/ OPINION: VIDARBHA CRISIS
Rise of the moneylender
When the Maharashtra state government started punishing moneylenders in response to rising farmer suicides in Vidarbha,
hundreds of cotton farmers complained. "Who will give us credit now?" they asked.
Third in his series,
Jaideep Hardikar
records the deep-rooted factors for the dominance of the moneylender in Vidarbha.
03 August 2006 -
When the Democratic Front Government in Maharashtra found itself in the dock over the farmers' suicide issue in December 2005, it needed a character to put the entire blame on. Maharashtra Deputy Chief Minister R R Patil found one in that all pervasive character called the moneylender. "Skin him alive," was Patil's order to his policemen. Soon, hundreds of so-called lenders were behind the bars, many of them were small time lenders, even marginal farmers, or petty workers, who had lent some money to the farmers instead of keeping them safe with the banks.
They came out of the jail as fast as they were put inside. The police could not run cases against any of them; alas it was just a stunt by the government to buy time. In a few instances of vigilante justice, villagers killed the so-called moneylenders. Like the one in Akola village of Dadham, where angry farmers lynched a usurious moneylender after he asked one of his debtors to send his wife to him at night.
As the Planning Commission's fact-finding mission members found out, nearly 2.8 million of the 3.2 million cotton farmers in
Vidarbha are defaulters. For every Rs.100 they borrow, approximately Rs.80 goes into servicing of old loans.
SERIES - Earlier articles
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Much research, no action
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Rising import of 'suicides'
In the same district, a Shiv Sena legislator is running a 'beat moneylender, save farmer' campaign. But the MLA has never questioned the policies that starve the farmers of institutional credit in the first place. His and his party's argument was and is that moneylenders are forcing the farmers to commit suicide. This has given an easy leeway to the governments, instead of putting them on the mat.
Yet, the fact remains that the spate of suicides by farmers continues. And growing indebtedness among farmers of the region is one of the major reasons for rural distress and distress-driven suicides. It's a countrywide phenomenon though.
Mounting debts are an important cause for farmers' desperation. The National Sample Survey Organisation (NSSO) in its 59th round (January-December 2003) of the situational assessment of farmers indebtednesses in the country estimated that 60.4 per cent of rural households were farmer households, and of them 48.6 per cent were indebted. The incidence of indebtedness was highest in Andhra Pradesh (82 per cent), followed by Tamil Nadu (74.5 per cent), Punjab (65.4 per cent), Kerala (64.4 per cent), Karnataka (61.6 per cent) and Maharashtra (54.8 per cent). In distress-ridden Vidarbha, particularly, it would be even more.
Not surprisingly, the survey found that farmers took loans for farming current expenditures and capital expenditures. At all-India level, out of every Rs.1000 taken as loan, Rs.584 had been borrowed for these two purposes taken together. Marriages expenses, health and education needs came next. But what is even more important is the fact that farmers borrowed heavily from the professional moneylender. The survey found that at all-India level, on an average, 29 out of 100 indebted households borrowed from professional agricultural moneylenders. The highest incidence was in Andhra Pradesh (57 out of 100 indebted households), followed by Tamil Nadu (52 out of 100 indebted households).
The NSSO report also mentions that the incidence of loans from 'co-operative societies' was highest in Maharashtra (61% of the indebted households).
Thus the issue of rural credit and indebtedness is far from being a simplistic usurious lender-farmer spiral. It is about much more than that. It is about anti-farmer policies pursued by the Indian government for the past 15 years now. It is also about lack of access for them to credit. It's easier to buy a Maruti car in India than seeds. Also, at one point you could buy a car at 6 per cent interest (now this is around 9 per cent), while crop loans, till last year, could be availed at an interest ranging between 13 and 16 per cent.
The availability and the utilization of the agriculture credit are under severe strain, with an estimated gap of 50% in agriculture requirements for the credit. There appears to be a shift of the credit availability to urban areas. Even the strong network of cooperative banks is under severe strain in Maharashtra.
Today, in Vidarbha, desperate farmers are taking desperate measures to get cash for almost every single function of theirs from farming to marriages to buying monthly rations, every thing depends on how much money they get from markets. In Akola, for instance, a chit-fund-like trend called 'Bhisi' is being played big time and gullible farmers have run up huge collective debts as well. In Yavatmal, a class of neo-moneylenders the inputs dealer, government's revenue officials and even primary and secondary school teachers has emerged. These are lethal sahucars, more brutal than the traditional Shylockian landlord of the village.
The institutional credit deadlock
All the 11 districts of Vidarbha have a good banking network consisting of 823 commercial banks, about 200 regional rural banks and close to 60 other banks, according to RBI records. The direct finances to agriculture are Rs.2449.76 crore as on 31 March 2005. However, 80 per cent farmers are defaulters, meaning they are not eligible for fresh loans, which makes access to institutional credit for them difficult. As the Planning Commission's fact-finding mission members found out, nearly 2.8 million of the 3.2 million cotton farmers in Vidarbha are defaulters. For every Rs.100 they borrow, approximately Rs.80 goes into servicing of old loans. The team found that the current outflow of credit was miserably insufficient. Also unless the existing loan burden on farmer is eased, he won't get fresh loans. The timing too is important. If a farmer doesn't get loan in time, he opts for private lending. To fill the gap between availability and need, the farmers take loans from private moneylenders, who then clearly gain from any profit in agriculture.
Take the case of one Vidarbha district of Washim. According to the Planning Commission's fact-finding committee, a total of Rs.85.41 crore worth of loans were disbursed to 49,000 farmers in the district, which was a little over 50 per cent of their total requirement of Rs.150 crore. Nearly 45% farmers were still out of that net, meaning they had no access to the credit. Of even that loan, much of the money would come back to the banks for servicing of outstanding loan. In that district, the study shows, the gap of Rs.75 crore between credit needed and credit available from institutional sources is then filled from private sources illegal moneylenders, who lend close to Rs.30 crore, inputs dealers who give a credit of Rs.21.5 crore, grain merchants with a credit outlay of Rs.10.7 crore and other sources pay Rs.10.2 crore in credit. The informal credit sources charge whopping interest on the principal sum, the study found out. It appears that a large number of farmers are out of the formal credit system, the report mentions.
Over the years, the three-tier structure of disbursement of loans to the farmers has proved detrimental. NABARD gives crop finance through state cooperative bank at the rate of 5.75%; the state cooperative bank lends it to the district cooperative banks at 6.75%, and they in turn lend this money to the primary agriculture cooperative societies at 8.75%, who levy an additional interest of 3% on it to give the loans to farmers at 11.75%.
Accounting for deduction of expenses to run the societies, the final rate of interest to the borrowers comes to
a whopping 13%. Today all the primary agriculture cooperative societies are suffering from heavy losses.
The default scenario in loan recovery of these societies, for instance in Washim, is dismal: As many as 228 primary agriculture cooperative societies out of a total of 423 societies have an accumulated losses of Rs.98 crore. The fact-finding committee's report shows only 71 societies have been able to maintain a healthy recovery of above 50 per cent, 151 of them have a recovery rate of between 30 and 50 per cent, while a majority 201 of them have a dismal recovery rate of less than 30 per cent.
Dilip Sananda, a Congress MLA from Khamgaon in Amravati built his empire on farmers' sweat. He is among the top ten moneylenders of the region, facing nearly 40 pending criminal cases.
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The government has asked banks to give farmers credit, but that is of no use, until the government gives them a guarantee against defaults.
The neo-moneylenders rose as Vidarbha's farmers bit the dust and became indebted. Small time unregistered companies popped up, spreading their noose around the farmers, deep in debt and desperate for cash. Elected representatives, far from being people's saviours, are in the same bandwagon. A Congress MLA from Khamgaon in Amravati built his empire on farmers' sweat. He is among the top ten moneylenders of the region, facing nearly 40 pending criminal cases. Dilip Sananda, who hit the headlines on the eve of the Prime Ministerial visit to this region, has been among the biggest land grabbers of Vidarbha, levying a hefty interest on loans to marginal and sub-marginal farmers in his own constituency. Farmers choose this option to cooperative loans, which also come with heavy interest and are marred with red-tapism and unsolicited corruption.
Today, mortgages are out; land grab is in. Farmers are being alienated from their land. Some of them have even become slaves to their creditors, working like the beasts of burden. There are reports that creditors have even molested women and girls.
But there are deep-rooted factors for the dawn and dominance of this neo-lender, who has become so indispensable, that cotton farmers complained against the state government's 'fatwa'. They said punishing moneylenders is like punishing the farmers. "Who will give us credit now?" is the question being asked by hundreds of cotton farmers across Vidarbha. In the absence of institutional credit, farmers have no option but to turn to private creditors. This rise of moneylenders is a part of an emerging phenomenon of corporate feudalism aided by the governments.
Take this: Withdrawal of low interest credit has been a key element of the World Bank led economic reforms. As cooperatives and rural banks close down, and public sector banks are privatised relentlessly, rural credit dries up and farmers are pushed into borrowing from moneylenders. The failure of the private sector in Indian banking was what had ushered in the nationalisation of banks in the late sixties. The pre-nationalisation period witnessed the growth of a banking system, which, driven by profits, could not cater to the development needs of the nation with virtual inaccessibility to credit for the vast rural and poor population.
Lending policies were turned to the advantage of industrialists with banks being under the control of industrial chairmen. A few communities, enjoying political clout, are controlling the rural banking systems. In the sixties, the nationalisation of banks was followed by a sharp increase in the number of bank branches. Consequently employment shot up. Further, banking policies were tuned more to cater to the development needs of the nation as priority sector lending took headway over profit driven lending. Protecting the poor from the clutches of unscrupulous money lenders, the nationalisation of banks had succeeded in building up the productive base of regions and areas which would have otherwise remained neglected, through a number of projects and programmes targeted particularly at women and other weaker sections of society.
The opening up of the banking sector to competition from domestic private and foreign banks has been accompanied by a reversal in the above trends. For instance, there has been a fall in the proportion of credit received by the household sector, which had earlier received relatively larger share of bank credit. Further, the incremental expansion during the post-reform period for the household sector has not only been the smallest during the post reform period but also smaller than the expansion in favour of corporate enterprises. Similarly, the financial assistance sanctioned by the all-India financial institutions suggests that while disbursements of Development Financial Institutions (DFIs) generally assisting large scale industries expanded by 197 per cent between 1990-91 and 1994-95, those of DFIs assisting small scale and medium industries have risen by 62 per cent only (Shetty, Alternative Economic Survey, 1996, quoted by Vandana Shiva in Seeds of Suicide, 2005).
The area and group wise classification of banks shows the concentration of foreign banks in metropolitan areas and a complete absence of foreign banks in the rural areas, while private banks are mostly concentrated in the semi-urban areas. In the event of the nationalised banks giving way to private participants, it wouldn't be long before the rural areas are isolated from the financial scene. These trends are but suggestive of a return to the pre-nationalisation era that had doomed to be a failure. Even today, banks are refusing to give farmers enough credit, because they are not sure if they would be able to repay the loans, this despite the Prime Minister's intervention into the issue. The government has asked the banks to give farmers the credit, but that is of no use, until the government gives them a guarantee against defaults.
Rising input prices, declining income
A farmer in Waifad village in Wardha district informed me during one of my visits that his production cost had risen sharply to over 100% in the last five years, but his incomes have steadily dwindled. Today, he's unable to recover even the production cost. That's largely due to the stagnated prices of commodities, and a heavily rigged international market that is integrated with local markets in the post-globalisation era. There is not enough protection to the farmers from the international market volatility, in terms of commensurate import duties etc. This glut now plagues Soybean, since this was the crop the farmers diversified in to when cotton prices fell. Indebtedness among farmers here grew as production costs surpassed the incomes, which was in term fuelled by lack of access to cheap and timely credit from the governmental institutions. It paved way for the private moneylending systems to set in, despite the fact these are highly exploitative.
A report of the fact-finding mission of the Planning commission says the cost of production for per quintal of cotton is Rs.2215, whereas the Minimum Support Price is Rs.1960. The MSP for soybean is Rs.1000, and it requires Rs.885 to grow one quintal of soybean. Even in case of Jowar, the MSP of Rs.515 is lower that the production cost of Rs.629 per quintal. These production costs may in reality be much more than the estimation of the mission, since many hidden costs haven't been included in it. For instance, the interest on the credit goes in to production cost, but the mission has not included it for the estimation of cost in its report.
The un-remunerative prices are fallout of the rigid policies of the Centre. These prices have not been revised for many years now, forget any increase in them.
The private moneylenders who have made heavy profits in Vidarbha are mostly inputs dealers or shop owners. In each village there there are least five such krishi kendras. The shop owners and dealers get their supply of the stock from pesticide companies on credit. So there exists a chain of credit system, and the shop owners are only the mediators. In reality the farmers indirectly get the credit from the company itself. The interest rate varies from 36 to 60 percent per annum. Since the chemicals are easily available on credit, the farmers have no hesitation in using it at short intervals, usually once a week and at a higher intensity. There is no government agency to finance the farmers and bank loans are negligible. This has forced farmers to approach the private moneylenders.
As a report prepared by the Tata Institute of Social Studies (TISS) on Vidarbha situation tells us: "Past years of drought and crop failure led to increased burden of debt. In some cases, families invested in construction of wells for irrigation, for which they needed to borrow; in almost all cases, the money came from private moneylenders. It did not matter if the household owned little or more land, if they came from higher or lower caste, were educated or illiterate. They shared a common distress."
