Home > 2017 > Paradox of Punjab: Indebtedness of Farmers . . .

Mainstream, VOL LV No 44 New Delhi October 21, 2017

Paradox of Punjab: Indebtedness of Farmers . . .

Monday 23 October 2017

by Shachi Chawla

The Royal Commission, created in 1928 to examine the conditions of farmers, reported: “The Indian peasant is born in debt, lives in debt and bequeaths the indebtedness to its successors.” The statement, made 89 years ago, still stands true, reflecting the miserable plight of the farmers of India.

Punjab is predominantly an agrarian State. It was in the forefront of the adoption of the Green Revolution model in the 1960s, resulting in a tremendous increase in the use of current and capital inputs that increased production, productivity, income of farmers thereby increasing their consumption expenditure and ultimately improving their standard of living. It has been instrumental in ensuring national food security, consistently contributing a significant percentage of wheat and paddy in the Central pool. During 2011-12, 38.7 per cent of wheat and 22.1 per cent of paddy to the Central pool came from Punjab.1

Economic Distress

Economic activities in the State are witnessing a structural change over a period of time. The share of the primary sector in the GSDP (Gross State Domestic Product) is constantly declining while the share of the secondary and tertiary sectors is increasing. The table below shows the figures of change in the economic activities of the State.

- 1980-81 2001-02 2004-05 2012-13
Primary Sector 49.13% 40.32% 32.67% 21.83%
Secondary Sector 20.01% 24.03% 24.75% 29.48%
Tertiary Sector 30.86% 35.65% 42.95% 48.68%

Statistical Abstract of Punjab (various issues)

The share of the primary sector (agriculture and livestock) has come down from 32.67 per cent (2004-05) to 21.83 per cent (2012-13). The share of the secondary sector has increased from 24.74 per cent to 29.49 per cent in the same period. The share of the tertiary sector, which comprises of the service sector, has increased from 42.59 per cent (2004-05) to 48.68 per cent in 2012-13. This growth is mainly due to increase in the contribution of transport, storage, communication, banking and insurance sector.2

However, the backbone of the rural economy of Punjab continues to be agriculture and allied activities. Cultivators and agricultural labourers, directly dependent on agriculture, constitute 53.5 per cent of the rural workforce (2001 census). The share of other activities—transport, communi-cation, storage, construction and manufacturing—has grown but they are still dependent on agriculture and the allied sectors. Thus agriculture remains a dominant activity around which other activities are interwoven. The performance of agriculture determines the scope and rate of development of other activities.3

Agriculture: Major Issues

Agriculture in Punjab is passing through a difficult phase with stagnant productivity, rising costs, declining returns, squeezing profitability and mounting unemployment. The roots of the crisis can be traced to the initiation of the new agricultural strategy of the 1960s, and the crisis further aggravated in the wake of the new economic policies of the 1990s.

Wheat Paddy Cultivation

Punjab followed a diversified cropping pattern before the Green Revolution. In 1960-61, the share of cereals in the total cropped area was 45.65 per cent, foodgrains constituted 64.73 per cent, pulses 19.08 per cent, sugar 2.81 per cent, cotton constituted 9.45 per cent and oilseed 3.94 per cent of the area. Though wheat was the dominant crop, it was cultivated only in 29.59 per cent of the area and rice constituted 4.80 per cent of the area.4

However, post-Green Revolution, the State has shifted to the dominance of wheat-paddy cultivation to the exclusion of other crops. In 1980-81, the area under wheat increased to 41.57 per cent and under rice to 17.49 per cent of the cropped area. Crops like oilseeds, sugarcane and pulses declined with their respective shares being 1.39 per cent, 1.35 per cent and 1.91 per cent of the total area under cultivation. However, the situation further worsened thereafter with the dominance of wheat-paddy cultivation. The area under wheat increased from 35.10 lakh hectares (2010-11) to 35.28 lakh hectares (2011-12). Though the area under paddy slightly decreased from 28.18 lakh hectares in 2010-11 to 28.06 lakh hectares in 2011-12, wheat and rice combined together constituted 81 per cent of the gross cropped area (2011-12) from 47 per cent (1970-71). The share of other crops (besides wheat-paddy) comprised 19 per cent of the total cropped area.5

Saturation In Agriculture

Punjab witnessed a boom in the agricultural sector as the net returns of farmers increased due to increase in the productivity of principal crops (wheat and paddy) in the 1960s and 1970s. However, the momentum of growth in agriculture decelerated by the 1990s and the performance of the agricultural sector as a whole and of wheat and paddy has been dismal.

The average yield of wheat (1990-91) was 3715 kg/ha which increased to 4693 kg/ha (2010-11) to 5097 kg/ha (2011-12). The yield of wheat has increased but its rate of growth is slowly declining. Similarly the average yield of rice was 3229 kg/ha (1990-91) which increased to 3828 kg/ha (2010-11) and then became 3741 kg/ha (2011-12). For cotton, the average yield was 285 kg/ha in 1990-91. Increasing to 472 kg/ha (2010-11) it declined to 449 g/ha (2011-12).6 The figures reflect that agriculture in Punjab has reached a saturation point. It indicates the exhausting potential of the Green Revolution technology. There is hardly any scope to increase the area under agriculture in the State as almost 99 per cent of the cultivable land is under plough and already 97.9 per cent of the cultivated area is under irrigation.7

Declining Returns

The early years of the Green Revolution brought a sharp increase in productivity in the major crops leading to reduction in the cost of production of output. The use of fertilisers and other chemical inputs, machinery, fuel increased at a slow rate than the increase in the productivity. From 1985-88 to 1998-96, the total cost of production per unit of output experienced a marginal increase (Rs 39.13 to Rs 40.64 per quintal); in the case of wheat it was Rs 31.74, a slightly higher rate in the case of rice:
Rs 35.35, and a sharp rise in the case of cotton (from Rs 90.39 to Rs 166.67). The main reason was a rise in fixed costs due to over capitalisation both in the case of wheat and rice. But in the case of cotton, both variable and fixed costs have increased during the period. The rise in the MSP (Minimum Support Price) has not been commensurate with the rise in the cost of production. Though wheat continues to give a rising rate of return per hectare, the return on rice declined from Rs 684 to Rs 298 in 1995-96 at constant prices to Rs 217 in 1995-96.8

The dominance of wheat-paddy cultivation has raised serious concerns about the sustainability of agriculture. A push for diversification of the cropping pattern is being made by the government. The Minimum Support Price (MSP) has been announced by the government for as many as 25 agricultural commodities, including pulses and oil seeds, but there is no mechanism for purchase of crops other than wheat and paddy. In the absence of assured procurement for alternate crops, farmers do not want to shift from the wheat-paddy cropping pattern.

Indebtedness

Indebtedness among the farmers is an issue of serious concern in India and especially in Punjab, a State which was regarded as “the bread basket of the country”. An unrest is witnessed among the farming community across different States, where farmers have been protesting for the waiver of farm loans. This can have serious financial implications, especially affecting the fiscal discipline of the States. The BJP Government in Uttar Pradesh has approved the waiver of farm loans upto Rs 1 lakh, and similarly Punjab, Maharashtra and Karnataka governments have approved the farm loan waiver.

Punjab’s total outstanding farm loan is Rs 72,770 crores, of which Rs 59,620 crores are crop loans and the rest (Rs 13,150 crores) are term loans. A report by the State-level bankers committee showed that 1.7 million small and marginal farmers from the State had availed loans totalling Rs 36,600 crores. According to the Situation Assessment Survey of farm households published by the National Sample Survey Organisation (NSSO) in December, on an average, the household involved in farming in Punjab had an outstanding debt of Rs 119,500, over two-and-half times the all-India average of Rs 47,000. About 72 per cent of these loans were from institutional lenders like banks and cooperative societies, while the rest was borrowed from money lenders, relatives and local traders.9

Indebtedness among the farmers indicates the distress in the farming community. It has pushed many farmers to take the extreme step of committing suicide. According to a report, 21 indebted farmers from Punjab committed suicide between April 1 and May 15, 2017.10 In the past six years, 6926 farmers have committed suicide. Many suicide cases are not reported because of the Punjabi pride—as suicide there is a social stigma. In 2015 Parliament was informed that 449 farmers had killed themselves in Punjab, making it second only to Maharashtra.11

The worst sufferers are the small farmers who are working under severe economic constraints—compelling many to leave farming and some taking the extreme step of committing suicide. A study of farmers’ issues conducted by Dr Sukhpal Singh and a team of PAU reveals that the amount of

debt per hectare

was inversely related to the farm size.

Indebtedness was the highest among marginal farmers at Rs 1,70,184 followed by small farmers at Rs 1,04,155 and for other farmers at Rs 44,069. The study suggests 89 per cent of marginal farmers and 91 per cent of small farmers are under debt. Of the 3507 farmers who committed suicide between 2000 and 2011, about 80 per cent were marginal and small farmers (having upto two hectares of land). These famers had an average debt of Rs 2,35,000 per household and they earned only Rs 30,420 a year, indicating the miserable condition of small and marginal farmers.12

Though the banking sector is well developed, with a total 5035 bank branches, out of which 2747 are commercial and 804 are cooperative bank branches, still only about 89 per cent of the farmers have money in banks and deal with banks actively.13

A study on farmers’ issues, conducted by Dr Sukhpal and the PAU team, showed that an average farm household in Punjab was indebted to institutional sources of credit to the tune of Rs 1,33,844 (61.37 per cent) while that from the non-institutional sources was Rs 84,248 (38.63 per cent).

Among the institutional credit agencies 29.06 per cent of the total credit amount was advanced by public banks, 11.81 per cent by private banks and 20.5 per cent by the cooperative. On the other hand, 35.25 per cent of the total credit is advanced by the commission agents (arhityas),14 2.35 per cent by big landlords and one per cent by shopkeepers, friends, relatives.

Large farmers availed maximum of their loan requirements from institutional sources as compared to the small farmers. An area of concern is that marginal, small farmers and landless labourers, who do not have adequate assets to mortgage, are more dependent on non-institutional sources for securing loan. Complicated and time-consuming procedure of availing loan from the banks, bureaucratic behaviour of the bank officials push the small and marginal farmers towards the non-institutional sources of credit. Though small farmers prefer non-institutional sources of credit, the rate of interest charged by them is much higher than that of the banks.15

Contrary to the general perception, a study done by experts in Punjab reveals that a large proportion of the debt was being utilised for productive purposes (51 per cent of the credit) like purchase of farm inputs, farm machinery and agricultural land. This proportion was high among the small farmers (67.87 per cent), medium farmers (59.61 per cent), marginal (55.47 per cent) and large farmers (40.80 per cent). The non-productive purposes included housing loan, consumption loan, health care and social ceremonies which have taken 42.6 per cent share of the total loan. The unproductive credit aggravates the misery of the farmers as this credit does not assist in the future growth of farming.

Why Indetedness

As discussed earlier, the increase in the cost of production and insufficient increase in minimum support price (MSP) has made agricultural activity unremunerative. The mismatch between the cost of production and the price the farmers get in the mandis has made the farmers resentful. In Punjab, paddy gave farmers six per cent less returns than the cost of production while wheat gave the farmers just one per cent profit. On the other hand, cotton farmers suffered enormous losses as much as 20 per cent.17 The declining returns from agriculture, lack of non-farm employment opportunities, occasional crop failure along with high consumption standards reflected in huge expenditures on celebrations has brought various sections of the peasants under debt, forcing many of them to take the extreme step of committing suicide when they are hard-pressed to pay the debt or face auction of their land.

Conclusion

The Government of Punjab had appointed a committee, headed by the former Chairman of the Commission for Agricultural Costs and Price, T. Haque, to assess the quantum of agricultural debt and suggest ways and means for farm debt waiver. An amount of Rs 1500 crores was allocated by the Punjab Government for the farm loan waiver. Punjab became the third State after Uttar Pradesh and Maharashtra to announce a waiver of farm loans. A waiver of Rs 36,359 crores of crop loans of 21.5 million farmers had been announced by the Uttar Pradesh Government. The Maharashtra Govern-ment announced a waiver of Rs 35,500 crores of loans taken by 3.1 million small and marginal farmers (owning less than five acres of land). While both Maharashtra and Uttar Pradesh had announced the waiver of up to Rs 1 lakh per farmer, the Punjab Government has doubled the waiver to Rs 2 lakh per farmer for 1.03 million small and marginal farmers.18 However, the waiver of farm loan is not a long-term solution to the farmers’ woes. The RBI Governor, Urjit Patel, cautioned that farm loan waiver undermines an honest credit culture and impacts credit discipline. Large farm loan waivers can result in fiscal slippages which by and large can entail inflation spillovers.19

The Central Government has not taken adequate steps to implement the Swaminathan Committee’s recommendations. The report called for fixing the minimum support price for crops “at least 50 per cent more than the weighted average cost of production”. However, if we compare the latest MSPs for various crops in the 2016-17 kharif season and compare these with the estimated production costs, the Swaminathan formula of minimum 50 per cent profits remains a mirage for the farming community.20 The Central Government should ensure that farmers get remunerative prices for their produce. As farming has turned to be unviable, many of the farmers are leaving farming as a profession; however, in the absence of non-farm employment opportunities, problems of unemployment, drug abuse, suicide are emerging as a major challenge before the government. Regulation of non-institutional lenders, expansion of institutional credit, push for the establishment of agro-based industries, enhanced role of the civil society in creating awareness among the farmers to avoid unproductive expenditure, crop insurance programmes are some of the measures the Government of Punjab should implement so as to save the farmers of the State.

Regulation of non-institutional lenders, expansion of institutional credit, push for the establishment of agro-based industries, enhanced role of the civil society in creating awareness among the farmers to avoid unpro-pductive expenditure, crop insurance pro-grammes are some of the measures the Government of Punjab should implement so as to save the farmers of the State.

Footnotes

1. Economic Survey of Punjab, 2012-13, p. 135.

2. Economic Survey of Punjab, 2012-13, p. 140.

3. Sucha Singh Gill, Economic Distress and Farmer Suicide in Rural Punjab, p. 220.

4. Ibid., p. 223.

5. Sucha Sing Gill, “Economic Distress and Farmers Studies in Rural Punjab” in M.S. Shergill (ed.), Rural Credit and Indebtedness in Punjab, IDC, Chandigarh.

6. Economic Survey of Punjab, 2012-13, p. 248.

7. Ibid.

8. R.S. Sidhu and SS. Johl, “Three Decades of Intensive Agriculture with special Reference to Punjab” in S.S. Johl and S.K. Ray (eds.), Future of Punjab Agriculture, CRID, Chandigarh.

9. Punjab Government decision on farm loan waiver likely after June 15, Live Mint, May 25, 2017.

10. The Indian Express, May 22, 2017.

11. ‘Punjab Elections: The cycle of debt and farmers suicides blight India’s grain bowl’, Hindustan Times, January 13, 2017.

12. Vikas Vasudevea, “Punjab’s Farming Sector in Crisis”, The Hindu, October 29, 2015.

13. Sukhpal Singh, Shruti Bhogal and Randeep Singh, “Magnitude and Determinants of Indebtedness among Farmers in Punjab”, Indian Journal of Agricultural Economics, April-June, 2014.

14. Ibid.

15. The institutional sources charged rate of interest varying 4-19 per cent, while commission agents charged 36 per cent.

16. Ibid.

17. Subodh Verma, “Farmers’ ire not about loan alone’, The Times of India, June, 20, 2017.

18. ‘Farm loan waiver could cost Punjab Rs 10,000 crore’, livemint.com, June 21, 2017.

19. ‘Farm loan waivers can lead to fiscal slippages, cautions’, RBI Governor Urjit Patel’, The Indian Express, June 7, 2017.

20. ‘Support Prices and the Swaminathan formula mirage’, The Indian Express, June 16, 2016.

Dr Shachi Chawla is an Assistant Professor, Political Science, Daulat Ram College, University of Delhi.

ISSN : 0542-1462 / RNI No. : 7064/62