I have often driven into the dry and dusty interiors of Maharashtra, not too far away from the blighted districts where farmer suicides have reached alarming proportions. This region is a far cry from the urban glitz of Mumbai and Pune, or even the obvious wealth of the sugar districts of western Maharashtra.
A study done by the Indira Gandhi Institute of Development Research (IGIDR) in early 2006 shows that the suicide mortality rate for male farmers (or the number of suicides per one lakh male farmers) more than tripled in Maharashtra between 1995 and 2004—from 17 to 53. It’s even worse in the cotton belt, where the suicide mortality rate has occasionally touched 140. That is around 10 times the national average.
The state and national governments have tried to respond with a tired policy—throw money at the problem. A lot has been made of the fact that bank credit to farmers has doubled in three short years, thus implying that the movement to root out “evil” moneylenders from rural India has begun. But, is bank credit the answer to rural distress?
A recent newspaper report based on data tabled in Parliament this month shows that there is a very weak link between farmer indebtedness and suicides. Maharashtra has one of the lowest percentages of indebted farmer households, but has the highest number of farmer suicides. The inability to pay back loans is often the last step in the morbid journey towards suicide, and hence indebtedness is more a symptom than the problem itself.
The root cause is that farming incomes are very low, and farmers do not have the financial power to meet the various risks they face—be it the vagaries of the weather, price fluctuations, technological change or credit access. In a research paper published in January 2007, Srijit Mishra of the IGIDR mentions the case study of a farmer owning eight acres of unirrigated land in the Yavatmal district of Maharashtra. Five of these acres were used for cotton cultivation. The farmer’s net annual income was Rs12,500, keeping him below the poverty line. In most parts of India, the returns on cultivation are similarly abysmal. This is why I seriously doubt whether forcing banks to lend to farmers will actually have a sizeable impact on rural distress.
My point is that the problem in Indian farming is too acute to depend on any one strategy to solve it. There is no magic wand (like the doubling of farm credit) to do the trick in one swift stroke. The bouquet of potential solutions includes crop insurance, rural roads, organized retailing, micro-finance, futures markets in commodities and, perhaps most importantly, rural enterprises that will offer non-farm job opportunities.
This is why one commercial experiment in Yavatmal district is worth emulating. A company called Jayant Oil and Derivatives is working with farmers there to move them out of cotton cultivation and into castor oil cultivation. Castor oil is used for a range of products, from automobile lubricants to chocolate. “The climatic conditions in Yavatmal are ideal for castor oil. It is a wild crop that does not need much rain. We began contract farming there two years ago, working with farmers who were in distress because of the cotton crisis,” says Rajesh Kapadia, the managing director of the company.
This is how the deal works. The Jayant Oil and Derivatives helped the farmers procure hybrid seeds and organized finance for them through the State Bank of India. While there is no fixed price contract, the company also agreed to buy the castor crop grown by the farmers who signed on. The costs of castor farming are far lower than those for cotton farming. The castor is then moved to the company’s oil mills in Gujarat. In effect, a lot of the farmer’s business risks are minimized.
“The response has been overwhelming,” says Kapadia, a claim that is confirmed by a senior state government official. Some 30,000 acres were under castor crop in the very first year; the acreage has now more than doubled and Kapadia says he plans to eventually take it up to three lakh acres. He is also working on a sericulture project, since there is a variety of silk-producing insects which live off castor leaves. The diversification will help farmers earn a second stream of income. And as castor production increases, Kapadia says he could set up an oil-extraction unit in Yavatmal.
What Jayant Oil and Derivatives is doing in Yavatmal is a localized solution, which works because of the climate there. There are undoubtedly other such local projects in other parts of rural India. Not all will be driven by the profit principle. The point is that the core issue in our villages is stagnant productivity and lack of adequate incomes. The mere act of increasing bank credit addresses neither of these problems.
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