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Beleaguered Indian farmers favour debt waiver

Costly policy to write off agricultural debts in two states seen as only way to prevent collapse of small farming.

Last updated: 25 Jun 2014 10:45
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About half of farmers are willing to leave agriculture if alternative jobs appear [Tejaswini Pagadala/Al Jazeera]

Mangalagiri, Andhra Pradesh - A political pledge to waive the debts of hard-pressed farmers who need credit to survive has proved popular among rural voters in southern India but sparked a debate about who really benefits.

Many see waivers and subsidies as the only way to prevent the collapse of an agricultural system dependent on loans as soaring land prices threaten to turn farming into a dying profession.

According to the National Commission on Farmers, 41 percent of farmers in India have shown a willingness to leave agriculture if they get an alternative source of income.

"If agrarian distress continues and farmers aren't supported, you will hardly find any farmers in the country in the next 10 years," said farmer Done Veeranjaneyulu, who believes waivers and subsidies are the only way forward.

Rural distress

A 2004 Report on Farmers' Welfare by Jayati Gosh revealed that heavy debt burdens are the most acute cause of distress in the Indian countryside.

According to National Crime Records Bureau, between 1995 and 2012 the country witnessed the suicides of 284,000 farmers.

Much of the stress they face relates to spiralling debts, with policy analysts and bankers saying most farmers borrow money from informal lenders, with the share of institutional sources just 20 percent.

"If a farmer borrows 10,000 rupees ($167) from the bank, he or she will repay that loan by borrowing it from another informal source at an interest rate of 30 percent or above. Hence, the burden keeps mounting," S Venkateshwara Reddy, general secretary of the All India Regional Rural Banks Association, told Al Jazeera.

Against this stark backdrop, the promise of hefty debt waivers helped bring the Telangana Rashtra Samithi (TRS) and the Telugu Desam Party (TDP) to power in this year's state elections in Telangana and Andhra Pradesh.

Telangana farmers left to fend for themselves

Aware of the mounting problems faced by many farmers and seeing a potential vote winner, the chief ministers of Telangana and Andhra Pradesh states, K Chandrasekhar Rao and N Chandrababu Naidu respectively, promised to waive debts.

In the state elections, the TDP gained control of the residuary state of Andhra Pradesh after 10 years on the promise of writing off loans amounting to about Rs76,000 crore ($12bn).

The TRS, which won the elections in the state of Telangana that has recently been carved out of Andhra Pradesh, also promised to waive crop debts worth Rs40,000 crore ($6.7bn).

Soon after taking over as the chief minister of Andhra Pradesh on June 8, Naidu set up a committee to review implementation of the policy.

"Despite Andhra Pradesh facing a budget deficit, loans will be waived off as promised. There is no doubt about that," the chief minister told Al Jazeera.

Telangana's Chief Minister K Chandrasekhar Rao curtailed the debt exposure by announcing that loans up to only Rs 100,000 ($1,658) and those availed between 2013-14 would be waived.

Telangana state cabinet minister KT Rama Rao told Al Jazeera: "The government is still working on the modalities of the scheme."

Dying tradition

The debt waivers are seen as one of the only ways to tackle the mounting problems facing small producers like 35-year-old Done Veeranjaneyulu of Errapalem village, Mangalagiri, who believes farming is a dying tradition.

He borrowed Rs100,000 in November 2012 and is among hundreds of thousands of farmers in Andhra Pradesh awaiting the crop loan waiver.

Plucking fresh moringa drumsticks in his farm, he says farmers are selling off their lands due to skyrocketing prices.

"Soon after the chief minister of Andhra Pradesh announced that this town would become the new state capital, land prices have shot up," he said.

"It is better for farmers to sell off agricultural lands at current prices than to repay loans," said the burly farmer who cultivates onions, paddy and drumsticks on a seven-acre plot.

"One acre of land which was earlier Rs4-5m ($66,362-82,953) now costs Rs3 crore ($499,000)."

Veeranjaneyulu lives with his wife, two children and his mother and is the "Adarsha Rythu", a model farmer appointed by the state government who guides other farmers in the town.

Walking casually in his two-acre farm, Veeranjaneyulu says he voted and campaigned for the TDP because of the debt waiver promise.

On an average, he invests Rs35,000 - 40,000 ($580-663) on one acre of onions. Pesticides, seeds, transport and agriculture labour cost him an extra Rs10,000 ($165).

When there is demand, he sells the produce in wholesale market and makes a profit of Rs10,000 per acre. But, due to constant market fluctuations and the manipulation of prices by government agencies and markets, losses mount to Rs15,000 ($248) per acre.

"If I have to cultivate another crop in the Kharif season, I will need fresh credit [from the bank]," he said, checking for pests on his crops.

"So, if a farmer relies only on one crop, he cannot survive the debt burden."

Opposition to waiver

Country's central bank, the Reserve Bank (RBI) and the Indian Banks' Association (IBA) have both opposed the massive debt waivers in both states saying it would affect the structure of the entire credit system and encourage wilful defaulting.

Andhra Pradesh’s agricultural credit is already one of the highest in the country, and according to its State Level Bankers’ Committee, total agricultural advances stand at Rs1,27,546 crores ($21.19bn), constituting about 27.04 percent of total credit against a regulatory norm of 18 percent.

India's first debt waiver took place in 1990 and a subsequent waiver took place in 2008 under the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS).

A report by the Comptroller and Auditor General (CAG) pointed to loopholes in implementing the 2008 waiver and said several ineligible farmers were favoured while a large number of deserving small farmers left out.

The development economist Devinder Sharma says loan waiver schemes benefit repeat defaulters.

Sirinedi Murali Krishna, 62, sugarcane farmer from Kuchipudi village of Krishna District in AP, said he benefited from the 2008 debt waiver scheme.

"This time, I voted for TDP. And, I expect a waiver on my loan of Rs300,000 (about $5,000)," he said.

PSM Rao, an agriculture policy analyst, believes there may be other ways of tackling the debt burden.

"Why aren’t we looking at the root cause of the problem?" he said.

"Farm loans can be designed in a way that the farmer repays the loan only when the market prices are optimal and when there are no production losses."

"In other circumstances, whatever is produced can be procured by the government and the loan can be treated as fully repaid."

This means a complete revamp of credit policy in India where agriculture can be made profitable and sustainable, adds Sharma.

However, Nookala Samrajyam, 34, who cultivates cotton and red chilli in Guntur, feels farmers will always ultimately be the losers.

"Every government takes us for granted. In this muddle of debt relief schemes, we become non-bankable" she said.

Follow Tejaswini Pagadala on Twitter: @tejaswini7

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