There are two things that stand out—one of which is personal—about Peepli (Live), the much-hyped movie that was released on Friday. First, it includes music from one of my favourite bands, Indian Ocean. Second, it once again puts the spotlight—through the work of an incredibly gifted cast of actors—on one of the most difficult challenges to public policy in recent times: farmer suicides.
Like the movie, most of the public discourse has tended to focus on the tragedy, and thereby on the oppression of a poor farmer. While this is no doubt important in highlighting the problem, very often this compelling narrative precludes any other discussion that could attempt to get to the root of the problem. And some may even wilfully stoke passions along these lines for political gains. The time may have come to use Peepli (Live) to go beyond, as it were.
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A closer look would suggest that there is a broad pattern to farmer suicides. There are scholars looking at this phenomenon, though not necessarily in the media glare. They are located in regions where farmers have been attempting a change in either the crops they cultivate, especially of high-yielding ones, or the cropping patterns. The suicides are linked to debts raised by farmers to fund these changes. Also, the ticket size of these loans is almost double what an average farmer would normally avail.
It is not greed, but a calculated commercial risk that the farmer is taking. Unfortunately, while his math is right, the associated institutional infrastructure is inadequate to price this risk commensurately. And, this is core to the challenge of farmer suicides.
The existing lending network in rural India, whether we like it or not, is still dominated by moneylenders. Their pricing of risk is premised on hand-me-down philosophies that revolve around predictable patterns of agriculture—a two-crop harvest of rice and wheat (both of which have a guaranteed price from the Central government) and associated income cycle inter-twined with the monsoon.
So, the farmer borrows ahead of the harvest and repays immediately after its sale. In this situation the only variable is the monsoon, the vagaries of which are also fairly predictable, leaving the farmer and moneylender fairly aware of the pricing risks. Since the ticket size of these loans is relatively small, say Rs25,000-50,000, the conventional usurious pricing at 40-50% works reasonably well to keep the farmer just sufficiently above water and the moneylender in good fettle.
Now, in this situation if you introduce the opportunity of using hybrid commercial crops or squeeze in a third crop, then the situation changes dramatically, as not only does it introduce new variables, but also increases the downside risks for the farmer dramatically. The farmer’s math shows that upping his investment (average loan size for this class of farmers is Rs50,000-100,000) would bring better gains, and eventually a faster way to economic prosperity.
A perfectly valid commercial decision, but it overlooks the fact that the moneylender does not have the wherewithal to price this enhanced risk; the moneylender would simply increase the collateral or the interest rates—in either instance the downside risk goes up linearly for the farmer. While in good times the farmer does reasonably well, the downside is a sure-shot guarantee of falling into a debt trap.
This mismatch of willingness to take a commercial risk and inability to price it economically is what lies at the heart of the frustrating issue of farmer suicides. On the other hand, an institution following commercial principles that allow for hedging the risk and thereby reducing the odds in the case of a downside risk of, say, a monsoon failure and consequent drought or a pest attack (some of the hybrid seeds are highly vulnerable to such contagion).
Unfortunately at the moment, the existing institutions that operate as an alternative to moneylenders are incapable of stepping in to fix the problem. What complicates matters is the varied topography and seasonal variations across the country, which inhibit government-backed institutions that tend to follow standard templates. The solution is local, almost tailor-made in theory for the emerging microfinance institutions to be a possible alternative. Easier said than done, though, because the scale of these loans is too large, but may be the microfinance template of operating in niche and local areas could be a better alternative to pursue in pricing the risk.
A fix for the problem can as yet be evolved. The bigger challenge is to go beyond the rhetoric. Peepli (Live), which has been commercially choreographed brilliantly, will have etched out the endemic problem of farmer suicides in the public mind-space. It is what the government, especially one that undertook a record farm loan waiver in its last tenure that politically worked wonders in the 15th general election, chooses to do with this head start that will eventually matter. In short, it is time for the Congress-led United Progressive Alliance government to walk the talk.
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at firstname.lastname@example.org