In the Saurashtra region of Gujarat, a saying goes: “A farmer is always indebted. He is born in debt and dies with a debt. What matters is how he manages this debt in his life.”

There is a skew in Gujarat’s water resource distribution. Saurashtra covers 31 per cent of the State’s landmass but gets only only 9 per cent of the water resources, while it is even worse for Kutch at 2 per cent of the eater share for a geographical spread of 31 per cent.

Limited water availability makes farmers more dependent on rains; little wonder that over 52 per cent of the State’s farming is rain-fed. This makes the farms vulnerable to the vagaries of the climate, insect/pest attacks, and a resultant drop in yields, leading to financial loss.

Farm borrowings

As a support for the farmers, the State government recently announced waiver of interest on crop loans. While the average crop loan interest rate is 7 per cent, a Central subsidy of 4 per cent and a State sop of 2 per cent make loans up to ₹2.99 lakh almost interest-free. Yet, experts claim, farmers are not greatly benefited, revealing the model of farm borrowing.

“To qualify for these subsidies, a farmer must make timely repayment of the loan. To get the subsidy, farmers borrow from private lenders at a much higher rate to repay banks. This makes Gujarat’s farmers credit-worthy for the banks,” says Sagar Rabari, a farmer activist from Gujarat Khedut Samaj.

As on June 2017, agricultural advances in Gujarat stood at ₹76,232 crore, which grew by 10.32 per cent in the last one year. About 6 per cent of these advances is gross non-performing assets.

As per a report of the State Level Bankers’ Committee, agriculture advances jumped 33 per cent since 2015, to ₹72,212 crore now from ₹54,288 crore in March 2015. The gross NPA is 5.76 per cent or ₹4,390 crore of these advances.

“Gujarat’s farmers are in as bad a condition as their counterparts in other States. But there is a difference: the bad debt or NPAs of farmers are low inspite of high level of advances. This is because they repay on time; that , they may have a debt-pile with private lenders is another story. To escape this trap, farmers often take another loan from a bank, within days of repaying. And, the cycle continues,” Rabari said. As bank borrowing is limited to ₹2.99 lakh (without a guarantor), it makes it feasible for farmers to get a fresh loan immediately after clearing the previous one.

Harshad Khapra, a farmer from Devda village in Lodhika Taluka of Rajkot district, says there is no balance between the cost and income from farming activity. Khapra, who cultivated groundnut on his four acres got a production of 30 quintals. After a bumper crop, groundnut prices dipped below MSP. Khapra also has three cattles for which maintenance is required. “It is getting impossible to feed a family of five along with maintenance of three cattle and continue farming. Given a chance, I will quit farming and will not allow my kids to undergo similar stress,” says Khapra, who deliberately chose groundnut over cotton to manage fodder for cattle from the seed crop.

For the plight of farmers amid mounting debts, former chief minister Suresh Mehta holds the approach of the government responsible.

“Instead of addressing the grassroot issues through krishi melas, the government used it for self-promotion. The government has to take a scientific approach to uplift farming,” he said.

The model functioning

A farmer takes a crop loan of ₹1 lakh from a bank, at zero interest if he repays on time. In bad times, if the earning from the farm isn’t sufficient to close the loan account, the farmer borrows from the money-lender, who charges him a higher rate even for a short-duration loan. The farmer promptly repays the bank and keeps his track-record clean. In a few days, he again approaches the bank for a crop loan equivalent to the principal plus interest payable to the money lender.

The bank makes the advance. The farmer pays off the money-lender and stands tall, only with a debt still on his head.

“This makes the government feel that everything is fine on farmers’ front and their cries are false. But when this cycle breaks either due to market forces or social/personal or medical issues, then it pushes farmers deeper into the debt abyss, sometimes leading to suicides,” Rabari said.

This is the sixth in a series on Farm Distress. The first report appeared on November 16. The previous article in the series appeared on November 21, on policy flip-flop.