The bane of indebtedness has been a serious subject for investigating scholars as this was a cause of misery for a majority of the population. In this line a new study presents a harrowing picture.
This study conducted by Prof. H.S. Shergill, a well-known economist with the Institute for Development and Communication, records that the farm debt over 1997-2008 at the current prices has gone up five times — from Rs 5, 700.91 crore in 1997 to Rs 30, 394.12 crore in 2008.
Even in real terms at the 1997 constant prices of farm products, it has more than doubled — from Rs 5,700.91 crore in 1997 to Rs 13, 829.32 crore in 2008. The per farm household debt (at 1997 constant prices) has become almost three times over these 10 years — from Rs 52,000 to Rs 1.39 lakh.
The outstanding debt component has increased at a faster rate (14.13 per cent per year) than the total farm debt — 8.81 per cent per year. Shergill estimates that the mortgage debt, however, has declined over this period and may completely disappear in the near future.
A puzzling revelation is that the debt of small and marginal farmers has grown at a slower rate (1.29 per cent per year) than the debt of medium and big farmers (2.71 per cent per year).
Also, over these ten years farm debt has increased at a faster rate than farm incomes, and, as a result, the burden of debt on the farm sector has gone up substantially. The debt amount has increased from being 68 per cent in 1997 to 84 per cent in 2008 of the net farm income generated by the farm sector.
As a proportion of the value of machinery owned by Punjab farmers the debt amount has gone up from being 15 per cent in 1997 to 53 per cent in 2008.
In spite of the steep rise in farm land prices in Punjab, the amount of farm debt in 2008 was equal to 4 per cent of the total value of farm land, compared to it being 3 per cent in 1997.
On the same lines the annual interest burden of farm debt has gone up from 11 per cent to 14 per cent of the net farm income.
It now absorbs about one-third of the rental surplus of the entire operated area, compared to being one-fifth of the rental surplus in 1997. Clearly both the burden of farm debt and interest payments on it has gone up substantially. Around 72 per cent of farm households are heavily stuck in debt.
A disturbing trend is that out of these 72 per cent heavily indebted farmers 17 per cent were under very heavy debt amounting to Rs 80, 000 and more per acre of land owned by them. These 17 per cent farm households are in a virtual ‘debt trap’ in the sense that they cannot pay even the annual interest charge from their current farm income.
What should be done for the small and marginal farmers who are perpetually under debt? These are mostly in the Malwa, which incidentally has produced senior political figures, including five chief ministers, a President of India and several Union and state ministers. Currently, Akali stalwart Parkash Singh Badal rules the state, all in the name of these debt-ridden farmers.
Whom do the farmers owe this huge debt? In the total debt owed by Punjab farmers the share of commission agents and money-lenders is 43.46 per cent or Rs 13,179 crore, of commercial banks 31.78 per cent or Rs 9, 660 crore, and of cooperative credit institutions 18.91 per cent or Rs 5,748 crore.
The remainder is from friends and relatives (3.16 per cent), a mere 0.08 per cent from the government and 2.71 per cent from others.
Private lenders were the single largest player in the farm credit market of Punjab. This tyrannical system continues despite six decades of effort to wean farmers from the private lenders whose interest rates varies from 12 per cent to 48 per cent to cooperative and commercial banks.
The failure of these agencies except commercial banks is writ large on the faces of debt-ridden farmers. Why has the cooperative route for lending been so weak in Punjab?
Strangely, between 1997 and 2008, the share of cooperative credit institutions has declined substantially, by 8.23 per cent points. But the share of commission agents and money lenders declined marginally by 2.96 per cent points; from 46.32 per cent in 1997 to 43.36 per cent in 2008.
Their position as the single largest farm credit agency, however, has not changed. Only the commercial banks gained in the farm credit market — from 19.42 per cent in 1997 to 31.78 per cent in 2008.
These estimates indicated the average amount of long-term (productive) loans per borrowing farmer was Rs 87,921, and per operated acre amount came to Rs 6,663. The per acre amount of these loans was the highest in the case of small and medium farms.
About 78 per cent of these loans were contracted for purchasing machinery and installing tubewells, about 13 per cent for purchasing land, and the remaining 9 per cent to purchase cattle.
The main sources were banks, 62.65 per cent. Commission agents and money lenders provided 32 per cent. The share of cooperatives was negligible — 2.63 per cent.
Significantly, almost 30 per cent of the farm households of the state borrowed some money for long-term non-productive purposes during the agricultural year 2007-08. The total estimated amount of these loans in the state during 2007-08 was Rs 4,060 crore. The average amount of these loans per borrowing farmer was Rs 1.25 lakh. The non-productive long-term loan was the highest in the case of small farms.
The amount of non-productive long-term loans (Rs 4,059 crore) was almost four times that of productive long-term loans (Rs 1073 crore). The incidence of involvement in long-term non-productive loans (29.67 per cent) was also much higher than in long-term productive loans (12.67 per cent).
All debt is not bad as we know. We borrow for various reasons. Sometimes to pay debt, other times to have a good social function like marriage or at times to invest in farming. The farmers also borrow for education of children or for sending them aboard.
If farmers borrow to increase production, that is investment like industrialists and is a productive debt. A legitimate question arises: in spite of an increase in the contribution of agriculture to net state domestic product, an increase in production of wheat and paddy and also the multiplication of the minimum support prices, why is the farm debt increasing?
One reason is the high cost of production that leaves less money in the pockets of farmers. While there are farmers who are now traders and some even lend to agents, yet the vast majority is not only steeped in debt, but also taking to drugs and other social evils. Region-to-region broad contours show heavy spending on social ceremonies like marriages, litigation and to send young boys to foreign lands for jobs. Something to ponder over for policy-planners!
Source: The Tribune, Chandigarh, India.
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