The Gravity of Agricultural Debt- The case of Punjab’s Debt Crisis

There has been an intense attention on improving farmer’s income. Finance Minister Arun Jaitley had in his 2016 budget speech, promised to double farmers’ income by 2022. “We need to think beyond food security and give back to our farmers a sense of income security.” he said. While such a move is is laudable and welcome, let us also see what prompted a countrywide response towards focusing more on income security of farmers.

The Debt Crisis:

Almost 70% of India’s 90 million agricultural households are spending more than they earn each month on average says an IndiaSpend analysis based on various government data. These conditions themselves push the farmers them towards debt, which is the primary cause in more than half of all farmer suicides in the country.

These figures show that the debt crisis is not just a result of some farmers being unsuccessful in their occupation but rather it is a overall vicious cycle gnawing at the whole of agricultural community.

The most affected by it are the marginal farmers. Nearly 62.6 million households which are spending more compared to what they earn have land holdings of one hectare or less. The NSSO data also shows that nearly 85% of all operational farm holdings in the country are smaller than two hectares in size.

What is also noteworthy is that less than a third of Indian small and marginal farmers have access to institutional credit. This indicates that the debt crisis at its core has non-institutional credit.

The Overwhelming Agricultural Debt Crisis of Punjab:

Of all the discussion about agricultural debt the case of Punjab has been the highlight. Punjab has been known for its agriculture and for its glorious share in overall national produce. But in recent years Punjab has been staring at an grave agrarian crisis with vast accumulation of farm debt.

A huge role has also been of inadequately planned policies. In the effort to prioritize short-term food security, it neglected long-term sustainability. Punjab farmers adopted the current mono-culture of rice-wheat cropping pattern having been lured by better MSP for rice and wheat. In the process crop-diversification was abandoned. While MSP for crops have been going down, input costs have only risen, while the soil fertility and productivity has fallen.

Agrarian crisis needs long-term solutions
Farmers from Punjab stage a protest at Jantar Mantar, New Delhi

A recent survey titled ‘Indebtedness among Farmers and Agricultural Labourers in Rural Punjab’, put the debt on the state’s farmers at Rs. 69,355 crore. This survey was conducted for the Indian Council for Social Science Research under Gian Singh of Punjabi University in Patiala. Of this, Rs 56,481 crore was institutional and includes both the borrowings, those of defaulters and those in the process of repayment.

The survey clearly pointed out that marginal farmers and landless labourers have no mortgage assets and are dependent mainly on non-institutional loans.

Here is the brief assessment of average debt for 2014-15:

Per farming household: Rs 5,52,064

Marginal farmers (with up to 2.5 acre land): Rs 2,76,83

Small farmers (up to 5 acre): Rs 5,57,338

Semi-medium farmers (up to 10 acres): Rs 6,84,649

Medium farmers (up to 15 acres): Rs 9,35,608

Large farmers: Rs 16,37,473

Landless Labourers:  Rs. 68,330 per household.

Its important to note the huge amount of debt bore even by landless labourers,its is deep crisis is that 80% of these households are indebted. 92% of them borrowed money from non-institutional sources.

Debt Protection:

According to a survey, 62% of farmers stated that they preferred to quit farming and move to cities. This is result of failed agricultural policies over decades. Steps have to be taken towards Debt Protection and its fallout.

To prevent suicides, farmers must be provided just compensation. Those who get burdened by debt must be given “debt counselling” to prevent possible suicide. There should be a law that would allow a debt-ridden farmer to file for bankruptcy in extreme situations.

Policies such as Pradhan Mantri Fasal Bima Yojana (PMFBY) should be penetrated deeper and farmers must be encouraged to get insurance as protection against losses and resulting debts.

Role of Weather Risk Management System (WRMS) in Debt Protection:

Indian farming has always been heavily dependent on the mercy of nature. Sudden changes bring out a lot of losses, this unpredictability itself is one of the major causes of agricultural losses and debts.

The survey states that approximately 70% of Indian farmers said that their crops got destroyed in the last three years. Primary reasons for which have been uncertain rainfall, drought and
flood, destruction of crop by diseases and birds/animal, and lack of irrigation.

It is to protect against these calamities that having a debt protection  helps immensely. The PMFBY is aimed at aiding farmers do this by massively funding insurance and ensuring that even small farmers get this benefit.

Founded in 2004, WRMS has pioneered the weather insurance industry in India and has already bailed out over 5 lakh debt-ridden farmers. It has taken the quest of debt protection and loss prevention under PMFBY even further.

It seeks to help over 2 crore farmers in its quest to facilitate them through their climatic expertise and provide prior support through innovation and technology.