explained | Is loss of income the main reason for farmers’ indebtedness?

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Over the past eight years, farmers’ debts have grown much more than their income. Is this a sign of a debt trap that farmers are getting into?

Farmers ‘income increased by 30% while their debt increased by around 58% between 2013 and 2019. As a result, farmers’ debt as a percentage of their annual income increased by 13 percentage points, according to the latest data. published by the ministry. statistics and program implementation.

But is the growing credit culture among farm households a bad outcome in itself? If the loan is taken to purchase agricultural machinery or to invest in crop diversification, it can increase future income.

Plausible reasons for the increase in indebtedness

“Improving access to institutional finance, increasing agricultural mechanization (nearly 95 percent of tractors are borrowed) and increasing high value-added agriculture are some of the reasons for the ‘Growing indebtedness of farmers,’ Ashok Gulati, Infosys Chair for Agriculture at ICRIER, told India Today Data Intelligence Unit (DIU).

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In addition, due to concessional credit to agriculture, many diversions of agricultural loans for non-agricultural purposes, especially in Punjab, Kerala, Tamil Nadu and Andhra Pradesh, have taken place, he said. added.

Easy agricultural credit

DIU also contacted another renowned agro-economist, Ashok Vishandass, professor of applied economics at the Indian Institute of Public Administration. “Due to the relatively easy availability of the loan over time, the uptake of the loan is expected to increase, as the easy supply of credit creates its own demand,” he said.

If the ease of agricultural credit is one of the most plausible reasons, a decline in profitability cannot be ruled out either.

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“Rising debt levels in states with already high levels of farmer debt may indicate farming is becoming less profitable,” former Agriculture Secretary Siraj Hussain told DIU. “We don’t know how many of these loans are for consumption,” he added.

While more loans may indicate more investment in the sector, the eastern and northeastern states have a much lower drawdown.

Loan waiver

Is the growing incidence of loan forgiveness the reason why farmers generously apply for credit? “One of the reasons for the increased indebtedness is the loan waiver program. If I know that I don’t have to repay the loan, I will continue to take loans,” said Bimal Kothari, vice-president of the India Pulses and Grains Association (IPGA). GOD.

In recent years, outstanding loans have greatly exceeded the amount of loans issued.

Loan exemption programs are intended to alleviate the over-indebtedness of beneficiaries and enable them to undertake productive investments to stimulate real economic activity. The government grants loan waivers to heavily indebted farm households to free up lines of credit and allow them to make new investments.

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Experts observe that with the cancellation of more farm loans, it is easier for farmers to take out loans without fear of repaying the amount in the event of a loss.

This impact of loan forgiveness could be both on loan performance, as borrowers choose to strategically default in anticipation of future bailouts, and on credit allocation, as banks reallocate loans to segments. lower risk borrowers, according to an RBI report from the internal review task force. Agricultural credit.

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However, the Internal Working Group had recommended that governments undertake a comprehensive review of agricultural policies and their implementation and avoid loan waivers. He said loan waivers that mostly occur at election time are not a panacea for dealing with underlying risks emerging from nature and the markets.

How MSP behaved

The minimum support price for major crops has increased by 7 to 9 percent since 2003-2004. The MSP for bajra and arhar has increased at a CAGR of 8.65 percent and 8.89 percent respectively since 2003-04.

“It should be borne in mind that the MSP is a pricing instrument, not an income. Regardless of the input prices, the MSP must be at least 50% above cost,” added Ashok Vishandass.

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