Increase income, not credit

The latest official data on farm sector suicides have made some surprising revelations with wide-ranging policy implications. The suicide data for 2014 and 2015, compiled by the National Crime Records Bureau, indicate that bankruptcy accounted for only 38.5 per cent of the total number of suicides. Several other issues such as crop loss, low price realisation due to inefficient marketing, heavy health expenses, family problems and a slew of other farm-related matters have also been cited as important reasons for farmers to commit suicide. Also, contrary to the prevalent notion, the much-maligned moneylender is not the chief villain in the farm suicides narrative; less than 10 per cent of suicide victims were indebted to moneylenders. In fact, nearly 80 per cent of the ill-fated farmers had borrowed from banks and microfinance institutions. Another point to note is that while suicides by cultivator-farmers rose by 42 per cent in 2015 over 2014, those by farm labour dipped by an equally striking margin of 31.5 per cent. Some of these intriguing findings can be ascribed to two consecutive droughts — an infrequent happening — but their implications are quite significant.

The disbursement of institutional agricultural credit has surged from Rs 87,000 crore in 2003-04 to over Rs 9 lakh crore now, but it doesn’t seem to have yielded expected results. It has neither ameliorated the economic plight of the farmers — which has actually worsened with time — nor enhanced their risk-bearing capacity. It has also had limited success in weaning them away from moneylenders, who still meet about 40 per cent of the farm sector’s total credit needs. Increased flow of institutional credit seems to be pushing up farmers’ debt burden without a concomitant rise in farm incomes. A recent National Sample Survey Organisation report estimated the average indebtedness of rural households at over Rs 1.03 lakh, which is far beyond the repayment capacity of farmers with meagre incomes. Populist steps such as debt waivers are of little avail unless they are accompanied by measures to reduce the need to borrow money — which is seldom the case.

The slide in suicides by farm labourers, in contrast, seems prima facie the result of the Mahatma Gandhi National Rural Employment Guarantee Scheme. But, at the same time, it indicates that employment and income generation is far more critical for easing rural distress than pumping in more credit. Significantly, moneylenders may be charging usurious interest rates but they serve as a handy and hassle-free source of finance for rural households, farmers and non-farmers alike, even at odd hours. Banks, too, can prove more useful for farmers by simplifying their loan approval procedures and introducing greater flexibility in their loan portfolios. However, the lasting solution to the problem of farmer suicides and farm sector distress lies in making agriculture profitable and reducing risks by promoting mixed farming comprising crops, livestock, horticulture and agro-forestry. Other means of doing so include ensuring remunerative prices through efficient marketing, value addition of farm produce and the creation of alternative employment and income opportunities in the rural non-farm sector.