India Set to Forgive Billions of Dollars of Farm Debts


Moin Qazi – TRANSCEND Media Service

His speech if of mortgaged bedding,
On his kine he borrows yet.
At his heart is his daughter’s wedding.
In his eye foreknowledge of debt
He eats and hath indigestion
He toils and he may not stop
His life Is a long-drawn question
Between a crop and a crop

— Rudyard Kipling, The Masque of Plenty

10 Jul 2017 – A resurgence of the farm loan waiver culture in  India has got many economists and policy makers worried. India is already set   to waive billions of dollars in farmers’ loans. In a country where a bulk of the farmland is rain-fed, the need to offer some relief to a drought-hit farmer is serious. But it is an acknowledged fact that loan waivers are a wrong practice and have several detrimental long term implications. While such an approach does yield political dividend, it causes systemic damage to the farm credit market and does nothing to end the debt traps five years from punishes farmers who have been diligent with repayments and encourage errant behaviour among uncooperative borrowers like lax credit discipline and the use of borrowed funds for non-agricultural purposes.

But  loan waivers are both bad politics and bad economics . Indebtedness is a problem that   is most acute among small and marginal famers. But their borrowings are mainly from moneylenders and hence loan waiver is not going to make any sense to them .it is the beiger farmers   are the real beneficiaries of such populist polices.  The problems of small farmers are both complex and complicated and require a steely political will to address them.  They   have landholdings below the threshold that is economically viable. The result is the cyclical appearance of bad loans and poor rainfall. Loan waivers have little to do with ending the conditions that lead to such problems.

In a sense, it’s also a story of unfinished reforms in India. The question should be why almost 55% of the population is producing only 17% of the output. Unless this huge swathe of the population is empowered, loan waivers will remain a constant feature of the landscape.

Economists caution that the move could encourage indebted farmers not to repay loans, deepening malaise at public sector banks already saddled with most of India’s $150 billion in stressed loans.

Frequent debt waivers may prod banks to invest in alternatives to farm lending such as the Rural Infrastructure Development Fund instead of reaching out to individuals farmers to meet their agriculture lending targets, giving a field day for local money lender.

The waiver does not take into account the loans farmers have taken from the informal sector. There is also no distinction between voluntary and involuntary defaults, so it actually rewards those that have willfully defaulted. Additionally, the scheme does not take into account climatic conditions and fertility of soil. Farmers in certain areas face a higher risk of crop loss on account of weather conditions.I

Experts argue loan write offs are a disincentive to the banking system because people have expectations of future waivers as well. As such, future loans given often remain unpaid. . The borrowers see value in strategic defaults. While it is important for banks to make credit available to farmers so that they can leverage and do better, it is also important to maintain a credit discipline. Loan waiver schemes vitiate the credit culture and make it tougher for banks to continue lending to these segments. They create moral hazards in the financial system by rewarding those farmers who default on their loans, offering nothing to those who pay.

“The government knows we will take out more loans in the end and fall in the same trap again and will withhold  repayment of these loans too waiting for the next election for the loan to be waived ,” said Vital Mhaski, a cotton farmer in Maharashtra who is Rs 77,000   in debt. Some of India’s 263 million farmers have decided not to repay their debts, expecting loan waivers to mean they don’t have to.

But  populist fixes – such as farm loan waivers – are  not going to end this problem. Rather, policy makers must now undertake extensive reforms . It follows that holistic solutions to farmer distress will have to combine creation of non-farm jobs and enhancement of farm incomes.

The problems of small farmers are complex and require a steely political will to be properly addressed. Their landholdings are below the threshold that is economically viable. The result is a cycle of bad loans and bad harvests following poor rainfall. Loan waivers have little role in ending the conditions that lead to such problems.

The roots of despair farmer distress  have been well researched and documented. They are a toxic blend of: livelihoods drained away by spiralling debt; soil tired on heavy doses of chemicals-fertilisers, crops and livestock destroyed by drought or unseasonable monsoon rains associated with climate change; plummeting water tables from relentless water mining; the loss of agricultural land to development; a collapse in cotton prices and dependence on expensive genetic-engineered hybrid seeds; penury and debt on account of dependence on predatory moneylenders, and near absence of rural mental health services and public awareness of mental health disease.

Small farmers have   little access to technology, and insecure access to irrigation, making them one of the most vulnerable groups to future climate change .Farming for them is grinding physical work, largely parceled by family- threshing and bundling and separating grains by hand- with each new generation into increasingly smaller plots of land, and planted, picked, harvested, and hauled by hand.

Years of market-oriented reforms have unleashed a wave of capital and entrepreneurialism across India. But despite high-end sectors such as information technology making impressive strides and   adulatory   portrayals of India at home and abroad as an economic juggernaut, 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. The result is a growing social crisis.  Fueled by crushing debt  for buying   transgenic seeds, failing crops on account of abuse of soil by fertilizers,   squeezing  of prices  by big multinationals- and government indifference   -farmers are trekking to cities where an equally cruel fate awaits them but they are saved the shame of humiliation in the eyes of their own fellow villagers. A sense of deep despair runs through the lives of farmers. They have lost all hopes –and also the will to fight .many of them are taking a permanent escape from this physical and emotional pain by ingesting deadly pesticides.

The Green Revolution was a success .But it came at a heavy price?  It relied on high-yielding seeds, irrigation, fossil fuels for fertilizers, modern methods of plant breeding and massive use of pesticides and equipment to increase agricultural productivity, but depleted the soil and consumed far too much water.  Many small farmers lost everything when they invested in seed grain and were unable to sell their harvest at a profit. States in India that were the frontrunners during the Green Revolution now suffer from soil degradation, ground water depletion and contamination and declining yields.

A decade ago, the government embraced the global marketplace began cutting farm subsidies as it liberalized the managed socialist economy. The farmers’ costs rose as the tariffs that had protected their products were lowered. Many farmers switched to new genetically engineered cotton seeds   which produced far higher yields and healthier crops with less use of pesticides.  Bt” seeds   are resistant to boll worms-   a deadly pest. The seeds can be more productive and became standard in much of Maharashtra but can be three times more expensive to maintain than traditional seeds.

Moreover, they have one flaw for the small farmer: New seeds must be purchased each year, at a high price. Counting seeds and fertilizer, the cost of starting each year’s crop has jumped from zero to hundreds of dollars. The small farms, combined with the intensive, soil-exhausting farming techniques that promise great rewards at enormous risk, have made farming an ill-fated pursuit for small families. The new farming methods have reduced their annual yields, in many cases, to one-tenth the level they saw a decade ago.

M S Swaminathan, who pioneered the Green Revolutions .and other nutrition experts are calling for a dramatic shift in our approach to agriculture. They argue that instead of industrial-scale, high-tech agriculture, farming should become closer to nature — and involve intelligent plant breeding and a return to old varieties.

“Formerly, the farmers were depending on 200 to 300 crops for food and health security,” says Swaminathan,” “but gradually we have come to the stage of four or five important crops, wheat, corn, rice and soy bean.” “The Green Revolution,” says the scientist, “did not eliminate hunger and malnutrition.”He now speaks of an “evergreen revolution”, which combines the best of both environmentally sound and high-tech agricultural practices.

Vandana Shiva, a prominent opponent of modern agricultural engineering is calling for a return to diversity in fields. “Most of our traditional crops are full of nutrients,” she explains. Farmers, who have made the switch to modern corporatized agriculture, she explains, give up their traditional seed and are then forced to buy the commercial varieties, which often come with license fees, in perpetuity.

She recommends field crop-rotation, and the fostering of vegetable and fruit gardens and small family farms primarily geared toward nutrition instead of maximized profit.  Crop rotation techniques ensure that no single family (botanical family) has predominance in the rotation; hence pests do not build up, since pests are family specific also.

Economic reforms and the opening of Indian agriculture to the global market over the past two decades have made small farmers vulnerable to unusual changes and fluctuations. The small farmers have now to compete with the larger ones who are well endowed with capital, irrigation and supplementary businesses to buffer them against any adverse shocks.  As fallout the farmers are facing what has been called a “scissors crisis”, which is driven by the rising cost of inputs without a commensurate increase in output price.

A crop failure, an unexpected health expense or the marriage of a daughter are perilous to the livelihood of these farmers. An adverse weather change, for example, can lead to a drastic decline in output, and the farmer may not be able to recoup input costs, leave alone the ability to repay loans. Sometimes farmers have to plant several batches of seeds because they may go waste by delayed rains or even excess rains. The problem has dragged down yields and rural consumption nationwide — a heavy economic drag on a nation where two-thirds of people live in the countryside.

Small and marginal farmers also do not have access to institutional credit. Most of them depend on village traders, who are also moneylenders, giving them crop loans and pre-harvest consumption loans. Credit histories and collateral may serve to qualify middle-class customers for loans, but most rural smallholder farmers have neither.

According to the National Sample Survey Office (NSSO)   the bloated debt of Indian agricultural households has increased almost 400 per cent while their undersized monthly income plummeted by 300 per cent. Even the number of heavily indebted households steeply increased during this period. Most farmers have become victims of the endemic phenomenon    of a downward climb   along the social ladder, by which the farmer became a sharecropper, and then a peasant without land, then an agricultural labourer, then is eventually forced into exile. It was no use dreaming of climbing the rung in the reverse direction.

A prudent and effective strategy for small famers is    to form clusters for mutual self help where those growing the same crops come together in organized groups to receive joint training, buy inputs in bulk and start to sell as a single body .Smallholder farmer producer groups are a key component of creating true scale because of the confidence, support and buyer/seller power they provide. This also enables a greater scale of transformation in terms of individuals and communities.

The worsening woes of Indian farmers can hardly be neglected by the leaders of a country where two-thirds of people live in the countryside and many are being forced to head to cities to escape the wrath at their farms. Gandhi’s declaration that agriculture is the soul of Indian economy is as relevant as the man himself.

When India became independent, the contribution of agriculture to the economy was 50 per cent; it is now 15 per cent. Employment in the agro sector was to the extent of 88 per cent; now it is 66 per cent. Rural wages have fallen to their lowest.

For every Indian farmer who takes his own life, a family is hounded by the debt he leaves behind, typically resulting in children dropping out of school to become farmhands, and surviving family members themselves frequently committing suicide out of hopelessness and despair.

The Indian government’s response to the crisis – largely in the form of limited debt relief and compensation programmes – has failed to address the magnitude and scope of the problem or its underlying causes.

There are too many questions that seek quick answers. Some groundbreaking reforms are needed as the first steps in breaking the cycle of desperation and misery that so many Indian farming communities face. We must respect the ominous signs in the country’s farmlands which are claiming their debt in the form of lives of farmers who own them.

If the government is serious about reviving agriculture, it ought to act fast. We have the tools, but we need to summon the political will. This is the only way we can save thousands of farmers from the deadly noose.

The decisions and actions that the country’s leadership takes – or fails to take – now may shape the future not only of India’s agriculture but its polity as well.

India’ first Prime Minister Jawaharlal Nehru said in 1947, “Everything can wait, but not agriculture.” But what India is witnessing is exactly the reverse .all the paths of Indian economy are surging ahead .agriculture is the solitary one that is beating a path back in retreat.


Moin Qazi, PhD Economics, PhD English, is a member of the TRANSCEND Network for Peace, Development and Environment and author of the bestselling book, Village Diary of a Heretic Banker. He has worked in the development finance sector for almost four decades in India and can be reached at


This article originally appeared on Transcend Media Service (TMS) on 10 Jul 2017.

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