The Distressed Farmer

On 29th February, the Indian Finance Minister Mr. P. Chidambaram, announced the yearly budget and, as expected, a series of heated debates ensued. One of the biggest points of discussion centered around a Rs. 600 billion ($15 billion) bank loan waiver for debt-ridden farmers, 150,000 of whom have been driven to suicide between 1997 and 2005.

At the outset it seems like a perfect gift – write off the debts that are driving farmers to commit suicides, and the problem, at least partially, is solved: Farmers aren’t in debt, their troubles are mitigated. For Chidambaram’s supporters, the waiver is hailed as unprecedented and generous. But there are those who offer valid counterpoints and wonder how many desperate farmers this would actually end up helping.

Take, for instance, the cotton-growing region of Vidarbha, one of the worst hit in terms of crop failure and farmer suicides. Statistics here are grim: a staggering 30,000 suicides since 1997; some three suicides a day for the last two years. The waiver does little for these farmers, who, in the absence of access to institutional credit, have mostly taken loans from private moneylenders. For these farmers, and others in the country who have relied on private lenders, not banks, the government-sponsored waiver is of no use. In fact, suicides in this region have continued even after the announcement.

The waiver is applicable primarily to those who have less than two hectares of land, which, automatically cuts out about fifty percent of the farmers in Vidarbha, whose holders are generally larger than the prescribed limit. Having more land, unfortunately, does not make a wealthier farmer, since in a lot of the areas the land is un-irrigated and uncultivable. Also, majority of farmlands are owned by families, rather than individuals. So even a wretchedly poor farmer would own – or share ownership – of more than two hectares.

What’s worse, is that there is a clause for farmers with larger holdings to receive a twenty-five percent rebate – but only after they pay seventy-five percent of their loan. This latter point has been criticized as nothing short of cruel, since it is clear that these despondent farmers have no means to pay back the seventy-five percent. For many this generous “offer” is worthless. At the end of the day only a small percentage of farmers will actually benefit. And that’s only if the funds do not end up in the deep pockets of corrupt bank officials. Then there’s the worry that those farmers who did pay off their loans would feel discouraged to do so in the future.

P. Sainath – an award winning journalist – has pointed out that the suffering of farmers in Vidarbha was one of the reasons the waiver idea arose in the first place. The irony is, that those very farmers are to gain nothing from the announcement, their plight still as desperate as ever.

Clearly, the waiver is a remedy, at best, not a cure. And a cure is what is really needed. Even if we were to assume that majority of the farmers would benefit from this largesse – as opposed to the small majority that will benefit as it stands right now – what’s next? Under the current scheme, once the loans are written off, the farmers are eligible for fresh loans. But this would only lead the farmer into yet another cycle of debt, and soon, they’d be back to square one.

The crux of the matter is that though India’s GDP has grown at a rate of 8 to 9 percent each year for the past 4 or so years, this surge in prosperity has left out rural India. The waivers, meant as an attempt to correct that imbalance, are far enough from being a solution that it’s causing its own set of problems.