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.

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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.