Drowning in debt. About 52% of India’s 90 million agricultural households are indebted

MOHAN GURUSWAMY:

Drowning in debt. About 52% of India’s 90 million agricultural households are indebted.

The farm loan waiver is one of India’s most popular, often-used political tools. In 2009, it helped to return to power Manmohan Singh’s Congress-led government, which offered borrowers a bailout program in which 37 million farmers benefited from waivers of Rs52,200 crore. In 1990, the government of Prime Minister V. P. Singh also offered an agricultural debt relief program of up to Rs10,000 for each borrower. In Andhra Pradesh and Telangana, two separate regional parties came to power in 2014 on the promise of a loan waiver. In 2023 the Congress party rode to power Karnataka and Telangana on the wings of loan waivers.

Agriculture in India has been facing many issues — fragmented land holding, depleting water table levels, deteriorating soil quality, rising input costs, low productivity. Add to this vagaries of the monsoon. Output prices may not be remunerative. Farmers are often forced to borrow to manage expenses. Also, many small farmers not eligible for bank credit borrow at exorbitant interest rates from private sources.

Anything relating to food - and hence its producers — concerns all of us. Farmers are not a happy lot — about 40 per cent of them dislike farming and would quit if they can, as per the NSSO’s 59th survey. Not finding short-term and long-term solutions can severely impact food security.

In its policy statement released last week, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) pointed out that the implementation of farm loan waivers across states could hurt the finances of states and make them throw good money after bad, and stoke inflation.

So far, three major states—Uttar Pradesh (UP), Punjab and Maharashtra—have announced large-scale farm debt waivers. The debt waiver packages of UP and Punjab were aimed to fulfil poll promises made by the Bharatiya Janata Party (BJP) and the Congress party, respectively, in these two states. The cumulative debt relief announced by the three states amounts to around Rs77,000 crore or 0.5% of India’s 2016-17 GDP.

UP’s debt waiver of Rs36,400 crore is equivalent to one-fourth of the total estimated farm debt in the state. Punjab’s debt waiver worth Rs10000 crore is  equivalent to less than one-seventh of the total estimated farm debt in the state. Maharashtra’s farm debt waiver appears slightly more generous as it appears to cover almost one-third of the state’s farm

Over half of all agricultural households are in debt; and 42 per cent of them owe money to banks and 26 per cent owe moneylenders. Over 40 per cent of agricultural households have Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) job cards, showing that even those households not classified as ‘labourers’ utilise the scheme.

One in three farm households has less than 0.4 hectares of land and less than 0.5 per cent are large farmers, having over 10 hectares of land. Large farmers are often absentee landlords, the data indicates; 54 per cent of farmers with over 10 hectares possess land in other states.

Average debt per household is ₹47,000, while average income is ₹36,973 per annum. In 2002-03, India had 148 million rural households which increased to 156 million by 2012-13, a 5.4 per cent increase in a decade.

The data point to another disturbing trend. While average income from 2002-03 to 2012-03 increased by 318 per cent, most worryingly, total debt per household increased by 273.5 per cent during the same period, proving that while income from sale of agricultural products increased due to a price advantage during the last one decade, it has not translated into a reduction in rural indebtedness. Has the so-called green revolution really helped the poor and marginal farmer of India?

Interestingly, the survey shows that for 56% of the marginal land owning families (with land less than 0.01 hectare) wage and salary employment, not agriculture, was their principal source of income. Another 23% reported livestock as their principal source of income.

Average monthly income per agricultural household during the agricultural year July 2012- June 2013 was estimated at Rs.6,426. Net receipt from farm business (cultivation and farming of animals) accounted for 60% of the average monthly income per agricultural household, the survey noted. Income from wages and salary accounted for nearly 32% of the average monthly income.

The survey reported that 52% of households in the country were indebted, with levels of indebtedness varying from 93% in Andhra Pradesh and 82.5% in Tamil Nadu to 37% in Chhattisgarh and 17.5% in Assam. The average amount of outstanding loan was highest for Kerala (Rs.2,13,600) followed by Andhra Pradesh (Rs.1,23,400) and Punjab (Rs.1,19,500).

The average indebted rural household's debt is Rs 1.03 lakh,

On sources of credit, the survey revealed high levels of dependence on non-institutional channels. Nearly 40% of all loans came from informal sources with 26% advanced by moneylenders. Marginal land holding households suffer the most with only 15% of their credit from institutional sources such as the government, cooperatives and banks—for households in the highest land class 

 

Nearly 70% of India’s 90 million agricultural households spend more than they earn on average each month, pushing them towards debt, which is now the primary reason in more than half of all suicides by farmers nationwide, according to an IndiaSpend analysis of various government data.

 

The failing economics of such farms–agricultural households in the south are most indebted–are exacerbated by additional loans that families take to meet health issues, leaving them with diminished ability to invest in farming. Outstanding loans for health reasons doubled over a decade to 2012, and loans for farm business fell by about half over the same period.

 

These data help understand the nature of India’s farm crisis in the light of the recent spate of farmer protests across states to demand loan waivers and better prices for their crops.

 

These 62.6 million households spending more than they earn had land holdings of one hectare or less, according to the 2013 situation assessment survey of farm households by the National Sample Survey Office (NSSO), the latest available data.  In contrast, 0.35 million (0.39%) households owning more than 10 hectares of land had an average monthly income of Rs 41,338 and consumption expenditure of Rs 14,447, thereby maintaining a monthly surplus of Rs 26,941.

 

Nearly 85% of all operational farm holdings in the country are smaller than two hectares in size, NSSO data show.

 

No more than a third of Indian small and marginal farmers have access to institutional credit, as IndiaSpend reported on June 8, 2017, which suggests that loan waivers may not help them.

 

Households in southern India are most indebted

 

Andhra Pradesh has the highest share of indebted agricultural households (93%), followed by Telangana (89%) and Tamil Nadu (82.1%). The nationwide figure is 52%.

 

Indebtedness was listed as the primary reason for 55% of farmer suicides in 2015 and more than 300,000 Indian farmers have committed suicide since 1995, IndiaSpend reported on January 2, 2017.

 

Rising healthcare costs swell the debt burden

 

Apart from meagre farm income, rising healthcare costs increase farmer debt. Outstanding loans for health reasons have doubled from 3% in 2002 to 6% in 2012, according to a 2015 analysis of NSSO data by the National Bank For Agriculture and Rural Development (NABARD). Meanwhile, loans for farm business fell by half over a decade, from 58% in 2002 to 29% in 2012, as IndiaSpend reported on July 21, 2015.

The most common purpose of a loan is not for a productive purpose - like for business - but for "other household expenditure", an omnibus category that includes weddings and the purchase of household assets. Medical treatment is the next most common purpose of a loan in urban India, especially among the poorest, while loans for housing are most common among the richest. In rural India, loans for farming are the next most common, but for the poorest in rural areas as well, it is medical treatment that is pushing people into debt.