May 18, 1998

Reform cotton policy and rural credit--or face more farmer suicides.

Jairam Ramesh

A suicide contagion has swept the cotton farming community in the Deccan. The last time there was such a spate of deaths was in 1981-82. These suicides reflect deep policy and institutional failures, particularly as they relate to the cotton economy and to rural credit -- specially to small and marginal farmers.

There is, as usual, a debate on the numbers. The Andhra Pradesh Government has admitted to 60 such deaths. Local newspapers and research bodies place the number at around 170. Maharashtra's Vidarbha region has also not been spared this tragedy. Over 20 farmers in adjoining northern Karnataka too have taken their lives. These were, however, largely cultivators of tur dal, chillies and tomatoes.

There have been several explanations for this tragedy. In some places, the administration claims the media has exaggerated and sensationalised the suicides. Some district collectors have attributed the deaths not to crop failures but to family problems. Another view is that when such a "wave" strikes, like it did during the anti-Mandal agitation in 1990, people with personal problems go over the brink so as to be seen as martyrs for a grand cause. A third and more appropriate view is that farming in these arid and semi-arid regions imposes heavy risks on poor cultivators.

Even though canal irrigation has spread in the past decade in districts like Andhra Pradesh's Warangal, cotton cultivation in the Deccan is predominantly unirrigated. This apart, there is something in the very agronomy of cotton that gives it an element of risk. Cotton is the most pesticide-intensive crop. Something like 40 per cent of all pesticide use in India is by cotton farmers. Pesticides alone account for 35 to 40 per cent of the operational cost per hectare.

The pesticide formulation industry has mushroomed in the past few years without any quality control and discipline. Andhra has over 90 known pesticide companies. Farmers in Guntur district, for example, have suffered enormously from the use of spurious pesticides.

The growth of the pesticide dealer network by itself is not the problem. What has happened is that this growth has taken place just as the agricultural extension service has all but vanished. Further, the institutional credit network has failed the small and marginal farmers. The pesticide dealer has become the source not just of the input but also the supplier of technical advice and of working capital.

G. Parthasarathy, noted economist, has published a detailed analysis of the suicides in a recent issue of the Economic and Political Weekly. He points out that the growth of lease holding in cotton has aggravated the adverse condition of cultivators. But, fundamentally, the inaccessibility of credit from primary agricultural credit societies and dependence on the pesticide dealer for funds at high rates of interest constitute the main problem for cotton ryots in Andhra.

But there is more. Although India was the first to start a hybrid cotton industry, cotton cultivation has been starved of modern science and technology inputs. This is all the more surprising since cotton is our most important commercial crop. India has roughly 20 million acres under cotton cultivation, the largest acreage in the world.

Trade policy has gone against cotton farmers. Stop-go and restrictive export policies have contributed to low growth rates in productivity. What we have done by denying our farmers free access to world markets is provide an implicit subsidy to our organised textile mill owners.

Cotton is characterised by significant price fluctuations. Cotton prices can be stabilised by imports and exports. But because quotas, open to manipulation, dictate imports and exports, cotton prices fluctuate with domestic output. Farmers are denied benefits international trade can bring to smoothening price fluctuations. Also, cotton markets within India are not integrated; another mechanism for smoothening price variations is lost.

The policy bias against private trade has meant a heavy government presence in trading. This is something the public sector is inherently unsuited for. Elsewhere, futures markets are used to manage seasonal fluctuations in prices of agro-commodities. India allowed forward trading in cotton between 1958 and 1965. Thereafter, it was banned. The 1997-98 budget had proposed a resumption of domestic futures in cotton. It is still awaited.

More generally, the rural credit delivery system must be reformed at once. Commercial banks are important but as far as farmers are concerned, the primary agricultural credit societies are the lifeline. They account for about 60 per cent of short-term loans to farmers.

But the system is in an extremely precarious condition. Only about 55 per cent of the 90,000-odd primary agricultural credit societies are viable. Recapitalisation must be initiated. But this must be subject to prudential norms: state governments giving commitments not to interfere and, say, the RBI or NABARD being made responsible for enforcing financial discipline. Innovations like the Grameen Bank, that has transformed Bangladesh, must also be introduced so that small and marginal farmers get adequate and timely credit.

Otherwise, expect more suicides.

The author is secretary, Economic Affairs Department, AICC

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