For farm distress, India needs more effective solutions than loan waivers

Those who want to help India's farmers should be working much harder to figure out what they really need.

It’s election season in India and the money is flowing. Governments in many states have begun waiving tens of millions of dollars’ worth of loans to poor farmers in an effort to buy their loyalty. The argument – widely accepted by politicians and journalists, the demographic groups with the least fiscal instinct – is that India’s farmers are buckling under the weight of their debts and rural suicides are spiking dangerously. Rural households are desperate for relief.

The numbers tell a different story. And, given the detrimental impact on credit discipline, not to mention the hole such waivers are going to blow in state budgets, politicians would be wise to rethink their plans.

According to India’s National Crime Records Bureau, the number of farmers committing suicide has actually been falling in recent years; fewer such deaths were recorded in 2016 than at any time in the previous 16 years. Nearly twice as many Indian housewives commit suicide as farmers do.

Nor does there seem to be a clear link between farmer suicides and poverty. Suicide mortality rates are higher in the relatively wealthy states of Maharashtra and Andhra Pradesh than in poorer Bihar and Uttar Pradesh. If one examines the incidence of indebtedness – the percentage of households that owe money to banks or moneylenders – it’s true that poorer farmers tend to owe more. They have a much higher debt-to-asset ratio and hold more formal and informal loans than richer households do.

But they’re not the ones killing themselves: According to data from the National Sample Survey Office, nearly 90 per cent of the farmers who committed suicide in Maharashtra owned more than two acres of land. Six out of 10 owned more than four acres.

This defies the centuries-old stereotype of rail-thin farmers laboring to pay back fat, greedy and unscrupulous moneylenders – a trope that can be found everywhere from the 1957 Bollywood hit “Mother India” to the dry pages of Reserve Bank of India reports. The overriding objective behind most of the government’s subsidized credit schemes since the 1950s has been to provide alternatives to these usurers. States such as Bihar where moneylenders hold more sway, though, tend to see fewer suicides. In high-suicide Maharashtra, formal loans account for 87 percent of total outstanding debt – far above the national average of 57 percent.

Overall, too, India’s farmers are doing far better than many realise. One way to gauge the well-being of rural households is to look at how much they’re buying: They now account for 45 per cent of the fast-moving consumer goods sector in India. This is remarkable given the vast disparity in disposable incomes between urban and rural households, and it implies that improvements in rural infrastructure, connectivity and digitization are translating into higher demand. Over the last three years, rural sales grew significantly faster than urban sales in both volume and value; consumption growth currently stands at a robust 9.7 per cent.

Business Standard