The Hindu : National : Over 48 p.c. of farmers in debt

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Friday, Feb 29, 2008
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Over 48 p.c. of farmers in debt

Gargi Parsai

NEW DELHI: The Economic Survey on Thursday made out a case for a Debt Relief Package for Farmers, which is expected to be unveiled in the Budget presentation on Friday.

In a separate column on Farmers’ Indebtedness, it said that the National Sample Survey Organisation pointed out that 48.6 per cent of the farm households were indebted. Of the total number of indebted farmers, 61 per cent had operational holdings of below one hectare.

It is estimated that 57.7 per cent of the outstanding amount was sourced from institutional channels (including government) and the balance 42.3 per cent from moneylenders, traders, relatives and friends.

The Radhakrishnan Expert Group had estimated that in 2003 non-institutional channels accounted for Rs. 48,000 crore of farmers’ debt, of which Rs. 18,000 crore was taken at an interest rate of 30 per cent per annum or more.

Of the total outstanding amount, 41.5 per cent was taken for purposes other than farm-related activities. It is estimated that 30.6 per cent of the total loan was for capital expenditure purposes and 27.8 per cent was for current expenditure in farm-related activities.

The Group has recommended inclusion of financially excluded, particularly the small borrower households, and adoption of risk mitigating measures for agriculture. It has proposed setting up of the Price Risk Mitigation Fund to compensate farmers in extreme situations of price collapse.

The survey points out that the international experience of price stabilisation fund had generally been “disappointing.” The basic principle of a stabilisation fund was that prices should converge to the mean. Prolonged slumps in prices made the fund bankrupt and sustained high prices eroded the incentives for being associated with the fund, as the transaction costs of operation of the fund were considered avoidable.

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