Saturday, December 5, 2015

WHY FARMERS KILL THEMSELVES

Farmers are numerous, and have a lot of votes; so they attract a lot of favours from politicians. Most Indian banks belong to the government; it has used them to give cheap loans to farmers. They cannot repay them. Once in a while, the government writes them off. The number of suicides - 10,000-15,000 a year - is not large in relation to the number of farmers - 100 million odd. Still, it is sad; it gets noticed once in a while - usually when the annual numbers are published. But no one looks for the basic causes, let alone for an effective solution. Chidambaram's solution was to triple bank loans to farmers; I said in this Business World column of 14 July 2004 that was a perfect recipe for more suicides eventually.


Why farmers kill themselves


The first thing the chief minister of Andhra Pradesh did on taking power was to tell farmers they would not have to pay for electricity. The Prime Minister declared himself against free electricity, but not in Andhra Pradesh; there he imagined some special circumstances. The finance minister promised to triple credit to farmers in three years. This is how politics works in our country: the solution is found even before the problem is understood. The Congress won the elections by telling farmers by promising them the end to their problems. The government of Andhra Pradesh owns the electricity industry there, so it gives the farmers free electricity. The government of India owns banks; so it gives farmers loans. Neither government cares for the financial health of the enterprises it owns. And neither government has given a thought to what exactly are farmers’ problems.
I do not know either; but if I had to guess, I would expect they had something to do with the way competition works in agricultural markets. The central government announces minimum prices for many crops, but enforces only those for rice and wheat by buying them. A government commission fixes the minimum prices so as to ensure profitability of the two crops; and then the central cabinet throws in a few Rupees more. So these two are the most lucrative crops, and all farmers who could produce them have turned to them. Then the government subsidizes their sales through the public distribution system and thus boosts demand for them. The result is that other food crops – jowar, bajra, maize, ragi and pulses – have lost out; their share in foodgrain output has fallen. And these crops are grown in arid areas; so farmers who do not have irrigation have lost out. This is where I would look for the primary cause of farmers’ distress in the rainfed areas of the peninsula – Andhra, Karnataka and Tamil Nadu.
Then, competition is skewed by the geography of irrigation. Punjab, Haryana and western UP get water from canals; so do those parts of the Godavari, Krishna and Cauvery that are in the command areas of the dams on them. Once the governments used to charge for the water; now the charges are ludicrously low. So those farmers who can get water use as much of it as possible; this leaves little for downstream districts. This unequal distribution makes news in the Cauvery valley because it flows through two states, including one with a voluble chief minister. But dams store limited water, and it is bound to be unequally distributed. So those who do not get it face unequal competition from those who do. They drill borewells, and need free electricity to compete.
Minimum price support is not the only government intervention. Maharashtra buys up all cotton grown in the state at an unrealistic price. Many states fix absurdly high prices for sugar cane. The government of Kerala pushes up the wages of plantation workers. In various ways, governments raise prices of particular crops, and ensure that they are too costly to export. They therefore require protection from imports – the BJP government, which boasted of having reduced tariffs, pushed up tariffs on agricultural goods to absurd heights. And if there is a bumper crop, they cannot be exported and domestic prices crash. In other words, because government policies have made them unexportable, their domestic prices been destabilized.
Farmers face risk anyway because of fluctuations in rain and incidence of pests; price instability compounds the risk. And then the government gives them loans at interest rates that are fixed whatever their return. Thus the surplus, net of interest, becomes even more unstable. Fixed-interest loans actually increase agricultural risk.
Which is why many farmers have reneged on bank loans and become ineligible for more. They turn to moneylenders, whose interest rates are higher and methods of loan collection more brutal. When farmers renege on their loans, often the only thing left for them to do is to commit suicide.

This is why tripling bank loans to farmers will not solve their problems, but worsen them. If the finance minister wants to help farmers, he should start a lottery on rainfall; the chances of a drought year are less than 10 per cent, so a farmer would multiply his money tenfold when his crop fails.