Loan Waivers Offer No Relief To Most Distressed Farmers



While the government is set to forgive billions of dollars of farm debts, the actually distressed class among them will have little respite from their misery .They owe their debts to moneylenders whereas the government waiver applies only to formal credit.

In Maharashtra, farmers’ dependence on private money lenders   has shown a steep rise. Loans disbursed by private money lenders in the state saw a 40 per cent increase as compared to previous financial year, according to the economic survey report for 2016-17. .The total amount of loans disbursed by private money lenders   was Rs 1, 254, 97 crore, an increase of   Rs 358.63 crore over the previous year.

At 10,56,273, the number of individuals who have taken loan from private money lenders went up by 49 per cent in 2016 recording a figure of 7,04,452.These individuals   also include traders, non-traders and cultivator but  are essentially farmers.

Indebtedness is the most acute problem faced by small and marginal farmers. However, their borrowings are primarily from moneylenders and hence a loan waiver is not going to make any sense for them. It is the richer farmers who are the real beneficiaries of such populist policies. The problems faced by small farmers are complex and require a ruthless political will to address them. Their landholdings are below the economically viable threshold. Loan waivers have little to do with ending the conditions that lead to such problems.

Almost every farmer in India’s massive rural swathes is tethered, in one way or another, to the sahukar, the Indian variety of the moneylender, the ubiquitous, ravenous loan shark.

For centuries, moneylenders have monopolized rural Indian credit markets. Families have lost land and their bare assets, farmers have been asked to forfeit the jewellery of their wives or to   prostitute them to pay off debts, and, when all else has failed, they have tied the noose to end their misery.

An inescapable cycle of debt continues to grip rural India, particularly its farming class. Yet the public image of menacing debt collectors does not reflect the actual plight of India’s three million farmers. The rapacious moneylender, who plugs the huge gaps in credit supply in a hassle free process, is an inalienable part of a rural family .He is the first port of call in a distress situation, and is also the man they can turn to in times of need. For most villagers   there is no life without him. Moneylenders are now an inextricable part of the rural economy o much so the bank has become secondary, or even redundant, for a small farmer.

According to the All India Debt Investment Survey 2012, nearly 48%   farmers across the country   took loans   from informal sources such as moneylenders and landlords. The number had risen from 36% in 1991 and 43% in 2001. Moneylenders provided 69.7% of total rural credit in 1951. This fell to 16.9% in 1981 before climbing up again. .The latest survey shows that among farmers who owned land parcels smaller than 0.1 hectares, 85% had pending loans from such informal finance sources.

It was expected that in socialist India banks would become an extremely popular port of call for clients seeking loans. In fact, these financial institutions recorded a surge in the social banking era of the 1970s. The expansion of bank branches in rural areas was particularly noteworthy. The figure rose from 8,261 in 1969 to a whopping 65,521 in 2000. The share of households accessing institutional credit rose by 32 percentage points to 61.2%.between 1971 and 1981.But the populist policies left a cruel legacy of dud loans .This sour experience made bankers very wary and they turned off the spigots. High default rates in the range of 40% during the 1980s led India to eventually abandon the branch expansion programme. Aggregate debt figures from National Sample Survey Office (NSSO) surveys show that the share of households accessing institutional credit in rural India moved up only by 2 percentage points over a decade to 59.8% in 2012  Institutional credit is now mired in thickets of red tape blocked by bankers who are bedeviled by a highly contaminated credit culture. Hence moneylenders continue to thrive.

While these small farmers pay exorbitant interest, affluent famers get subsidized credit .The government’s interest subvention (subsidy) scheme for farmers provides credit at subsidized interest rate of 7 per cent and for prompt re-payers at 4 per cent   .With institutional   credit drying up for farmers, local sharks have taken the place of banks .They charge an arm and a leg and are creating a debt-trap for the farmers who rely on crop success –and prayers –for loan repayments. But a suicide does not absolve the rest of the family from paying back a loan. Unlike a bank loan which is squared by the government’s waiver package, the moneylender’s loan has to be atoned by the distraught family.

Small farmers have little access to technology and irrigation techniques. This makes them one of the most vulnerable groups to climate change. Farming for them is grinding physical work, largely supported by their family, with each new generation being pushed into increasingly smaller plots of land. From threshing and bundling to separating grains by hand, crops have to be planted, picked, harvested and hauled by them.

Years of market-oriented reforms have unleashed a wave of capitalism and entrepreneurialism across India. High-end sectors such as information technology have made impressive strides leading to adulatory portrayals of India at home and abroad as an economic juggernaut. Despite this success, the benefits of reform have yet to extend to the hundreds of millions who toil on the land. The government has slashed or phased out subsidies for some crops, shredding a key safety net.

In a post on his Gates Note blog, Bill Gates said that it was critical to protect small farmers in the world’s poorest countries because they produce a large and growing share of the world’s food supply yet face greater risks due to climate change. In his words, “For the world’s poorest farmer, life is a high-wire act without any safety nets.” Nothing could be truer in the Indian context.

The actions and resolutions taken by this country’s representatives and leaders may not only shape India’s agricultural future, but also its polity. India’s first Prime Minister, Pandit Jawaharlal Nehru said in 1947, “Everything can wait, but not agriculture.” Contrary to this, India is witnessing the reverse. All sectors of the Indian economy except the agricultural sector, are surging ahead.

Moin Qazi is a well known banker, author and Islamic researcher .He holds doctorates in Economics and English. He was Visiting Fellow at the University of Manchester. He has authored several books on religion, rural finance, culture and handicrafts. He is author of the bestselling book Village Diary of a Development Banker. He is also a recipient of UNESCO World Politics Essay Gold Medal and Rotary International’s Vocational Excellence Award. He is based in Nagpur and can be reached at [email protected]



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