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No Hope Of Justice For Indian Farmers

By Moin Qazi

05 October, 2015
Countercurrents.org

India’s economy may be soaring, but agriculture remains its Achilles’ heel, the source of livelihood for hundreds of millions of people but a fraction of the nation’s total economy and a symbol of its abiding difficulties. In what some see as an ominous trend, food production, once India’s great pride, has failed to keep pace with the nation’s population growth in the last decade. The cries of Indian farmers can hardly be neglected by the leaders of a country where two-thirds of people still live in the countryside.

Subsidies, once a linchpin of Indian economic policy, have dried up for virtually everyone but the producers of staple food grains. Indian farmers now must compete or go under. To compete, many have turned to high-cost seeds, fertilizers and pesticides, which now line the shelves of even the tiniest village shops.

While the West tries to impose its neoliberal agenda of cutting subsidies to agriculture and dismantling price support mechanisms and the public distribution system that if effectively run would allow Indian farmers to receive a decent stable income, farmers are unsurprisingly leaving the sector in droves as agriculture becomes economically non-viable. Forcing farmers to leave the land is a deliberate strategy. Just like it is a deliberate strategy to give massive handouts to industry and corporate concerns who are not delivering on jobs. It's all about priorities. And farmers are not a priority. They are being driven from farming, while all the advantages are being given to a failing corporate-industrial sector

The lack of state support, either through investments in micro-irrigation projects or in effective extension support to farmers, has compounded Vidarbha’s woes. Bank credit continues to be scarce, forcing farmers to take loans at exorbitant rates from moneylenders, exacerbating the risks. Extension workers who are supposed to fill that role are often poorly trained, and their numbers are often inadequate to cover a majority of farmers. Most farmers instead depend on input dealers for advice. Who force upon them highly expensive brands of insecticides and herbicides.

Even in the so-called developed economies, farmers survive because of huge state support,” How do you expect farmers to survive with declining state support in these rain-fed regions then?” The state has never bothered to formulate special policies for rain-fed regions or invest in research to develop technologies appropriate for these regions; although more than half of the country’s agricultural lands are rain-fed

A closer look would suggest that there is a broad pattern to farmer suicides. There are scholars looking at this phenomenon, though not necessarily in the media glare. They are located in regions where farmers have been attempting a change in either the crops they cultivate, especially of high-yielding ones, or the cropping patterns. The suicides are linked to debts raised by farmers to fund these changes. Also, the ticket size of these loans is almost double what an average farmer would normally avail. It is not greed, but a calculated commercial risk that the farmer is taking. Unfortunately, while his math is right, the associated institutional infrastructure is inadequate to price this risk commensurately. And, this is core to the challenge of farmer suicides.

The existing lending network in rural India, whether we like it or not, is still dominated by moneylenders. Their pricing of risk is premised on hand-me-down philosophies that revolve around predictable patterns of agriculture—a two-crop harvest of rice and wheat (both of which have a guaranteed price from the Central government) and associated income cycle inter-twined with the monsoon.

So, the farmer borrows ahead of the harvest and repays immediately after its sale. In this situation the only variable is the monsoon, the vagaries of which are also fairly predictable, leaving the farmer and moneylender fairly aware of the pricing risks. Since the ticket size of these loans is relatively small, say Rs25,000-50,000, the conventional usurious pricing at 40-50% works reasonably well to keep the farmer just sufficiently above water and the moneylender in good fettle. Now, in this situation if you introduce the opportunity of using hybrid commercial crops or squeeze in a third crop, then the situation changes dramatically, as not only does it introduce new variables, but also increases the downside risks for the farmer dramatically. The farmer’s math shows that upping his investment (average loan size for this class of farmers is Rs50,000-100,000) would bring better gains, and eventually a faster way to economic prosperity.

A perfectly valid commercial decision, but it overlooks the fact that the moneylender does not have the wherewithal to price this enhanced risk; the moneylender would simply increase the collateral or the interest rates—in either instance the downside risk goes up linearly for the farmer. While in good times the farmer does reasonably well, the downside is a sure-shot guarantee of falling into a debt trap.

This mismatch of willingness to take a commercial risk and inability to price it economically is what lies at the heart of the frustrating issue of farmer suicides. On the other hand, an institution following commercial principles that allow for hedging the risk and thereby reducing the odds in the case of a downside risk of, say, a monsoon failure and consequent drought or a pest attack (some of the hybrid seeds are highly vulnerable to such contagion).

Unfortunately at the moment, the existing institutions that operate as an alternative to moneylenders are incapable of stepping in to fix the problem. What complicates matters is the varied topography and seasonal variations across the country, which inhibit government-backed institutions that tend to follow standard templates.

Farmers in India have also had to cope with the removal of a government safety net that guaranteed them fixed cotton prices. Starting in the 1970s, the state of Maharashtra would purchase all cotton production at a price independent of world market prices. This program was called the Monopoly Cotton Procurement scheme. This program guaranteed cotton farmers a fixed price for their entire crop. Mismanagement and financial losses led the state to open up cotton trade to private traders in 2003 and to discontinue the monopoly scheme. The state still purchases some raw cotton from farmers, but the average prices it offers are below the average cost of production.

Government support has declined. The extension centers run by the local government have not been able to provide farmers with adequate information and training regarding growing the new varieties of cotton. To choose seeds, many farmers rely on information given by private seed companies.

Access to formal credit has become more difficult. The Indian rural credit system has faced a financial crunch that has led state banks to tighten their lending requirements. Many farmers have to resort to informal sources of credit. Farmers borrow funds from moneylenders, friends and relatives. Moneylenders tend to charge usurious rates and have draconian collection tactics that can lead farmers to despair.

Moin Qazi is a well known banker, author and Islamic researcher .He holds doctorates in Economics and English. He was Visiting Fellow at the University of Manchester. He has authored several books on religion, rural finance, culture and handicrafts. He is author of the bestselling book Village Diary of a Development Banker. He is also a recipient of UNESCO World Politics Essay Gold Medal and Rotary International’s Vocational Excellence Award. He is based in Nagpur and can be reached at [email protected]

 




 

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