According to an American university, farming is one of the most stressful occupations in the US. With high levels of resource deprivation where farmers suffer low and unviable farming, regularly fighting volatile commodity prices, rising costs of inputs, fierce and uncertain impacts of weather and climatic changes, Indian farming too, if not the most, is among the most stressful occupations in the country.
Measures of farmer distress in India
Despite the centrality of the agriculture sector in India and the widespread recognition of the distress most farmers have to live with, there is no standard measure of farmers’ distress in the country. The most commonly cited measure is the number of farmer suicides. There is also a measure of damage to crops that is undertaken under the PM Fasal Bima Yojana (crop insurance scheme), but that is particularly for areas and farmers covered under the scheme. In 2020, out of the 14.65 crore Indian farmers (Agricultural Census 2015-16), only 2.68 crore (18.2 per cent) were covered under the PMFBY.
As per the National Crime Records Bureau (NCRB), 10,269 farmers committed suicides in 2019 and the most cited reason was high indebtedness or their inability to pay back loans (NCRB 2015 and 2019). Most of this indebtedness was on loans taken from financial institutions like banks.
There are two major issues, inter alia, with the above explanation. First, by measuring distress via number of suicides, the government oversimplifies a deeper and multiple-layered reality of agrarian distress. And second, by connecting suicides with debt to financial institutions, the diagnosis clears way for a simple solution of farm loan waivers that is not just an inefficient but also an ineffective solution to farmer distress in the medium to long run.
Political parties announce farm loan waivers in an effort to alleviate farmer distress by removing the debt overhang of the farmers. By writing off a farmer’s past dues and providing him/her with a way to access fresh credit, governments make an effort to reduce farmer’s distress. But the problem is with the cyclicality of debt. A farmer in India is plagued with multiple distortions that make the farming business volatile and unviable. The production cycles make it impossible for farmers not to be indebted, and the income instability makes it difficult for him/her to come out from a cycle of debt. Therefore, in such a scenario, a farm loan waiver only proves to be a ‘jury-rigged expedient’ — a quick fix that needs to be applied at recurrent intervals.
To support a distressed farmer in a sustainable manner that empowers him/her in both the short and long run, therefore, requires a rethink. The first step in this regard is understanding the constituents of distress to farmers.
Indebtedness as a symptom of farmer distress
From our ongoing survey of Indian farmers in the three states of Punjab, Uttar Pradesh and Maharashtra, we learned that most of the borrowing farmers wanted to repay their loans and did not want to default. They defaulted because of a financial distress that was usually caused, inter alia, by crop failure, or inability to get remunerative prices for their crops and/or a personal loss. This default resulted in debt overhang that magnified their distress, sometimes driving some to take the extreme step of suicide. According to the farmers, if the financial distress is hedged somehow and they are able to generate remunerative incomes, they always prefer to pay back loans.
By treating the debt overhang with a farm loan waiver while leaving the other factors that cause distress unaddressed, governments appear to be treating only a symptom (indebtedness) of a much more complex problem. A waiver-beneficiary farmer is likely to come to a point of needing another round of waiver soon due to persistence of his/her other causes of distress. Therefore, the key is to scientifically profile factors that cause distress to our farmers.
What causes distress to farmers?
Despite annually growing subsidies, directed and subsidised credit flows and several fiscal benefits targeted towards the agricultural sector, farmers continue to suffer both economically and socially.
Farmers in India are generally poorer than others in the economy. In 2015-16, India’s per capita annual income was about Rs 94,797 (NAS). In this year a farmer’s total annual household income was about Rs 1,07,172 (NAFIS). With an average household size of 4.9, this implies a per capita average income of about Rs 21,872, which was lower than a quarter of the national per capita income.
Further, the farmers in India buy expensive and sell cheap. In other words, the terms of trade (TOT) for farmers have been adverse. TOT is the ratio between the prices received by the farmers and the prices paid by them to purchase various inputs, goods, and services. When the value of TOT is below 100, it implies that the relative prices are against farmers. As per data from the Union Ministry of Agriculture, in 2004-05, farmers’ TOT was about 88, which increased to about 96 in 2018-19. Despite an increase, the ratio continues to be below 100 implying an adverse situation faced by the farmers. An improvement in farmer’s TOT will require agricultural prices to rise relative to non-agricultural prices, implying that consumers will have to suffer higher prices for agricultural products. This is unlikely to happen and thus leaves the government with a dilemma.
Farmers also suffer from the uncertainties and pressures on the production side.
Farm labour is an important input for cultivation. As per data from the Ministry of Agriculture & Farmers Welfare, GoI, in 2017-18, depending on states, the share of labour cost in total cost of production (A2+FL i.e., cost directly incurred by the farmers plus imputed value of unpaid family labour) ranged from 34 to 64 per cent in case of paddy, 17 to 50 per cent in wheat, 30 to 65 per cent in maize, 25 to 67 per cent in gram and about 20 to 40 per cent in soybean. Since 2000-01, daily wage rates of farm labourers have increased from Rs 56 to Rs 311 in 2019-20, a 5.5-fold increase. Rising cost of labour pushes up the cost of cultivation putting further pressure on the profit margins of the farmer. The profitability itself has been highly volatile for the Indian farmer.
Farmers also suffer at the hands of uncertain weather and climate. Due to the lower irrigation coverage (49 per cent of gross cropped acre is under assured irrigation), the farmers have to depend on monsoon rains for irrigating their crops. In the last 21 years since 2000, there were 5 drought years (actual rains fell short of normal levels by 10 or greater per cent), and in addition there were 9 years of deficit rains (where all-India average rains were below normal but the gap was lower than 10 per cent). One can infer that a farmer in India suffered from a drought every four to five years and from deficit rains every third year. Analysis of historical data reveals agricultural GDP fell with deficits in monsoon.
In addition to these, there are several other factors that cause distress to farmers. There are other factors like inefficient coverage under the crop insurance scheme, limited access to credit from financial institutions, etc., the absence of which magnify farmer’s distress.
Overall, it appears that the government needs to undertake coordinated and sustained efforts to put in place elements of a virtuous cycle of upliftment. Can a farmer distress tracking tool be an enabler for this?
A distress index for Indian farmers
An index that monitors high-frequency data integrating weather conditions, existing and upcoming climatic conditions, debt burden on farmers, data on agricultural commodity prices, etc., can act as a measure for the level of farmer distress. The technology breakthroughs via space technology, AI and blockchain permits collation on a real-time basis. The index should ideally be conceptualised at the level of a farmer where distress severity of each farmer is tracked in real-time.
In case the distress is tracked to be high, targeted support to that farmer can be triggered. Depending on the kind and severity of distress, the support can be given as a combination of unconditional grants, loan restructuring and/or a complete debt waiver. This type of data-backed real-time intervention will not only help farmers, but also provide governments with much needed policy bandwidth to effectively time a targeted, and efficient policy support to the distressed farmer. The government must engage with experienced professionals to develop such an index.
Saini is Senior Fellow (Visiting) at ICRIER and Khatri is Research Associate at GDI. Views are personal.
(Edited by Neera Majumdar)