This is the final part of a two-part series exploring the phenomenon of farmers’ indebtedness in India. Read the first here.
One of the key indicators NSSO uses in order to measure indebtedness is the debt-to-asset ratio, or the ratio of total outstanding loans to total assets as on the date of survey. Essentially it tells us how much money a household owes to others, for every Rs 100 worth of assets that it owns. According to the website Investopedia, a DAR of under 40% is considered to be ideal, and if it is over 60%, it is considered to be alarming.
In this section, I look at the mean debt to asset ratio, who is likely to have a higher DAR, and who is likely to have a DAR in excess of 60%, i.e., be over-indebted. Before I proceed, I would like to point that this the above criterion for being over-indebted seems to have been drawn with urban populations in mind; nevertheless, I felt that this might be a good starting point to gain some perspective into farmers’ indebtedness.
Debt to asset ratio among farmers
Debt to asset ratio among farmer households is less than that of the non-farmer households. However, households that have casual labour as their primary occupation (based on net income earned from the occupation) are likely to have a significantly higher DAR than the other rural households.
SC households were likely to have 8.5% higher DAR than households belonging to the general category; and OBC households were likely to have 7.7% higher DAR than general category households. Among farmer households, SC households were likely to have 15.2% higher DAR and OBC households 7.8% higher DAR than those belonging to the general category.
In short, from the data, indebtedness is likely to be higher among farmer households belonging to SC and OBC categories than among those belonging to the general category. Farmer households for whom casual labor is the principal occupation, i.e., households which have farming operations but derive their primary income from casual labor, are likely to have a significantly higher number of standing loans than the other households among the rural population.
Perhaps the clearest sign for the rising indebtedness among farmers is when we look at DAR over time. A farming household in 2003 was likely to have 17% higher DAR than a farmer household in 1992; and one in 2013 more than 630% higher (this is not a typo) than one in 1992. This is an astounding figure that begs an explanation.
What accounts for this giant leap?
One possible explanation could be that borrowing among farmers has grown exponentially while the value of their assets remained stagnant or at least not growing as fast as the liabilities are piling up. If the value of assets is way below that of the liabilities, what prompts lenders to extend credit to the farmers? During my conversations in Anantapur, Andhra Pradesh and Sangareddy, Telangana, I was told that lenders often assessed the value of the land before extending credit to the farmers. Now in rural areas, land has the highest proportion in the total asset value. Seemingly, rising prices of land assure the lender of its value as security against loan.
That being the case, it might point to the possibility of debt being the current day tool for primitive accumulation. But then the question is, if the value of land has been increasing is it not adequately captured in NSSO? Could it be possible that the method of valuing land by NSSO underreports the actual value of land?
NSSO values land as per its “normative/guideline values,” when in reality the value of the land might be significantly higher, in no small measure owing to speculation over it. So, would the debt to asset ratio be lower, at least in places like Sangareddy and Anantapur, which are closer to major urban centres (Hyderabad and Anantapur town respectively) if the real value of land were taken into account by NSSO?
It may. But it still does not explain the skyrocketing debt to asset ratio over the two decades between 1992 and 2013. Nor does it take anything away from the fact that over a period of time, farmers find themselves with one loan too many, and are forced to juggle them by borrowing from one source to pay off another. They find themselves in an inexorable debt trap, and when they reach a tipping point, drastic measures like suicides ensue. These are mere possibilities and it is beyond my modest knowledge to fully explain the startling growth in the debt to asset ratio among farmers.
Among the states, farmers in Andhra Pradesh, Rajasthan, and Tamil Nadu are likely to have a significantly higher DAR than those in other states. It seems almost uncanny that farmers from these states have been protesting and demanding relief from the growing debt burden.
A related aspect that I look at is the kind of households that are likely to be in the ‘over-indebted’ category, i.e., have a DAR in excess of 60%. A farmer household is about two percentage points less likely to be in this category. To rephrase, a farmer household is almost as likely to be in the over-indebted category as a non-farming one. A farmer household in 2003 was 3.52 percentage points more likely to be over-indebted, in relation to 1992; while a farmer in 2013 was nearly 9 percentage points more likely to be in this category. A farmer from Andhra Pradesh was more likely to be in over-indebted than any other state in the country.
Negative correlates to over-indebtedness
Being dependent on debt to a high extent can prove to be physically, mentally, economically, and environmentally detrimental to the households themselves and to rural communities at large. There is scholarly work which shows that those who are in debt tend to show poorer psychological health indicators than those who are not. In rural India, being unable to clear one’s debt is negatively correlated with social status.
During my conversations with a farmers’ family in Sangareddy district, Telangana, I was told of an instance where a farmer was looking to borrow some money so that he could repay another loan that he had taken from a public sector bank. However, the moneylender he regularly depended on refused to lend him any further amount until he had cleared an outstanding loan. Despite pleas, the moneylender did not relent. Fearing a loss of face, this farmer committed suicide.
Instances of informal moneylenders or representatives of micro-finance institutions publicly shaming people who are unable to pay their monthly instalments; or of public sector banks seizing assets like livestock in lieu of unpaid loans are also not unheard of. From my conversations with farmers in both Telangana and Andhra Pradesh, such incidents are seen by farmers as bringing shame to them and can push them to take drastic steps.
Another consequence of high debt is that farmer households are forced to work under increasingly stressful conditions for meagre pay. A recent article in The Wire mentions how farmers migrated from Odisha to Sangareddy, Telangana to work in brick kilns for extremely meagre pay, so they could clear their loans back home. Such stories are heard even in Andhra Pradesh and Telangana. Farmers in Anantapur narrated that if the rains were sub-par even in one season they would have to migrate to either Bangalore, Tirupati or even Kerala, in search of daily labor so that they can keep servicing their loans back in their village.
In many cases, the moneylenders determine what crops are to be grown, how they are grown, what inputs are to be used, and where those inputs have to be procured from (mostly from the moneylender himself). This forces the farmer to cede her agency over farming decisions. What also became apparent to me was that mounting debt exacerbates the unviability of agriculture as an economic activity and pushes farmers into a seemingly endless spiral of debt.
Farmers need credit to access the other means of agricultural production, viz. seeds, fertilisers, draught power and so on. In a place like Anantapur where rainfall has becoming unpredictable and where chances of a cropping season failing are high, farmers tend to depend on debt not only to fund agricultural inputs but also their daily needs like food or monthly groceries. This piles on already high debt burdens. And as the debt burden mounts, farmers are forced to resort to more intensive agricultural practices which in turn forces them to depend on debt to fuel such practices.
As I conclude I am reminded of a phrase in Telugu that often cropped up during my conversations with farmers in Anantapur: “appe teerchaalana, thinde tinaalana” – literally translating to “with the limited money that we have, should we feed ourselves or spend it clearing our loans?” This statement encapsulates the frustration that farmers experience – of having to make hard choices between servicing a loan and saving face, and the future prospects of getting another loan or surviving and meeting family expenses.
In the process of trying to find the balance between these competing demands, farmer households often find that their horizons of planning have shrunk and they are forced to deal with the here and now, disregarding future costs and consequences. Many times, this results in them making decisions like having their children drop out of schools, giving up agriculture altogether, leaving their families behind and migrating to cities to work on a construction site under hazardous conditions, or taking one’s own life. This shrinking of choices is perhaps the most tragic outcome of indebtedness.
The author would like to thank members of All India Kisan Sabha, Anantapur and Sangareddy, and to Rahul M. of PARI.
Sandeep Kandikuppa is a Doctoral student at the University of North Carolina, Chapel Hill.