A Doctored Crisis

Agriculture in India is facing a major crisis today. It’s probably

something not many are aware of as it’s hardly talked about much less
being an issue of concern. What started us out on our study of the
agrarian crisis in India were disturbing reports of a large number of
farmers committing suicides. For the past ten years, one farmer has
been committing suicide every half an hour. Alarming as this sounds, it
is only the tip of the iceberg. The root cause of the instances of
indebtedness and suicides that we have been hearing of is the fact
that agriculture as a source of livelihood has been gradually made
unviable. When we say that farming is no longer a viable economic
activity, we mean that majority of the farmers in the country cannot
hope to have a decent standard of life if agriculture were their sole
source of income. In 2005, forty percent of the farmers told a
government survey that given an option, they would like to leave
agriculture. Why is that so many people desire to quit their occupation?
The farmer and his family toil the entire season and yet they are not
assured of an adequate income at the end of the day. For instance, the
average monthly income of a farmer household in 2003 was not even
sufficient to cover their monthly expenditure on consumption. The
average monthly expenditure was as low as Rs. 2770 but even such a
small amount was not covered because the average income from all
possible sources was only Rs. 2115. The contrast with urban areas is
stark. Only the very poor in the urban areas would have such low levels
of income and expenditure. In this presentation, we will try to point out
the reasons for the growing unviability of agriculture, and how this
crisis has been consciously doctored by our government policies.

Our discussion of the agrarian crisis is restricted to those regions

where agriculture has taken the form of cultivation primarily for the
market i.e. those regions in which farmers keep aside a major share of
their output for sale in the market. These are also the regions where
the technology of green revolution has been widely adopted. These
include parts of Punjab, Haryana, Andhra Pradesh, Maharashtra, Kerala
and Tamil Nadu. While we will discuss the impact of agrarian crisis on
all sections of the farmers, it must be remembered that this impact is
not felt uniformly. Smaller farmers are likely to be much worse affected
than larger farmers, who might be in a better position to cope with the
crisis. We have divided this presentation into the three most important
aspects of commercial cultivation today – firstly, the inputs required for
farming and the costs incurred for the same; secondly, the price that
the farmer receives for his output, and finally, the credit that he
requires for undertaking cultivation.

Inputs
The crisis that agriculture faces today is as a result of steady
withdrawal of the government from most of the important spheres
relating to agriculture. Public investment in agriculture has declined in
the period of economic reforms. Apart from spending less on irrigation
systems and rural infrastructure the government also started allocating
lesser money to the agricultural sector during successive five year
plans. Agriculture is a sector where public investment is needed to
encourage private investment. The majority of the farmers in this
country are resource poor and they can not afford to undertake
investments individually. They can not be expected to carry out
leveling of soil and build irrigation systems. Only when such
infrastructure is ensured by the government, are farmers able to invest
in their own fields.

There has also been a continuous decline in the subsidies, which are a
form of support given to the agricultural sector on the grounds that
these are an unnecessary burden on the government’s budget.
Costs of cultivation have increased as a result of policies adopted and
also because of the technology introduced. The two technological
changes that have had the maximum impact on costs are the adoption
of HYV seeds, and increasing mechanization. HYV seeds used under
the Green Revolution package and the genetically modified Bt seeds
that are being used now, have made seed costs very significant. In
2004 Monsanto used to sell a packet of BT cotton seeds at Rs1200
which was sold much higher than the price charged in US. After the AP
govt. took the company to court they sold it at Rs750

Costs on account of insecticide, weedicides and fertilizers have

increased several folds. The all state average expenses per hectare on
insecticides was less than a rupee in 1970s and became Rs. 303 in
2004-05.

The seed corporations of the states and the central government have
become redundant. Earlier agricultural universities released seeds but
since private companies have entered the seed market farmers are
forced to buy seeds from these companies every cropping season.
There is also no guarantee of the price the farmer will receive for his
produce or the quality of the inputs he purchases. For instance, in
Punjab, we came across many farmers who were sold spurious seeds
by the seed companies.
According to a study on costs of cultivation of wheat in five states from
1970-71 to 2004-05 conducted for 85 percent of area the costs have
increased a whopping five times in the 1980s.
Whether it is the declining public investment in agriculture or a cut in
subsidies resulting in increased cost of cultivation or mindless adoption
of technology all have worked towards starving the agricultural sector.

Output

Harvest represents for the farmer, the fruition of a season of hard

labour for him and his family. It is that time of the year when he hopes
to realise the returns from cultivation and make the necessary
expenditures for his family. He takes his output to the local mandi, in
the hope of returning with adequate cash to pay off his debts, to spend
money on his children’s education, buy some goods for his home, and
perhaps keep some money for next season’s cultivation. However,
more often than not, these expectations remain unfulfilled. The money
that he gets from selling his crop is often insufficient to even cover his
debts and minimum subsistence expenditures for his family. This
thwarting of hopes and aspirations season after season brings despair
and it is not surprising that many suicides take place immediately after
the farmer returns home from the mandi.
What factors are responsible for ensuring that the farmer does not
receive remunerative prices for his output? Since cultivation is
primarily for the market in the areas which have reported farmer
suicides, the price which the farmer receives for his crop becomes very
important. A farmer can sell his crop either to the government or to the
private traders. In either case, he has absolutely no control over what
price he will get. In theory, there is a minimum support price for every
crop at which the government is supposed to buy from the farmers, but
this does not happen on the ground.

There are several problems with the calculation of minimum support

prices by the government. Costs of cultivation, which form the basis for
calculating the MSP, are underestimated and many costs incurred by
the farmer are ignored. This can be gauged from the fact that for crops
like jowar, ragi and cotton, even the costs incurred by the farmer out of
his pocket are not covered by the MSP in certain years in certain
states. Even if the MSPs were calculated correctly, they would still
remain ineffective since procurement by the government at this
support price is present only in states like Punjab and Haryana and
only for certain crops like wheat, rice and sugarcane. The anti-farmer
stance vis-à-vis public procurement can be seen from the fact that in
2007, the government imported wheat from transnational agri-
business corporations at Rs. 1300 to Rs. 1600 per quintal but paid only
Rs. 850 per quintal to our own farmers as the support price. For most
other crops and regions of the country, the farmer is forced to accept
whatever price is offered by the private traders. Ever since India
became a part of WTO in 1994 and signed the Agreement on
Agriculture, the prices of crops in India have become more and more
uncertain. Fluctuations in the prices of agricultural goods in the
international market now directly affect the prices of crops in India. The
farmer has been left completely unprotected. This was most tragically
observable in the period from 1997 to 2003 when crop prices fell
drastically in the world market. Farmers in states like Andhra Pradesh
and Kerala had to sell their crops at extremely low prices and many
committed suicides. The subsidies provided by developed countries to
their farmers and agri-business corporations means that Indian farmers
can never compete in the international market, and only stand to lose
under the present arrangement.
Even when crop prices are high, farmers are seldom benefited. They
are forced to sell their output to middlemen, private traders and input
dealers in the mandis who buy at lower prices, sell at higher prices and
corner the profits. Policy decisions like allowing multinational
corporations to become direct buyers at local mandis have worsened,
and will further worsen, the already unequal relationship between
farmers and the powerful buyers. It is no surprise then that the harvest
season every year brings with itself not hope and happiness for the
farmer, but death and despair.

Credit

We have just seen how the increasing commercialization of agriculture

i.e. farmers growing increasingly for sale in the market, the
introduction of expensive technology and the policies adopted under
economic reforms, have raised costs for farmers and resulted in
fluctuating prices for agricultural goods. It is therefore only to be
expected that a greater need for credit facilities would be felt. The
farmer requires credit to purchase inputs, making it an essential part of
the production process. Easy access to credit must be seen as one of
the crucial elements that contribute towards making agriculture a
viable economic activity.
If we go back in time and look at the policy of bank nationalization that
was initiated in 1969, we see that it was beneficial. Even though
nationalization had its own set of problems, it drastically improved the
availability of regular and relatively cheap credit to farmers. Very
importantly it reduced the dependence on moneylenders who charged
usurious rates of interest. Till 1961 as much as 75 per cent of the credit
was taken from informal sources. By 1991 the extensive network of
institutional credit reduced this dependence on moneylenders to 25
per cent. This expansion in rural banking was possible because there
was a conscious policy to increase the number of bank branches in
rural areas, agriculture was labeled as a priority sector and banks had
to lend a certain proportion of their loans to agriculture.
However, after the economic reforms what we are witnessing is the
gradual and systematic decline in the access to institutional credit.
With reforms, the focus has now shifted to the profitability of banks i.e.
banks are encouraged to give loans to those sectors which have the
lowest risk of default and highest profit earnings. So the norms that
were earlier set for agriculture as a priority sector have been relaxed.
Banks have been steadily withdrawing from providing cheap credit and
this has been facilitated by government policies. NABARD, which
supplies funds to rural credit institutions, has been receiving lesser and
lesser funding from the government and RBI. The numbers of regional
rural banks have been declining. From 1991 to 2002 the numbers of
rural bank branches have been dropping at a rate of 22 branches per
month! Though agriculture was under the priority sector, sectors like
plantations and agri-business corporations were kept out. Now even
these are included in the share of loans given to agriculture. Such
enterprises usually require very large loans and due to their size and
capacity to earn profits, banks prefer to lend to them. It is but natural
that smaller farmers cannot meet these standards of profitability as
cultivation itself has become more costly, therefore making it all the
more difficult to repay loans.
The result of all this has been disastrous – small and marginal farmers,
as well as the landless, are now getting a smaller and smaller share of
institutional credit given to agriculture. But we also know that costs are
increasing, so farmers are having to turn to other sources for credit i.e.
moneylenders or other informal sources who charge extremely high
rates of interest.
This brings us to the important aspect of the indebtedness of farmers
in the country. According to NSS data, in 2003, about half of all farmers
were in debt; and of the loans that were taken, 65 per cent of it was
utilized for farming and not on frivolous expenditures, which is often
quoted as a reason for indebtedness and even farmer suicides. Another
reason for farmers getting caught in the cycle of indebtedness is the
heavy dependence on informal sources, be they traditional
moneylenders, input dealers or commission agents in the case of
Punjab. More than 40 per cent of the credit taken by farmers is from
informal sources and even this figure varies depending upon the size of
the farmer. For instance it is much easier for a larger farmer to get
loans from banks than it is for a smaller farmer who has less land to
show as collateral and it is virtually impossible for a landless labourer
who has no land record. At an all-India level, farmers owning more than
25 acres of land were able to obtain upto 65 per cent of their loans
from banks, while farmers with less than 1 acre of land got less than 40
per cent of their loans from institutional sources. Overall the credit
system is working against the needs of a majority of the farmers and
landing them further in debt.
At a time when the state should be coming to the aid of farmers who
are going through a crisis, the credit system rather than improving
their situation, actually works towards further worsening their
condition.

Conclusion

Despite this grim situation, farmers in our country have nowhere to go.
There are virtually no jobs outside agriculture. The jobs that exist are
too few to employ the vast majority presently dependent on
agriculture. The kind of industrialisation being undertaken in India is
such that it cannot absorb the surplus labour from agriculture.
Further, the jobs available require a level of education and technical
skills that the farming community does not possess. This is
compounded by the fact that today the government is spending lesser
and lesser on school, college and technical education. Those who
vehemently argue that farmers should quit agriculture and move out
forget to answer the question regarding where they should find
alternative employment.

Hence even though 40 per cent of the farmers want to quit agriculture,
they cannot do so. Today, more than three-fourths of the population
remains dependent on agriculture. The crisis faced by these people is
not accidental but one that has been doctored by policy decisions
which favour corporate interests and neglect agriculture. It is a sad fact
that at a time when agriculture is facing such a serious crisis, the
attention of our policymakers seems to be focused on the global
financial crisis. The government is spending crores of rupees on
stimulus and bailout packages for the corporate sector but is turning a
blind eye to the plight of our farmers.