.
Despite Increased Average Income, Farmers’ Debt Remains an Issue
While the average income for a farming household has increased to Rs 8,931, 50% of all households earned less than Rs 5,500 per month and more than 50% households remain indebted.
This is part one of a two-part series that critically analyses NABARD’s financial inclusion survey. Read part two here.
On August 16, the vice-chairman of Niti Aayog released NABARD’s All India Rural Financial Inclusion Survey, appropriately named ‘NAFIS’, which in Urdu means decent. NABARD management has truly acted ‘NAFIS’ by commissioning this detailed survey and then publishing its finding rather quickly. The survey was conducted between January 2017 and June 2017, covering 40,327 households in 245 districts spread across 29 states. The reference period for agriculture related data was from July 1, 2015 to June 30, 2016 (agriculture year, AY, 2015-16).
In its survey, NAFIS includes semi-urban places having a population of up to 50,000. At an all India level, NAFIS sample of households includes 84% rural and 16% urban households. But in several states, semi-urban households had a higher ratio (Kerala 57% and Tamil Nadu 40%). NAFIS defines an agricultural household as one that received value of produce exceeding Rs 5,000 during FY 2016 from agricultural activities. Other households were classified as non-agri households.
The National Sample Survey Office (NSSO), Ministry of Statistics and Programme Implementation, conducted a Situation Assessment Survey of Agricultural Households (SAS) in its 70th round (January – December, 2013). Data was collected from 4,529 villages in 35,200 households and it was published in December 2014 as ‘Key Indicators of Situation of Agricultural Households in India’. Semi urban areas were not included in this survey and an agricultural household was defined as one that had received Rs 3,000 as value of annual agricultural produce.
It is clear that the two surveys are not entirely similar and as compared to SAS, NAFIS may have overstated the income of households because its level of threshold income to be categorised as an agricultural household is 67% higher than under the NSSO survey.
Any sample survey, however, has several limitations as the sample may not correctly reflect the reality of rural population in a complex scenario under which there are wide inter-state and intra-state variations of climate, cropping pattern, farm size, irrigation coverage, literacy, penetration of banks, procurement policies and population density. Thus, out of 97,825 villages in UP, NAFIS has collected data from only 192 villages. We do not know if all the agro-climatic regions in the states were covered. Despite its limitations, the country now has access to an independent source of data not only on farmers income, which is flavour of the season, due to the government’s promise to double farmers’ income by FY 2023, but also on consumption, household savings, investments, indebtedness, micro-finance and even financial knowledge of households. NABARD deserves compliments for this meticulous work
NAFIS finds that the monthly income of agricultural households in AY 2016 was Rs 8,931. As per SAS, average monthly income of an agricultural household in January-December 2013 was Rs 6,426. Based on this data, a government committee on doubling of farm income (Dalwai Committee) calculated that an average agri-household earned Rs 8,059 in 2015-16.
Even though SAS and NAFIS data are not comparable, there is an impressive increase of 39% in nominal income of agri-households between 2012-13 and 2015-16. This is even before the government’s implementation of new schemes of crop insurance (Pradhan Mantri Fasal Bima Yojana), e-NAM, soil health cards, Pradhan Mantri Krishi Sinchai Yojana and announcement of substantial hike in MSPs (in Kharif 2018).
The survey shows that incomes of agriculture households has increased on average. Credit: Well-Bred Kannan (WBK Photography)/Flickr CC BY-NC-ND 2.0
Income data presents a positive outlook
The data of income for states presents an even more positive outlook. In the three-year period, nominal monthly income of agri-households in Bihar increased from Rs 3,558 to Rs 7,175 (an increase of 101.6%) and in West Bengal from Rs 3,980 to Rs 7,756 in WB (increase of 94.9%). However, the income in J&K decreased from Rs 12,683 to Rs 9,355 per month, perhaps due to floods in September-October 2014. It is possible that agri-households in WB, a top performing state under MNREGS, may have earned relatively higher income from wages under the scheme. But Bihar continues to perform poorly under MNREGS and agri-households may have found employment in other states, which may have contributed to such a high increase in three years. In any case, wages under MNREGS in Bihar and WB in 2018-19 are Rs 168 and Rs 191 respectively, while the minimum wage fixed by these states are Rs 237 and Rs 234 respectively.
NAFIS has not provided segregated data of source of income of households for each state. Therefore, the real drivers of high growth in income of farmers in Bihar and WB remain unexplored. To get a fair sense of what is driving the income of agri-households in various states, we may have to wait for the next SAS and NAFIS, which will capture the data for AY 2018-19. One hopes that both the organisations will not change the methodology for collection of data so that actual progress in agriculture and in rural economy can be analysed.
NAFIS also provides information on distribution of households by monthly income. 50% of all households (in rural and semi-urban areas surveyed) earned less than Rs 5,500 per month in 2015-16. This low level of income confirms the impoverishment of rural areas and the urgency of increasing their income from sources other than cultivation of crops. The survey also shows that smaller the size of landholding in the household, larger is the share of income from livestock rearing. With rising incidents of violence against traders of animals, there is every possibility that future surveys of NSSO and NAFIS may show a decline in income from rearing of animals. It is likely to affect small and marginal farmers and landless households more adversely than other households.
This survey, like SAS earlier, confirms that wage labour provided 34% of income of agri-households. In case of marginal farmers, the share of wage labour was more than 40%. In case of non-agri households, 54% of income came from wage labour. It is clear that generating employment in labour intensive sectors like agro industries, construction and textiles is crucial for increasing the income of rural and semi-urban households. The downturn in construction industry would have hit the income of both agri and non-agri households and is likely to reflect in subsequent surveys.
Due to rising incidents of violence against traders of animals, there is a possibility that future surveys may show a decline in income from rearing of animals. Credit: Navaneeth Kishor/Flickr CC BY 2.0
Savings and indebtedness
The NAFIS data on household savings is not only surprising but also reassuring. About 55% of agri-households informed that they had saved money in the previous year. The north-eastern states showed higher level of savings with more than 90% households confirming that they had saved. Surprisingly only 21% households in Punjab and 23% households in Haryana mentioned any savings. It is surprising that the states having highest income are saving the least. It is however heartening that 94% savings are in institutional agencies. Out of annual income of Rs 1.07 lakh, the agri-households saved Rs 9,657 which is a handsome 9% of annual income. Poor households in rural India are thus setting an example for showing a mirror to much better off urban India!
Another important finding of the survey is high level of indebtedness (defined as presence of any outstanding loan). Similar to level of indebtedness in SAS, about half (52.5%) of agri-households confirmed in NAFIS also that they were indebted. The level of indebtedness rose with the size of landholding in the household. Bihar (48%) and WB (37%) show much lower level of indebtedness than AP (76%) and Telangana (79%). Thus the correlation between indebtedness and suicides is rather clearly established. It is, however, a matter of further research why agri-households in these two states are so highly indebted.
NAFIS has provided new insights into the conditions of households in rural and semi-urban areas which would be useful to policy makers in addressing specific challenges in various states. The data again proves that state specific policies are required to enable agri and non-agri households in rural and semi-urban India earn a decent income.
Part 2:
Despite Penetration of Institutional Credit, Farmers Continue to Rely on Moneylenders
NABARD’s survey shows that lengthy procedure for sanction of loans by institutions, demand for collateral security and short term of crop loan were the reasons for farmers seeking loans from non-institutional sources.
Representational image. Credit: CIAT/Flickr CC BY-SA 2.0
As an institution providing refinance to cooperative and regional rural banks for agricultural credit, NABARD’s interest in understanding the extent and width of coverage of farmers for obtaining crop loans is only natural. NABARD therefore devotes several chapters in its All India Rural Financial Inclusion Survey (NAFIS), to financial issues (household savings, investments, indebtedness, insurance and pension, microfinance and financial knowledge) of agricultural and non-agricultural households. Since indebtedness of farmers is considered a major factor leading to farmer suicides, a detailed examination of the survey findings would be in order.
The All India Debt and Investment Survey conducted by NSSO in its 70th round had found that as on June 30, 2012, 35% of cultivator households were indebted. NAFIS finds that in AY 2015-16, 47% of agri-households were in debt. Though the sample in two surveys is different we get a sense of increasing penetration of credit to farmers.
Launched by the A.B. Vajpayee government in 1998, the kisan credit card (KCC) scheme enables farmers to get credit limit to purchase crop seeds, fertilisers, diesel and other inputs at 4% interest (if loans are repaid in time). The farmer can draw money to the extent of limit sanctioned, as per requirement and as many times as she wants. For every crop cycle, the farmer does not have to go to a cooperative or bank for sanction of loan. NAFIS found that only 10.5% agricultural households held a valid KCC.
The Situation Assessment Survey of Agricultural Households during the NSSO’s 70th round (January – December, 2013) had found that out of 15.6 rural households in the country, nine crore were agricultural households. According to a reply given in Lok Sabha on March 9, 2018, there were 2.77 crore active KCCs as on March 31, 2017. Even though NAFIS left out agricultural households earning less than Rs 5,000 per month from agri and allied operations, the penetration of KCCs at 10.5% appears rather low. In states having poor coverage of KCC, a massive drive of inclusion is required to disseminate benefits of borrowing through KCCs rather than going to money lenders for loans.
The survey however, finds that agri-households which had a KCC, reported that against an average borrowing limit of Rs 1.39 lakh, amount drawn was Rs 91,000. It shows that the scheme has largely facilitated drawing of credit for agricultural operations by reducing procedural hassles of getting loan sanctioned for each crop cycle. However, lower drawings show that lack of confidence of earning enough profit to be able to repay the loan in time.
Indebtedness is one of the primary reasons for farmers’ suicide. Representational image. Credit: Katrin Park/Inernational Food Policy Research Institute
Borrowing from non-institutional sources
In a worrying finding from the survey, it is observed that 30.3% of agri-households still borrowed money from non-institutional sources like money lenders, relatives and input suppliers etc. About 9% agri-households borrowed from both institutional and non-institutional sources. In another encouraging sign of reducing dependence on money lenders, the NAFIS survey finds that out of average borrowing of Rs 1.07 lakh in AY 2015-16, agri-households borrowed about Rs 30,000 (28%) from non-institutional sources. Lengthy process for sanction of loans by institutions, demand for collateral security, and short term of (crop) loan were cited as reasons for seeking loans from non-institutional sources. NABARD has its task cut out for increasing the penetration to small and marginal farmers.
In another worrisome sign of dependence on money lenders, the NAFIS survey finds that out of average borrowing of Rs 1.07 lakh in AY 2015-16, agri-households borrowed about Rs 29,000 from non-institutional sources (27%). Lengthy procedure for sanction of loans by institutions, demand for collateral security and short term of (crop) loan were cited as reasons for seeking loans from non-institutional sources. NABARD has its task cut out for increasing the penetration to small and marginal farmers.
NAFIS also covers the penetration of crop insurance, finding that out of households which had taken any loan for agricultural operations, only 6.9% reported they had any crop insurance. It is thus a myth that banks deduct the insurance premium from all farmers who have taken loan on KCC. Premium is payable only on crops notified by the state government.
It is no surprise that only 1.7% of agri-households owning milch animals reported insurance for their livestock. The plight of uninsured agri-households who lost their animals and other agri-assets in the Kerala floods of August 2018 can only be imagined. In fact, while launching the Pradhan Mantri Fasal Bima Yojana (PMFBY), in April 2016, the government came up with a package insurance scheme under which in addition to crop insurance, the farmers had the option to buy insurance cover for fire, animals, pump set, tractor and personal accident. However insurance companies have not been successful in selling it due to high cost of marketing of diverse risks in a single insurance policy. The government has done well to keep premiums under PMFBY very low. Certain policy reforms in PMFBY and concerted effort by state governments (to conduct crop cutting experiments in a timely transparent manner) and insurance companies (to ensure timely settlement of claims) will surely result in increase in coverage of crop insurance and possibly other insurance products also.
Few farmers have insurance for their livestock. Credit: Reuters/Rajendra Jadhav
Reach of microfinance institutions
NABARD did well to seek information about reach of microfinance institutions (MFI) in meeting credit needs of households. At the national level, 23% of households had at least one member associated with an MFI, but the data is skewed. The all India average in high only because a few states like AP (61%), Telangana (65%), Odisha (44%) and Karnataka (40%) reported higher reach. UP, Rajasthan, Punjab and Haryana have less than 10% coverage of MFI. Odisha and Jharkhand (27%) have demonstrated that deep engagement with reputed NGOs (like Pradan) can help in increasing the reach of MFIs to even the most backward districts. The survey found that MFIs meet needs for personal loans for which institutional finance is not easily accessible.
Expansion of financial inclusion through Pradhan Mantri Jan Dhan Yojana has been one of the major achievements of Modi governments. About 32.17 crore accounts have been opened as on July 25, 2018. Out of these, 18.97 crore are in rural and semi-urban areas. But, in states like UP, where household earning is as low as Rs 6,668 per month, it is worthwhile to consider how many would deposit their cash income and then withdraw the same.
It is rather heartening that about 73% of survey respondents said they can use an ATM without anyone’s help and 52% can use internet banking. If it correctly reflects ground reality, it should be possible to switch to direct benefit of transfer (DBT) of food subsidy in states having high literacy, good road network and deep penetration of banks and telecom infrastructure. Rather than forcing beneficiaries to authenticate their identity through Aadhaar every month in states not having surplus food grains and poor internet infrastructure (like Jharkhand), the government should be switching to DBT in food surplus and developed states like Punjab, Haryana, AP and Karnataka. A commendable attempt
NAFIS 2016-17 is a commendable attempt to collect and analyse data of rural and semi-urban India. There are several surprises in the survey and a more detailed analysis of data will require state level tables for every chapter covered in the report. In a vast country with acute disparities in literacy, income, availability of ground water, cropping pattern and marketing network, it is only natural that a uniform national strategy for agriculture sector will not work.
In March 2015, the government had set up a task force on agricultural development under Arvind Panagariya, then vice-chairman of Niti Aayog. Based on the work of the task force, a solitary paper titled ‘Raising Agricultural Productivity and Making Farming Remunerative for Farmers’ was published by Ramesh Chand in December 2015. The Niti Aayog had also asked states to set up state-level task forces to prepare reports suited to the specific state. Some states did prepare their reports, but the exercise was not pursued and a good opportunity to document the specific action points for each state was lost. This survey itself indicates that there are success stories in several states which need to be replicated in other states.
Like previous NSSO surveys, this meticulous effort will also have a short shelf life. It would therefore be appropriate for NABARD to quickly organise a conclave to reflect on the findings and tweak policies to make farming viable.
Siraj Hussain is former secretary of Agriculture and Farmers’ Welfare (GoI) and currently visiting senior fellow at ICRIER.
