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Credit, Indebtedness and Farmer Suicides in Punjab

gap and the need for credit for other purposes, for which formal institutions do Credit, Indebtedness and not offer any credit, make farmers turn to the arthiyas or moneylenders which the author recognises. Also, seasonal repay- Farmer Suicides in Punjab ment, being a must in institutional sources Some Missing Links SUKHPAL SINGH The EPW Review of Agriculture (June 30, 2006) with two papers (P Satish,


Credit, Indebtedness and Farmer Suicides in Punjab

Some Missing Links


he EPW Review of Agriculture (June 30, 2006) with two papers (P Satish, ‘Institutional Credit, Indebtedness and Suicides in Punjab’ and A Gill and L Singh, ‘Farmers’ Suicides and Response of Public Policy’) on suicides among farmers in Punjab is very timely as the state has been left out of the relief package for the indebted farmers of other states. Interestingly, Satish’s paper argues that indebtedness has little to do with suicides by the farmers in the state. It is on this paper that I would like to offer my comments.

The author is at pains to prove that institutional finance in Punjab has been adequate and expanding over time. The issue is not that of availability of institutional credit, but access, ease, and terms and conditions of such finance. The author himself concludes the section on credit with the statement that “financial institutions have not pursued systematic and comprehensive long-term policy for agricultural credit growth in Punjab” (p 2756). The macro figures for the state hide the fact that there are 36 per cent small and marginal growers who suffer from inadequate access to short-term institutional credit, and far too liberal an access to long-term institutional credit (e g, for tractors). The latter is most evident in the rise and the growth of second hand tractor markets in the state especially in the Malwa (cotton) belt [Singh 1999].

There is no doubt that Punjab farming is very capital-intensive with the highest tractor density (68 tractors per 1,000 ha of net sown area) with every third farming household in some parts of the cotton belt of the stateowning a tractor [Singh 2000]. And, tractors were being underutilised at a much larger scale in small farms (77 per cent) as against only 50 per cent and 32 per cent in medium and large farms, respectively, with the overall idle tractor power being 43 per cent for the region (Bathinda district) [Singh and Sharma 2004]. Even electric motors and diesel pumps, which number more than 11 lakh in the state [GoP 2005], were being grossly underutilised on small farms (16 per cent and 84 per cent, respectively) as against overuse of electric motors to the extent of 11 per cent on both medium and large farms and underutilisation of diesel pumps to the extent of 67 per cent and 38 per cent, respectively [Singh and Sharma 2004]. In fact, by 1991-92, machinery costs on small farms in Punjab were higher than those on large farms, whereas in 1981-82, they had the lowest machinery costs. Also, the machinery costs accounted for as much as 23 per cent of all operating costs in 1991-92 and were no different from those on large farms [Jha 2001]. This indicates overcapitalisation of small farms in the state which has led to higher costs of cultivation due to the fixed cost component.

Many of the productive activities like motor burnouts, tubewell deepening, and electric connection activation cost a lot of money. For example, motor burnout costs for marginal farmers were 10 per cent of their gross farm income in neighbouring Haryana and 7.7 per cent in Andhra Pradesh. The figures for large farmers were only 1.6 per cent and 2.3 per cent in the two states, respectively [World Bank 2004]. But, there is hardly any institutional credit available for these purposes, and yet they may be categorised as unproductive expenses by some analysts. The high cost farming makes the need for credit for day-to-day expenses in the farm a necessity and the ‘arthiya’ (commission agent) a necessary evil. On the top of it, the poor quality of inputs and high cost debt make matters worse. There is no doubt that the seasonal crop loan limits for different crops are inadequate to meet the higher and increasing cost of production (meeting only 60-86 per cent of credit needs in major crops of the state). This gap and the need for credit for other purposes, for which formal institutions do not offer any credit, make farmers turn to the arthiyas or moneylenders which the author recognises. Also, seasonal repayment, being a must in institutional sources before fresh loans for next season, makes things difficult for small farmers.

In fact, in Punjab, there are two classes of farmers more sharply differentiated now than ever before. One group leases land from other (small and non-cultivating) farmers to reap economies of scale and engage in other non-farm or off-farm occupation to reap economies of scope (about 30 per cent). The other comprise marginal, small or semi-medium holdings

  • up to four hectares and altogether making 66 per cent of the total holdings in the state
  • [GoP 2005] and they either grow the traditionally dominant crops of wheat and paddy due to availability of the minimum support price (MSP) and an assured market and do some dairying to support their livelihoods, or lease out land to the first category due to the lack of viability of these smallholdings and become noncultivating owners. The leased in area in Punjab is 19 per cent of the total [Haque 2000]. This phenomenon has come to be known as “reverse tenancy” for quite some time now. This is evident in the fact that the land lease rates in Punjab now are of the order of Rs 15-20,000 per acre for tubewell irrigated productive land. This shows that every section of farmers is not into an agrarian crisis. In Punjab, the benefits of input subsidies are also skewed towards larger farmers. Small and marginal farmers (36 per cent of total) cultivating 9 per cent of the land receive only 6 per cent of the power subsidy, 7 per cent of the fertiliser subsidy and 5 per cent of the canal water subsidy. Politically, continuation of these subsidies is often justified on the inability of these small and marginal farmers to pay higher user charges, but it is really the larger farmers who are obtaining most of the benefits [World Bank 2003].
  • Productive versus Unproductive Expenditure

    There is no doubt that farmers in Punjab in general spend too much on so-called non-productive (consumption) purposes.

    Economic and Political Weekly July 29, 2006

    What makes matters worse is crop failure (mentioned as a reason for suicide by 18.5 per cent) for which generally there is no relief, and the high cost of modern inputs (mentioned by 30.81 per cent as a reason for suicide). These two factors together account for 49 per cent of the reasons behind suicides (Table 7 given by the author). Crop failure has repeatedly happened in the cotton belt over the years until the advent of Bt cotton more recently. This is the belt known for farmer suicides in Punjab and cotton is the most expensive crop to grow as it is highly dependent on modern market-based inputs.

    Outside farming, it has been found in studies of other situations in India that large expenses on healthcare (illness) and death and marriage ceremonies, which are met with high interest private debt make families fall into poverty [Krishna 2003; Krishna et al 2003]. This is no less relevant for rural Punjab where the entire health sector has been almost privatised leading to a high cost healthcare and the expenses on marriages and deaths are excessive.

    The issue of productive versus nonproductive loans (Table 12) is also not that straightforward as the author assumes. It is not important to consider whether credit is used for production or consumption, when institutional structures of credit do not meet the latter need at all. But, even the NSSO data show that only 20 per cent of the credit was used for so-called consumption purposes [Gill and Singh 2006]. In fact, the non-availability of consumption loans from formal institutions leads farmers to use productive loans for consumption purposes (called “misuse of credit”). A classic example of that is the bank loan funded new tractors being disposed off in second hand markets immediately after purchase to arrange cash for other family needs like marriages, paying off old debts, etc [Singh 1999]. This also leads farmers to resort to obtaining credit from moneylenders who charge exorbitant rates and undervalue and overprice farmers’ output and inputs, respectively, due to interlocking of these markets. Further, modern rural finance does not differentiate between these two categories as what is important is to meet all credit needs of the farmer. Otherwise, the farmer resorts to non-institutional sources which also affects the viability of the farm enterprise as the credit for so-called non-productive purposes is the high cost which has to be paid from farm income.

    Causes or Symptoms?

    The causes of suicides by farmers which the author reports from another study [Kumar and Sharma 1998] are at variance with his own set of field observations. The author as well as the quoted study [Kumar and Sharma 1998] focus only on the immediate cause of death to prove that indebtedness is not the reason behind suicides. This is erroneous as indebtedness cannot be a direct cause of suicides. The debt-related suicide may be prompted by some other event like domestic discord, tension, use of intoxicants, and so on. These are the mediums through which the ultimate event or consequence of suicide happens, they are not the causes. Indebtedness as a contextual factor is an important reason behind the immediate cause.

    The author cites data in Table 13 of the paper on land sale to argue that since most of the farmers committing suicide did not sell land, the suicides were not due to agrarian distress or indebtedness. This is again erroneous as in India, more so in Punjab, selling agricultural land is the last resort and considered worse than suicide for a farmer. Also, an individual farmer committing suicide may not have control (legal and social) over the family land.

    Way Out

    The author correctly points out the need for refurbishing the canal irrigation system as 75 per cent of the irrigation in this surface water rich state is groundwater and tubewell based [GoP 2005]. This is unsustainable. There is a dire need to promote micro irrigation along with crop diversification and make these micro (water efficient and water saving) systems mandatory for new tubewell connections for farm irrigation. But, the fallout of this kind of policy can be increased inequity as the small and marginal farmers who are still without electric connections will find it hard to access such connections due to resource constraints, if adequate safeguards and flexibilities are not provided in such a policy.

    The point about institutional decay and vacuum is well made. What Punjab needs is institutional variety and innovation. It is commonly argued that since there is no culture of collectivities in the state, such collective or community models of development will not work. This is pessimistic as crisis does lead to better choices and there are some small examples of cooperative societies and panchayats making provision for custom hiring of costly machines like tractors in some regions of the state.

    Diversification versus Food Security

    The diversification programme of the state is underperforming right now for various reasons of design and implementation of the policy, but it will be the death knell for the state’s agricultural policy if the reports about the union ministry of agriculture asking the state to expand the area under paddy are true. The state has invested so much into the diversification initiative that it will be suicidal to turn back to paddy which is playing havoc with state’s limited natural resources especially groundwater. The minimum support price provision for new crops under the diversification programme is a must to make progress on this front. There is also a need for a balance between the larger national interest (food security) and the regional needs (livelihood security) when more food production does not necessarily mean better food security.




    GoP (Government of Punjab) (2005): Statistical Abstract of Punjab, 2004, Economic Adviser to Government of Punjab, Economic and Statistical Organisation (ESO), Publication No 905, Chandigarh, February.

    Haque, T (2000): ‘Contractual Arrangements in Land and Labour Markets in Rural India’, Indian Journal of Agricultural Economics, 55(3), 233-52.

    Jha, D (2001): ‘Agricultural Research and Small Farms’, Presidential Address at the 60th Annual Convocation of the ISAE, Kalyani (WB), January 22-24.

    Krishna, A (2003): ‘Falling into Poverty: Other Side of Poverty Reduction’, Economic and Political Weekly, 38(6), February 8, 533-42.

    Krishan, A, M Kapila, M Porwal and V Singh (2003): ‘Falling into Poverty in a High Growth State: Escaping Poverty and Becoming Poor in Gujarat Villages’, Economic and Political Weekly, 38(49), December 6, 5171-78.

    Kumar, P and S L Sharma (1998): ‘Suicides in Rural Punjab’, Institute of Development and Communication, Chandigarh.

    Singh, S (1999): ‘Institutional Innovations in Indian Agriculture: A Case of Input Markets’, Institutional Development, 6(2), November 3.

    – (2000): ‘Crisis in Punjab Agriculture’, Economic and Political Weekly, 35(23), June 3.

    Singh, T and V K Sharma (2004): ‘Employment of Farm Resources in Punjab Agriculture’, Productivity, 45(1), 140-44.

    World Bank (2003): India: Revitalising Punjab’s Agriculture, Rural Development Unit, South Asia Region, World Bank, Washington.

    – (2004): Resuming Punjab’s Prosperity: TheOpportunities and Challenges Ahead, World Bank, Washington and New Delhi.

    Economic and Political Weekly July 29, 2006

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