Farm Debt- Causes and Solution

THE agriculture sector, which supports a majority of the population, requires a serious attention.  The misery of debt-ridden farmers across the board is well known and credit policy needs to be more inclusive towards this section.The benefits of the Green Revolution have been almost eroded with near stagnant technology, declining productivity and the ever-rising cost of inputs, including credit, coupled with low levels of support prices. The income-expenditure gap is so wide that farmers, especially small and marginal, cannot fulfil even their basic consumption needs, leave aside production needs. Their dependence on borrowings has increased, but they have little repaying capacity as farming is no longer remunerative.

The 59th round of the NSSO (2005) estimated that 65.4 per cent of farmer households in Punjab were indebted (the all-India figure was 48.6 per cent). Independent surveys by noted economists (Shergill-1997, 2010; Sukhpal Singh -2007) put the figure at much higher levels - close to 90 per cent. In terms of land size no single category of the farm households is free from debt. Although there is a difference of opinion as to which class of farmers is more indebted, there are no two views on the fact that the average outstanding loan per household increased with the increase in land size.

Analysing source-wise indebtedness in Punjab, the NSSO survey indicated that institutional sources accounted for 48 per cent of the loans for all land sizes, while 52 per cent was accredited to non-institutional sources. The position for small and marginal farmers is worse as they have still less access to institutional sources, particularly commission agents (arhtiyas) vis-à-vis commercial and cooperative banks in the credit market

1. Enlarge the allocation of net bank credit for agriculture and separate direct and indirect advances.
2. Commission agents should be taken off the list for priority lending.
3. Raise public expenditure on rural health care, education and irrigation
4. Minimum support prices should be commensurate with the rising cost of cultivation.
5. Financial institutions should become more farmer friendly to wean farmers from private lenders.
6. Increase the supply of farm credit
7. Lower the interest rates on farm loans.
8. Bring down the transaction costs, simplify the lending procedures and educate farmers about the nitty-gritty of banking operations.
9. A debt waiver scheme on the lines of the one announced in the 2008-09 budget should be introduced covering debts from informal sources as well.
10. Financial inclusion requires a holistic approach and an effective regulatory mechanism. The pressures and compulsions of globalisation have taken their toll in terms of the growing exclusion of a sizeable portion of the population from the development process. A success story in terms of high growth rate without any corresponding pattern of development benefiting rural masses is not only awkward, but questionable as well.