A Project Report
On
“The much hyped loan waiver for farmers is more of a political gimmick than attempt to alleviate misery of the small and marginal
farmers.”
Submitted to: Submitted by:
Swati Verma
Sec- FB1/FW 07-09
Subject: Ph- 9958708764
Welfare Economics Id- [email protected]
Date of submission:
1st Feb 2010
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Abstract:
We all are aware about the loan waiver scheme announced by the Congress-led United
Progressive Alliance government in February 2008, a scheme to bail out some 36 million
farmers who had borrowed from various public sector banks. Unable to bear the pressure of
failing crops and increasing interest rates, farmers opt for suicide than think of paying back the
borrowed money and now its crisis time for the farmers who make the backbone of Indian
economy. Still, there is lot of criticism about the loan waiver scheme which was designed to
provide relief to the ailing rural economy and bring some respite to the distressed farmers. This
research paper tries to analyze the loan waiver scheme to figure out the problems in it and to find
out whether the loan waiver scheme is capable of rescuing the farmers from their misery or it is
just a political gimmick.
The huge amount of money that would be spent for this scheme has caught everyone’s attention,
and that is not the major concern of this paper. As we know, agriculture is of vital importance in
Indian socio-economic framework, and with a large population dependent on agriculture, such a
huge amount should not be a problem if it is able to provide some relief to the farmers. This
paper attempts to explore the potential of the huge amount of government resources spent on this
scheme, and if the present use of money is its best possible use.
We must not forget that Indian agriculture is actually facing a crisis and some measures have to
be taken to provide relief. This paper tries to find out the actual problems in Indian agriculture, if
the present scheme solves some of these problems, and what steps should have been taken to
address these. We will also try to find out whether the loan waiver scheme was actually planned
to solve the misery of our farmers or it actually added more to their misery.
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Table of contents:
1. Introduction 1
2. Research Objective 2
3. Theoretical Review 3
3.1. “India's $15 Billion ‘Poison Pill’” 3
3.2. “Debt Relief and Waiver Scheme – Effective only if it is total” 5
3.3. .“Loan Waiver Sends Wrong Message to Borrowers” 6
3.4. “Debt (and Voter) Forgiveness in an Election Year” 7
3.5. “Oh, What a Lovely Waiver!” 9
3.6. “Scheme brings no relief to conscious debtors” 11
3.7. “Loan Waiver and Agricultural Investment” 12
3.8. “Debt Relief and Waiver Scheme – Effective only if it is total” 13
4. Review and Research 15
4.1. Farmers Suicide 15
4.2. Deceleration in Growth Rate: 17
4.3. Decreasing Yield 18
4.4. Productivity in Agriculture 19
4.5. Availability of timely input and information 21
4.6. Water Management 24
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5. New Developments in the Research area 25
5.1. Alternative Use of Resources 25
5.1.1. Laser Land Leveling 25
5.1.2. Building Roads 27
6. Recommendations 30
7. Conclusion 33
8. Bibliography 35
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1. Introduction:
The agriculture debt waiver and deft relief scheme 2008 has been announced and implemented.
As per initial estimates given out by the government, 39 million farmers received state-supported
relief of waiver of their defaulted farm loans. The overall bill for the nation was expected to be
Rs 72000 crore. The major budget announcement on waiver of farm loans has been lauded and
criticized in equal measures. This criticism could also be considered as biased and narrow
minded because the out rich of any government measures is limited, and some section of the
society would be benefited than the others. But the most important fact is that agriculture is
facing a serious crisis as the term of the trade in farming have not been so positive and
profitability of agriculture has been week so the farmers especially the small ones, need all the
support that is possible.
It seems that the assumptions under which the Finance Minister developed this scheme were
flawed, despite the comprehensive committee report of Dr R Radhakrishna on rural
indebtedness. The loan waiver scheme targets a selected group of farmers, and the problem is not
with the small section of farmers being benefited, but the fact that the potential of such a huge
amount of money is enormous and many more could have been benefited.
Looking to the low profitability of farming and the risks that the farmers face from various
sources like weather, markets and credit institutions, a relief measure cannot be faulted. The
waiver is perhaps recognition of the small farmers’ plight and the lack of profitability in
agriculture. Low productivity, unfavorable terms of trade, natural calamities, weather risks, lack
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of access to technology, low availability of inputs including finance etc, have been the common
reasons for under performance of agriculture. The indebtedness of farmers and defaults – to both
bans and informal lenders – area result of lack of profitability in agriculture. But the waiver
treats default as a cause and looks at remedying the situation by extinguishing default. This
would be at the best a temporary solution as long as the basic causes of profitability in
agriculture are not addressed.
Unless the farmers have an assured source of income, we can’t expect them to get out of this
vicious circle of indebtedness. Government policies should stress upon increasing the
productivity in agriculture so that the farmers are able to generate enough income to repay their
loans. Given that there is agreement across the political and economic spectrum that farmers
need support, is the loan waiver the best instrument is a question that I would aim to answer in
this report.
2. Research Objective:
The objective of this research is to analyze the loan waiver scheme of the Union Budget 2008,
and compare the advantages that the scheme offers with the present situation of Indian
agriculture. The research aims to find out if the loan waiver scheme is the best way to provide
relief to agriculture, given the present crisis situation in rural India or it is just another political
gimmick, played by out political parties. In the process, the potential of the enormous amount of
government resources being used for the loan waiver scheme would be explored. The research
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also aims to figure out the actual problem in Indian agriculture and if these problems would be
addressed by the loan waiver scheme.
The following questions will be considered during the research:
• What are the drawbacks of the loan waiver scheme?
• Is this scheme the best possible way to address the issues of agrarian crisis?
• Would the loan waiver scheme help to reduce farmer suicides?
• What is the present situation of agriculture in India?
• Are these problems being addressed by the loan waiver scheme?
• What is the alternative use of government resources to improve agriculture?
3. Theoretical Review:
3.1 B V Krishnamurthy Director and Executive Vice-President of Alliance
Business Academy, Bangalore, “ India's $15 Billion ‘Poison Pill’ ” (2008,
March 20), Harvard Business Review.
Poison Pills are mechanisms used in the corporate world to pre-empt certain actions such as
hostile takeovers. The Indian government has given a new twist to the concept by making it a
part of the national agenda. The Finance Minister, while presenting the budget for 2008-09
proposed a loan waiver of US $15 million (INR 600000 million) apparently to help farmers in
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distress. This is a classic Poison Pill that no government can afford to implement because of the
serious economic implications, and no government can afford to reverse for fear of incurring the
wrath of a sizable section of voters in an election year.
The avowed objective of the proposal is to bail out farmers who have lost their crops and are
unable to repay their loans. Last year, an estimated 70,000 farmers committed suicide, unable to
repay their loans. Though the minister has not revealed as to how this massive write-off would
be funded, he has claimed that the move would benefit some 40 million farmers.
To check out the ground reality, we did a survey of 15 villages that are supposed to benefit from
the scheme. The sample size was 300 small and marginal farmers. The results are startling to say
the least. Of the 300 small farmers, we could not come across a single farmer who would benefit
from the scheme. In fact, the loan waiver will not benefit the nearly 110 million small and
marginal farmers who have borrowed money from the village lender at interest rates as high as
120%. The beneficiaries would primarily be the relatively large farmers who do not, with some
honorable exceptions, deserve the waiver in the first place. We have found that loans taken for
agricultural purposes have been used to buy a host of white goods - the latest SUVs, classy
mobile phones and DVD Players, among others.
Usefulness to this project: The literature basically tells about the fact that this loan waiver
according to the government would impact 40 million farmers who have taken loans from
government banks. But in reality the 110 million farmers, who have taken loans from local
money lenders at ridiculous interest rates like 120%, won’t be benefitted. Only in Punjab,
farmers have debt of the order of $250 billion, out of which more than 50% is from local money
lenders. The entire amount could have been used for increasing the agricultural yield, which
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would have impacted the farmers in a much better way and solved the present food crisis to a
great extent.
Political one-upmanship had already started. With elections to several states slated for that year,
one of the political parties had declared that it would provide loans to farmers at 4% interest per
year - well below the prime lending rate - and as an icing on the cake, no interest would be
charged during the first year. How can political formations or governments be so irresponsible?
So this $15 billion waiver is just a political gimmick.
3.2 Joshi, Sharad (2008, March 5) “ Debt Relief and Waiver Scheme – Effective
only if it is total” The Hindu Business Line
The criteria for small and marginal farmers do not reflect the economic situation of the peasant
family. In cases where the land is divided in every generation, a sizeable landlord is soon
reduced to the status of a marginal farmer. And it is not the small farmer who made India self-
sufficient in food.
The promises Mr. Chidambaram had himself made in his last Budget regarding revision of the
fertilizer subsidy system and replacement of the collapsing agricultural extension system. The
Finance Minister this year made only a passing reference to his promise to devise a system of
subsidies for fertilizers that would benefit the farmers directly without even attempting to explain
the reasons for his failure. He did not even mention the collapse of the agricultural extension
system.
The expectations farmers entertained in the context of the rising number of suicides by farmers
unable to withstand the humiliation of their inability to repay loans, and the kind of relief the
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government is trying to provide to the minority community under the recommendations of the
Sachhar Commission.
The Finance Minister did announce the outlines of a loan waiver and debt relief scheme. The
scheme is limited to loans disbursed by certain types of banks till March 31, 2007 and which
remain overdue on December 31, 2007 and unpaid until February 29, 2008. It would appear that
this is a successful political gimmick, as is obvious from the apparent joy of those gathered in
front of Ms Sonia Gandhi’s residence to felicitate her for the largesse conferred. The fact
remains, however, that this scheme has neither rhyme nor reason. Despite the Finance Minister’s
forceful statement that this was payment of the debt of gratitude to farmers, he has certainly
cringed on repayment of that debt.
Usefulness to this project: According to the loan waiver in the case of small and marginal
farmers, there loans were totally waived. For other farmers they will be subject to a scrutiny and
one-time settlement where 25 per cent of the overdue amount may be waived on the condition
that the remaining 75 per cent is returned. But the criteria for small and marginal farmers do not
reflect the economic situation of the peasant family. In cases where the land is divided in every
generation, a sizeable landlord is soon reduced to the status of a marginal farmer. Further, it is
not the small and marginal farmer who made India self-sufficient in food.
3.3 Murty, MS (2008, March 3). “ Loan Waiver Sends Wrong Message to
Borrowers ” The Hindu Business Line
Moreover, as M.S. Murty (former MD, State Bank of Mysore) points out, the farmers who have
invested out of their savings rather than borrowings would be deprived of the benefit of this
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scheme. Also, the scheme covers only crop loans, and farmers who have invested in
infrastructure would be discriminated against even though they have to pay back the loans out of
crop yields only. Such farmers would continue to be defaulters and it is very important to make
them eligible for fresh loans, so that they can repay the outstanding debt from their income out of
new crop yield. The most important aspect of the indebted farmers is their ineligibility to get
fresh loans. The beneficiaries of the loan waiver scheme were eligible for fresh loans only after
June 30, and they still could not apply for loans for the kharif season. Further, Ashwin Parekh
says that it has not been made clear as to who would provide fresh loans to these farmers in
future, because if they approach the same bank, “the present process of risk management would
straight away deny them admission. He also says that, it sends a message to the honest borrowers,
for the umpteenth time, that they have been unwise in repaying their loans. Moreover, the
farmers who have invested their own resources or borrowed from money lenders, with no
borrowings from the banks, stand to lose out. And then, the conscious and genuine farmers who
have invested more of their savings than borrowings would be deprived of the benefit from this
generous scheme. According to Mr. Murty no such scheme can be foolproof or satisfy all
sections, the waiver is full of pitfalls and does not help solve the real issues for farmers or the
sector. At best, the sop can provide some temporary respite.
3.4 Sainath, P (2008, March 17), “ Debt (and Voter) Forgiveness in an Election
Year ”, Counter Punch
According to Mr. P Sainath the rural affairs editor of The Hindu and the author of “Everybody
Loves a Good Drought” say that Millions do indeed get relief from what is a positive step.
(Though not quite as 'unprecedented' as some believe). Even the colonial raj went in for loan
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waivers or 'karza maafi' more than once and those waivers addressed private moneylender debt
as there were no nationalized banks in those days. That's something the present waiver does not
touch--even though usury accounts for the overwhelming share of farm loans. In Vidharbha,
money owed to private lenders would account for between two-thirds and three-fourths of all
debt. In short, they haven't begun to resolve the debt crisis of these and millions of other farmers.
According to him the failure to touch moneylender debt is just the first problem. Now if we
consider Vidharbha, the average landholding size is 7.5 acres or 3.03 hectares which is far way
above the two-hectare cut-off mark for the bank loan waiver as up to 50 per cent of Vidharbha's
farmers are above this limit and this is not because they are big landlords but they tend to have
larger holdings as their land is unproductive and unirrigated. There are so many villages in India
who own over ten acres but get very little from their land. Therefore too many farmers will be
left out by size or other norms.
Moreover according to Mr. Sainath It was the distress in regions likes Vidharbha and Anantapur
that the governments present 'farm loan waiver' was conceived. Growing knowledge of that
distress, breaking through even the filters of a media unmoved by the crisis in the countryside,
made the waiver both thinkable and acceptable. But it’s very surprising to know that, this loan
waiver excludes the very regions whose pain brought it into existence. This could be explained:
As the cut-off date for the loan waiver was March 31, 2007 which even works against the small
group of Vidharbha farmers who do benefit. As most of the farmers there are cotton growers
who usually take the loan between April and June and in the cane growing regions, they are
taken between January and March. This means the Vidharbha farmer has one less year of loans
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waived than the others. Moreover Since no distinction has been made between dry land farmers
and others, West Bengal and even the non-crisis regions of Kerala have large numbers of farmers
below the two-hectare limit, but it is odd the same does not happen for farmers in dry land
regions who need it most as most of the farmers of Bengal and Kerala have far more access to
bank credit than those in Vidharbha do.
3.5 Sainath, P (2008, March 10), “ Oh , What a Lovely Waiver !” The Hindu
Business Line
According to Mr. P Sainath the rural affairs editor of The Hindu and the author of “Everybody
Loves a Good Drought”, this Loan Waiver is unprecedented. According to him each year,
nationalized banks write off thousands of crore of rupees as bad debt and these are money mostly
owed by small numbers of rich businessmen and theirs is not a 'one-time waiver’, it is a write-off
that recurs every year.
Between the year 2000-04, banks wrote off over Rs. 44,000 crore which mostly favoured a tiny
number of wealthy people. But now if we look at the millions of farmers owning less than one
hectare--the largest group, some 7.2 million of them have accounts in scheduled commercial
banks and the total outstanding against these accounts is Rs. 20,499 crore. (Reserve Bank of
India: Handbook of Statistics on the Indian Economy 2006-07.) Which is the same amount the
nationalized banking sector writes off each year as bad debt.(Stated by Mr. Devidas Tuljapurkar
of the All-India Bank Employees Association,) Those farmers with between one and two hectares
hold 5.9 million accounts and owe Rs. 20,758 crore. That is: these 13 million account holders
owe less than the Rs. 44,000 crore written off by the banks during just the NDA period for a tiny
number of rich people.
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No doubt the waiver does bring great relief to large numbers of farmers but it is not a solution to
the immediate crisis let alone long-term agrarian problems. According to him nothing in that
budget would have raised farm incomes which mean that farmers will be back in debt within two
years. Their incomes have long been much lower on average than those in other sectors. And
they fall further behind each year.
Moreover pleas for 'low-interest or no-interest loans' have also been ignored and there is no
mention of a price stabilization fund to shield farmers from the volatility of corporate-rigged
global prices. Besides, the idea of a five-year repayment cycle has not been touched and the
highly unjust crop insurance rules that regions like Anantapur remain unchanged.
Considering the vast size of this "write-off" one question would arise in everybody’s mind as to
why the loan waiver has come up now, why not in the year 2005, when the demand was already
being made; why not in the year 2006 when the Prime Minister visited Vidharbha and was
shaken by the widespread distress. According to me Mr. Pawar has outsmarted his rivals. Had
the step been taken then, the credit would have gone entirely to the Congress and no prizes
would be given for guessing who opposed it then (when it would have cost much less).
For three years, while the misery and suicides mounted in Vidharbha, there was not even the
admission that a loan waiver was possible. Indeed, it was shot down by those now taking out full
page ads claiming credit for it. As they complain in Vidharbha, this is not about karza maafi. It is
about seeking voter maafi (voters' forgiveness) in election year.
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3.6 Sukumar, CR (2008, July 4). “Scheme brings no relief to conscious debtors”
Economy and Politics, livemint.com
“I have decided not to repay my loan installment this time. Who knows there could be a similar
waiver again in view of elections in the state next year?” These are the words of a farmer quoted
by CR Sukumar in his article in Mint. Later in the same article, he quotes the deputy manager of
Deccan Grameena Bank, Manjulapur says, “We will be losing that healthy status (of around 98%
recoveries) now with not more than 5% recoveries during this season, with farmers preferring
not to repay in anticipation of a debt waiver scheme in the near future, in the backdrop of
ensuing assembly elections in the state.” The loan waiver scheme has certainly created a moral
hazard situation in the banking sector, with increasing rate of non-repayment. PT Kuppuswamy,
the chairman and CEO of Karur Vysya Bank told Mint that many farmers were shifting accounts
from their banks to nationalized banks. The cause of this trend was the farmers’ anticipation of a
loan waiver in the present election year, and also their fear that they might not get a write off in a
private sector bank. In 1990, there was a loan waiver by the VP Singh government, and it took
almost nine years for banks to recover from this scheme worth Rs10000 crore. There was a
decline in agricultural loans from cooperative societies and commercial banks soon after the
scheme was declared.
The main reason for this decline was the fact that the government took some time to write off
these loans, and meanwhile those individuals and societies that still had over-dues could not
access fresh credit. This scheme had made people unenthusiastic about repaying their loans in
anticipation of future write-offs, and the major reason for banks to violate priority sector and
other guidelines was the ‘unethical socio-political environment created against the discipline of
loan repayments.’ The situation seems to be very similar to the one that exists now.
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3.7 Banik, Arindam (2008, Marc h 28). “ Loan Waiver and Agricultural
Investment” The Hindu Business Line
The Rs 60,000-crore agricultural loan waiver by the Finance Minister has generated widespread
debate. The reason goes back to farmers’ debt-related distress and even suicides. If the issue is
debt-related distress, one must ask why it is so. There is no guarantee that the farmers will not
borrow the ensuing year. More specifically, long-term prospects are sacrificed at the cost of
short-term gains.
It is established now that the farmer is generally required to repay his/her debt immediately after
the harvest. This means the farmer is trapped in a regressive market mechanism in two ways.
First, with no other means of repaying the debt, he/she is forced to sell the produce immediately
after the harvest — quite often to the creditor or to his agent — probably at a pre-arranged price
or in pre-decided quantities.
Second, the sale of crops immediately after the harvest means that the farmer probably receives
less for his/her produce than what he/she could have obtained when the market prices stabilize.
As more and more farmer-debtors wish to convert their harvest into cash, crop prices tend to get
further depressed.
Usefulness to this project: According to Mr. Banik this is the most general perception about the
scene of Indian agriculture. Unquestionably, every scheme has to limit its reach, and even if the
scheme aims to help the small and marginal farmers, the definition on the basis of the size of
land holdings does not make much sense. According to him, in rain-fed, arid, and semi-arid
areas, income from agriculture is very uncertain even for farmers having 4 or 5 hectares of
cultivatable land and is closely dependent on the behaviour of monsoon. As Arindam Banik
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points out, “A small farmer with less land but assured irrigation may be financially better off
than another farmer with much larger land holding but no assured irrigation.” He finds this idea
of identifying the target group by measuring the size of land holdings having ‘very little
economic significance’ and makes a point by saying “If agriculture is a losing proposition, the
small holder should logically be a smaller loser than the larger holder”.
3.8 Joshi, Sharad (2008, March 5 ). “Debt Relief and Waiver Scheme – Effective
only if it is total” The Hindu Business Line
According to Mr. Joshi this scheme has created a discontent among the non-beneficiary group of
farmers and amongst most of the urban people, even if they are not aware about the details of
this scheme. Only a part of the 27% of the farmers indebted to formal sources will benefit, and
around 80% of the farmers will not be happy with the government’s effort for the agriculture
sector. Also, the statement made by Prime Minister that the scheme was a correction of the
previous government’s failure does not make much sense in the fifth year of the term of his
government. So, the scheme clearly has many loopholes even on the political front and from the
vote-bank point of view. Sharad Joshi makes a very important point by saying, “It is rather
remarkable that the UPA government, which does not accept the theory of ‘creamy layer’ for the
backward classes, is trying to use the same doctrine for farmers who are, as it is, in such
desperation that they prefer death to the ignominy of living.”
Role of moneylenders: First of all, it is important to note the importance of moneylenders in the
rural economy, which have been completely ignored in this scheme. The following table shows
the All-India data on the ‘distribution of outstanding loans by source of loan for each size class
of land possessed by farmer households’.
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Source: Table 3 of ‘NSS Report no. 498: Indebtedness of Farmer Households, 2003’
It is clear from the table that the role of ‘agricultural / professional moneylender’ is more
important for farmers with lower land holdings. Informal sources of credit outweigh the formal
sources in case of farmers with up to 0.40 hectares of land. Apart from the money lenders, there
are a lot of other informal sources that farmers approach for their credit needs. Informal lending
is a peculiar phenomenon in Indian agriculture and as Arindam Banikpoints out, “Farmers, on an
average, borrow much larger amounts from commission agents or traders than workers do from
employers or tenants from landlords”14. Still, the problem of indebtedness due to informal sector
lending is not considered in the loan waiver scheme. From the above table, we can also see that
there are a considerable number of the estimated farmer households having outstanding loans
with more than 2 hectares of land, and these farmers will not be benefited from the scheme.
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4. Review and Research:
4.1 Farmers Suicide:
There is no denying of the fact that farmer suicide is an issue that has to be dealt with. The
following figure compares the ‘Suicide Mortality Rate for Male Farmers and Male Non-Farmers
in India: 1996-2005’. It shows that the ‘Suicide Mortality Rate’ for male farmers is much more
than that for male non-farmers and unfortunately, the trend of farmer suicides is increasing.
Source - Radharishna committee report on agriculture indebtedness
It wouldn’t be wrong to say that the issue of ‘Rural crisis’ was brought up into limelight after the
increasing cases of farmer suicides. Thus, all short term policy measures designed by the
government should ideally address the problems faced by these farmers in order to provide
instant relief. There can be no other possible justification for adopting a short term policy
instrument.
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The report by Tata Institute of Social Sciences (TISS) on ‘Causes of Farmer Suicides in
Maharashtra’ identifies the heavy rural indebtedness as the major reason behind the suicides but
more importantly, the report says that indebtedness arises from a mismatch between the cost of
production and the market prices. So, in order to get farmers out of this indebtedness induced
suicide trap, improving the market mechanism would crucial. Cost of inputs has also gone up
drastically after the increase of pest attacks 1995 onwards, and thus the increasing need for
application of pesticides. Unfortunately, the loan waiver scheme fails to address the issues faced
by most of the farmers that have committed suicides. The short term policy of the government
should have ideally targeted these problems in order to put an end to the increasing trend of
farmer suicides. The following table gives the data of ‘Size-class of Land Owned in Suicide Case
Households’
Source: Table 4.3 of ‘Suicide of Farmers in Maharashtra’ Mishra, Srijit (2006, January 26). Indira
Gandhi Institute of Development Research
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There are a considerable number of farmers who have committed suicides and own more than 5
acres (around 2 hectares) of land. It is clear from the above table that the problems of a large
number of farmers have not been considered and they have been ignored in the loan waiver
scheme. The TISS report also points out that farmers commit suicide when they seem to have
exhausted all avenues of securing support. This means that the landless laborers are even more
vulnerable as they do not even have the option to sell land. There is no respite for the landless
laborers in the loan waiver scheme.
4.2 Deceleration in Growth Rate:
In 2004-05, the share of agriculture in GDP was 20.2% with 56.5% work force dependent on
agriculture for employment. The following table shows the declining trend in the growth rate of
agriculture, while industry and service sector have been growing rapidly.
Source: Table 1.7 of Radhakrishna Committee Report.
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As mentioned earlier in this paper, credit in agriculture has been given too much importance
while other factors responsible for productivity have been ignored. The finance minister also
assumes indebtedness to be the major cause of distress amongst farmer households, but
according to the ‘Report of Expert Group on Indebtedness’ chaired by R Radhakrishna,
indebtedness is just a symptom and not the root cause of this crisis, and the committee report
says that average farmer household borrowing has not been excessive. According to the
committee report the factors contributing to this crisis are “stagnation in agriculture, increasing
production and marketing risks, institutional vacuum and lack of alternative livelihood
opportunities.” The deceleration in the growth rate of agriculture is evident in the above table.
4.3 Decreasing Yield:
A major problem ailing Indian agriculture is the declining efficiency of input use and thus,
adversely affecting the yield. The following table on ‘Growth of Area, Production and Yield of
Major Crops in India: 1980-81 to 2003-04’ displays this negative trend.
Source: Table 1.9 of Radhakrishna Committee Report
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This declining trend of annual growth rate of yield might affect the profitability in agriculture.
According to MS Swaminathan (agriculture scientist and Rajya Sabha Member), “The prevailing
gap between potential and actual yields in the crops of rain-fed areas such as jowar, bajra,
millets, pulses, and oilseeds is over 200 per cent even with the technologies on the shelf”, and the
benefits of the loan waiver scheme would be fully realized only if the farmers are “supported
with synergetic packages of technology, services, marketing infrastructure, and public policies
related to input and output pricing.”
4.4 Productivity in Agriculture
Source: Figure 1.3 of R Radhakrishna Committee Report
The above figure shows near stagnation in ‘per worker productivity in agriculture’, with some
states exhibiting a declining trend. This trend of falling productivity can lead to negative
consequences for agriculture and should be checked. What makes this issue even more important
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is the fact that the per-worker productivity in non-agriculture sectors has been growing much
faster than that in agriculture. The situation is same for all Indian states, as the following table
shows:
Source: Figure 1.10 of R Radhakrishna Committee Report
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4.5 Availability of timely input and information
The main problem with over-emphasizing the provision of credit and not considering other
factors, like provision of timely inputs, is the fact that even if farmers have credit, it would be of
no use to them if they are not able to purchase seeds, fertilizers, pesticides etc. from the money
they have. This hampers productivity with the actual yield being less than the expected yield.
The following table 26 has the data for the kharif season showing the number of farmer
households using fertilizers, the number of farmer households using it on time, and the number
of farmer households not being able to use the resource on time.
The table shows that around 75% farmer households use fertilizers, and only 73.5% are able to
use it when required. An important reason for the farmers not using various modern methods of
technology is lack of awareness among them about the existence of these resources. The
following table shows the percentage of farmer households obtaining information on cultivation
from any source (extension worker, TV, Radio, Newspaper, Input Dealer, and Other Progressive
Farmers). All over India, only around40% farmer households access some source for getting
information on modern methods of farming, out of which less than 60% get information on
improved seeds, less than 50% get to know about fertilizer application, while only 24% get
information on plant protection.
25
Table 1
Source: Table 14 of ‘NSS Report No 496: Some Aspects of Farming, 2003’
26
Table 2
Source: Statement 4.4 of ‘NSS Report No 499: Access to Modern Technology for farming, 2003’
27
4.6 Water Management:
According to Arindam Banik, the share of input subsidies in public expenditure was 44%in the
early 1980s and it rose to 83% by 1990, but “The increasing shares of total public expenditure on
agriculture are allocated to input subsidies (on fertilizers, electricity, irrigation, and credit, for
example), rather than to productivity-enhancing investments such as research and public
investment in irrigation.” Irrigation is of vital importance in agriculture and an individual can not
invest in creating infrastructure for the same. The following table shows ‘Net Irrigated Area by
Sources’
Source: Figure 1.5 of R Radhakrishna Committee Report
The most important statistic in the table is ‘Net Irrigated Area/Net Sown Area’ which determines
the percentage of irrigated area. It shows that in 2000-01, less than 39% of area was under
irrigation. Water management is a very important issue and assured irrigation can drastically
change the scene of Indian agriculture.
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5. New Developments in the Research area
5.1 Alternative use of Resources:
When asked about the overlooking of informal sector lending in the loan waiver scheme, in an
interview with The Hindu the Finance Minister replied that “What can I do about that? Can
anyone quantify how much he has taken? The point is we can do what is doable. There’s no
point picking the undoable against the doable and then saying doesn’t do the doable. That’s a
very strange argument.” There is no disagreement with the remarks made by the Finance
Minister, but there could have been an alternative use of the huge amount of government
resources that have been spent on the loan waiver scheme, to help all the farmers in general that
are suffering due to the ‘Agricultural Crisis’.
It is a well known fact that the current scheme provides only a very short term relief, with a very
limited outreach and it does not cater to the problems of agriculture. S Mahendra Dev writes that
“The budget should have given a large push to core issues like public investment in
infrastructure, land and water management including rain water conservation and watershed
development, research and extension, price stabilization etc, to make cultivation viable and
profitable.”1 There is no doubt that agriculture could have benefited more if the same amount had
been used for development of infrastructure. Following comparisons are made just to show the
enormous potential of Rs72000 crore
5.1.1 Laser Land Leveling:
Apart from the various benefits of land leveling, environmental concerns at some places make
land leveling the need of the hour. According to the Department of Soil and Water Conservation
(Punjab), out of 141 blocks of the state more than 100 are over exploited due to excessive
29
pumping of ground water. This is evident from the fact that area having water table below 30 feet
depth has increased from 3% in 1973 to 90% in 2004. Leveling of land can make the situation
better because around 20-25% of irrigation water is lost during application if the land is not
level. Apart from non-optimal use of water, uneven fields have uneven crop stands, increased
weed burden and uneven maturing of crops. All these factors lead to reduction in yield and also
affect the quality of grain.
Level land improves water coverage that: 2
• Improves crop establishment.
• Reduces weed problems.
• Improves uniformity of crop maturity.
• Decreases the time to complete tasks.
• Reduces the amount of water required for land preparation
.The following table3 shows ‘The additional cost and financial benefit from land leveling’
Source: Rickman, JF (2002). Manual for laser land leveling, Rice-Wheat Consortium Technical Bulletin
Series 5.New Delhi-110 012, India: Rice-Wheat Consortium for the Indo-Gangetic Plains. pp.24
30
The data in the above table clearly shows that in the long run, laser land leveling makes
economic sense. A study done by Punjab Agriculture University (Ludhiana) showed that average
increase in crop yield due to leveling of land was 24%. The data is summarized in the following
table 4
Source: Laser Leveling Resource Conservation through laser leveling, Department of soil and water
conservation, Punjab
According to a proposal by the Department of Soil and Water Conservation (Punjab), 500 laser
levelers would level 2 lakh hectares of land in 5 years. This means that 1 machine set would be
able to level 400 hectares of land. The cost of a machine set and a tractor is assumed to be Rs8
lakh in the proposal. Total agricultural land5 in India is 169739000 hectares, and the cost of
leveling the total agricultural land in India would come out to be Rs33947 crore. This is not a
very rational estimate because it is more costly to level land at some difficult terrains, but again,
this is the cost of leveling all the agricultural land in India with the cost of tractor also included.
5.1.2 Building Roads:
Unarguably, construction of roads is considered to be the responsibility of the state. A study by
National Bank for Agriculture and Rural Development (NABARD) called ‘An Impact
31
assessment of Investments in Rural Roads & Bridges under RIDF’6 highlights the benefits of
developing roads. So, building of roads with the money that has been used for the loan waiver
scheme can also be considered as an alternative. The average cost of building one kilometer of
road is Rs12.21 lakh.
The study observed that improved accessibility due to investment in rural roads gave the farmers
a chance to learn about modern agro-economic practices and improved the accessibility to input
markets. Another important consequence of construction of roads was the reduction in transport
costs. Improved condition of farmers also led to the development of non-farm sector in the
benefited areas. The following table 7 shows the data for Punjab for the ‘Yield of Major Crops’
before and after the construction of New Link Roads and reconstruction of roads. It seems that
the roads have proved to be beneficial for the yield of most of the crops
Source: Table A.2 of NABARD (2004) Infrastructure for Agriculture and Rural Development and
Impact Assessment of Investment in Rural Roads & Bridges under RIDF
32
The following table8 shows the ‘Indirect Employment Effect’ after the construction of roads. The
data shows that there has been a considerable increase in non-farm opportunities after the
construction of roads, and any scheme that is capable of benefiting both the farmers and non-
farmers should be carried forward without any hesitation.
Source: Table 10.5 of NABARD (2004) Infrastructure for Agriculture and Rural Development and Impact
Assessment of Investment in Rural Roads & Bridges under RIDF
33
6. Recommendations:
Undoubtedly, the most important concern in Indian agriculture is the lack of adequate
investment. This is evident in the following table9 which shows the investment in agriculture.
Large scale investment in agriculture has to be taken up by the state as the private sector does not
have the capacity to undertake such huge investment, and also there is no incentive for an
individual to take up such investment that falls under the category of public good.
If the infrastructure in agriculture is in its place, we can hope to see more private corporate
companies coming up in agriculture, which would be beneficial for the farmers. This would
incorporate the farmers in the mainstream and it might put an end to the incessant subsidies in
agriculture.
Talking of rural credit, as mentioned earlier also, just the provision of credit will not end all the
problems in agriculture. M Sitarama Murty puts forward this view by saying that it would be a
“fallacy to believe that credit or its waiver alone can mitigate the problems of the afflicted
farmers. Timely availability of the right kind of fertilizers, genuine and quality seeds is very
34
important. The marketing component of the chain is weak and the Government can improve the
storage, transport and processing facilities of grains, fruits and vegetables and prevent distress
sale of produce.”10
As S Mahendra Dev (Director, Centre for Economic and Social Studies, Hyderabad) puts it, the
most important need in agriculture is the provision of “measures for raising output and good
prices for production rather than more credit which, in the absence of viable agriculture, push
them back into a debt trap. The issue is not that of availability of institutional credit, but access,
ease, and terms and conditions of such finance.”11 The C Rangarajan committee report on
Financial Inclusion says that12 million farmer households out of 89 million households do not
access credit, either from institutional or non-institutional sources. Venkitesh Ramakrishnan 13
quotes a study, which says that in large parts of Uttar Pradesh (especially Bundelkhand and
eastern UP) instruments of formal credit delivery hardly ever lend money to small or marginal
farmers.
1. Sharad Joshi (Founder, Shetkari Sanghatana and Member of Parliament, Rajya Sabha), feels
that the loan waiver scheme was not designed by keeping the interest of farmers in mind, and if it
was so, then the “Finance Minister would have first tried to correct market imperfections so that
the farmers are not driven to the trap of indebtedness once again.”14 The indebtedness to
moneylenders is another important issue, and Agriculture Minister was ready with a solution to
this complex problem. He said the since the moneylenders are illegal, the farmers need not repay
them. Before considering this option, it is important to realize that the informal moneylenders are a
part of the traditional Indian agrarian society. Moneylenders have survived for the very basic fact
that they hold a ‘comparative advantage’ in this business, which they have been doing for
generations now. More importantly, they fulfill the credit needs of the farmers in case of
35
institutional vacuum, and it would be unethical to ask the farmers not to repay them as they are
illegal.
It is important to note that all the above recommendations are long term measures, and even if
indebtedness is not the major cause of agrarian crisis and is just a symptom, it is still a cause of
distress among farmer households and there has to be a short term measure to take care of this
issue. The recommendations of the ‘Report of Expert Group on Indebtedness’ of immediate
measures to be undertaken to solve the problem of rural indebtedness are very relevant. It says:
Rescheduling of Loans of Farmers Affected by Natural Calamities15
The central and state governments have programmes of rescheduling loans to farmers affected by
natural calamities like floods and cyclones with a view to reviving the livelihood base of the
affected families. The Expert Group recommends that:
a. The loans of all the affected families should be rescheduled.
b. The families whose loans are rescheduled should be eligible for fresh loans.
c. The interest liability of the borrowers for the extended period of up to two years (both for short
and long term loans) should be waived and the financial burden equally shared between the
central and state governments.
Formalization of Informal Credit 16
The Expert Group underlines the need for mitigating the burden of farmers’ indebtedness to
moneylenders. It recommends a one-time measure of providing long-term loans by banks to
farmers to enable them to repay their debts to the moneylenders. These short term measures
36
would take care of the immediate needs of the farmers, and they do not require a lot of
government resources for implementation. And for the overall benefits of agriculture, the above
stated long term measures have to be undertaken
7. Conclusion:
Looking at all the above points we can conclude by saying that a better means of providing relief
to the farmer could have been found. One of them is that of mitigating the risks of farmer.
Risks of farmer have been categorized into production loss, income loss and productive asset
loss. Lack of rains, insect attack, input failure, etc could result in reduced production which
could lead to income loss. Even when the production is up to expected levels, the prices in the
market could crash, resulting in low income. Natural calamities such as droughts, floods,
earthquakes could destroy the assets of the farmers that are critical for the productive effort.
Land, farm machinery, farm animals, etc are lost or their quality adversely impacted resulting in
their productive ability being impaired. If these risks could be mitigated through universal
coverage of farmers under insurance schemes, the frequent resort to waivers might be rendered
unnecessary.
If the National Agricultural Insurance Scheme, which insures farmers against crop failure, is
made more effective with a more distributed, localized crop cutting as a basis for determining
claims, it would become popular among all farmers across the country. The incremental costs of
increasing number of crop cuttings and taking the claim settlement units to a lower geographical
level could easily be borne out the budget allocated for waiver. Even a large corpus fund (say for
example Rs 50000 crore) for meeting claims and another (say Rs 10000 crore) for subsidizing
37
small farmers premium payments would have been possible, if one considers the amount of
funds available under the waiver. The corpus should be managed to produce best possible
returns from which the claims could be met year after year.
Accelerating investments in infrastructure especially in regions that are rain dependant would
have afforded better results in terms of income effect on farmers. The incomplete irrigation
projects, when completed could be a source of assured production and reduced weather risks!
An alternative is direct cash transfer to each small farmers producing strategically
important crops; a fixed amount equivalent to 50 to 100 days of labor (as in case of NREGS)
could be paid to small farmers, provided they carry out farming of specific crops that of
importance to the country. Farmers producing food grains, oilseeds and pulses could
have been targeted and a fixed amount per hectare cultivated (of course with a ceiling of two
hectares or so) could have been given at the end of each cropping season. This would have
ensured greater productive effort towards ensuring food security while offering income stability
to the farmers.
The loan waiver scheme is an effort that cures symptoms than causes. It has high visibility, but
unlikely to produce lasting results in the development of farm sector. The large amount of
money being spent could have been used to usher in fundamental reforms in agriculture and
make it market oriented and profit centered. The government intervention in farming should
move towards improving profitability and target farm incomes through measures in the real
sector than merely making marginal changes through the financial sector. The opportunity
to do the right thing by the farmers and agriculture is not lost; but certainly the money is.
38
8. Bibliography:
((From numeric 1 to 16 are superscript references and from 17 onwards are articles used as
references in this report)
1. Dev, S M (2008, April 12). Agriculture: Absence of a big push Economic & Political
Weekly pg 36
2. Rickman JF (2002) Manual for laser land leveling, Rice-Wheat Consortium Technical
Bulletin Series 5.New Delhi-110 012, India: Rice-Wheat Consortium for the Indo-
Gangetic Plains pp.24
3. Table 3 of Rickman, JF (2002). Manual for laser land leveling, Rice-Wheat Consortium
Technical Bulletin Series 5. New Delhi-110 012, India: Rice-Wheat Consortium for the
Indo-Gangetic Plains. pp.24
4. Laser Leveling Resource Conservation through laser leveling, Department of soil and
water Conservation, Punjab
5. From Table 7.4 of ‘Agricultural Statistics at a Glance 2004-04’
6. NABARD (2004) Infrastructures for Agriculture and Rural Development An Impact
Assessment of Investment in Rural Roads & Bridges under RIDF
7. Table A.2 of NABARD (2004) Infrastructure for Agriculture and Rural Development An
Impact Assessment of Investment in Rural Roads & Bridges under RIDF
8. Table 10.5 of NABARD (2004) Infrastructure for Agriculture and Rural Development An
Impact Assessment of Investment in Rural Roads & Bridges under RIDF
39
9. Table 22 of TISS (2005, March 15). Causes of Farmer Suicides in Maharashtra: An
Enquiry
10. Murty, MS (2008, March 3). Loan Waiver Sends Wrong Message to Borrowers The
Hindu Business
11. Dev, S M (2008, April 12). Agriculture: Absence of a big push Economic & Political
Weekly pg 36
12. Ramakrishnan, Venkitesh (2008, March 28). In the Moneylender’s Grip Front Line
13. Joshi, Sharad (2008, March 5). Debt Relief and Waiver Scheme – Effective only if it is
total The Hindu Business Line
14. Recommendations 12 of R Radhakrishna Committee Report
15. Recommendations 15 of R Radhakrishna Committee Report
16. Banik, Arindam (2008, March 28). Loan Waiver and Agricultural Investment The Hindu
Business Line
17. Joshi, Sharad (2008, March 5). Debt Relief and Loan Waiver – Effective only if it is total
the Hindu Business Line
18. Sukumar, CR (2008, July 4). Scheme brings no relief to conscious debtors Economy and
Politics livemint.com
19. Kasbekar, Mehak (2008, June 2). Does Loan Waiver Harm Credit Culture? Economy and
Politics livemint.com
40
20. Big Karnataka farmers call Loan Waiver discriminatory (2008, March 1). Retrieved from
http://in.news.yahoo.com/indiaabroad/20080301/r_t_ians_bs_budget08/tbs-big-
karnataka-farmers-call- loan-waiv-6276fdc.html , June 2, 2008
21. Swaminathan, MS (2008, March 10). Looking beyond Farmers’ Suicides and Loan
Waivers Mainstream
22. Banik, Arindam (2006, June 20). Farmer Suicides: Beyond the Obvious The Hindu
Business Line
23. Report of the expert group on Agricultural Indebtedness 2007
24. Situation Assessment Survey of Farmers Indebtedness, NSSO 59th round -2005
25. Guidelines on Agricultural Loans Waiver Scheme 2008, issued by Government of India,
RBI and NABARD
41
