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It is a crisis rooted in economic reforms

Friday 2 July 2004, by RAJALAKSHMI*T.K.

Interview with Professor Utsa Patnaik.

The spate of suicides in rural Andhra Pradesh has caused consternation among policy-makers and specialists in agrarian studies. Utsa Patnaik, Professor of Economics at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi, is one of the leading academics who have studied the problem deeply and extensively as part the larger crisis facing Indian agriculture today. Utsa Patnaik has written extensively on capitalism and the agrarian question. Her publications on these subjects include The Agrarian Question and the Development of Capitalism in India (New Delhi, 1986) and Peasant Class Differentiation (New Delhi, 1987). Excerpts from an interview she gave T.K. Rajalakshmi:

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Rajeev Bhatt

From a purely historical perspective, farmers’ suicides appear to be a relatively `new’ phenomenon. How do you view this in the context of the agricultural policies pursued over the last one and a half decades?

There may be various reasons for the farmers’ suicides but the most important one seems to be the very high levels of indebtedness; indebtedness of the kind which became unviable where farmers were reduced to a situation in which they sold land, had no collateral to pledge, were unable to think of paying the interest on the loans leave alone any part of the principal. The question is why should there have been this phenomenon leading to high indebtedness particularly since 1988. Obviously, it is not really the long-term problem of a high degree of concentration of land and other assets or that there are very large numbers of poor, marginal and landless farmers. Those long-term factors are not what we have to look out for. We have to look at much more specific factors which have come into existence just during the economic reforms period.

And the major factors have been twofold. If we look at it from the side of input costs, we find that economic reform policies have led to a phenomenal rise in input costs. Fertilizer subsidies have been removed - the supply of fertilizers has been handed over to private agents and the government has withdrawn from this. Secondly, the cost of credit has increased enormously after the implementatation of the Narasimham Committee report. The treatment of agriculture and the small-scale industry as priority sectors for lending at low cost interest rates from the banking system has been given up. Perforce, farmers have been forced to turn more and more to private moneylenders who obviously charge high rates of interest and are much more inflexible in rolling over of debts than an institutional lender would be. Then there were the famous power tariff hikes which the previous TDP [Telugu Desam Party] government undertook directly as part of its Structural Adjustment Programme which it adopted after taking money from the World Bank.

On the side of material inputs, and on the side of credit, there has been a very sharp squeeze on the farmer with sharply rising input costs. On the output side, trade liberalisation played a role. In the 1990s, global prices of commercial crops, including rubber and cotton, were rising. In response to that, since the government’s policy also was to increase exports from the agriculture sector as far as possible, unregulated export of raw cotton was allowed. If you look at the three years before 1990-1991, then 34,000 tonnes of raw cotton was being exported. The moment this sector was opened up, in a single year there was a jump of 3,74,000 tonnes in the export of raw cotton - more than a tenfold jump in a single year. This has been fluctuating but on the average for the three or four post-reform years it has been over two lakh tonnes. So, obviously, when you have a very sudden export surge like that and with output not increasing that fast, the raw cotton crisis trebled. It affected the handloom weavers because yarn prices also trebled.

This was the period from roughly 1990 to 1995-1996 when many thousands of farmers, in fact lakhs of small farmers, were switching from food crops to cotton as the world prices were rising. Many of them had not cultivated cotton before. This has been established by various research studies carried out, where the families of the suicide victims admitted to not having traditionally cultivated the crop before. They said that they had gone for cotton cultivation expecting high profits. There was this sudden expansion of area under cotton - these farmers could not afford to do so except on the basis of credit. They took loans and the amount of loans they took to produce cotton was much higher than they had taken in the past, as they would have grown rain-fed food crops on the same land, which would not have cost much for production. So the switch to an exportable commercial crop led to a scenario of rising indebtedness. But at that time, people were very hopeful. World prices were on the rise and they hoped that they would get output which they would be able to export at a good price and repay as well. And that was the expectation with which loans were rolled over and given year after year as well.

But when the government withdraws from pesticide and fertilizer supply and winds up extension services under the dogma of letting the free market have its sway, many fly-by-night operators come into the picture. No regulation or overseeing of the quality of the inputs has been taking place. But the real time that things started going wrong was when the output was not as expected. But, most importantly, the world prices started crashing from the end of 1996 onwards and by 2001 it was practically at half the level it was in 1995. So there was a scenario where farmers had gone in for a heavy level of indebtedness and had been forced to do so by private moneylenders at a high cost due to a withdrawal of low-cost institutional lending. At the same time, the input prices went up and output prices crashed. This is a readymade scenario for agrarian distress.

All these factors are directly related to economic reform policies and trade liberalisation. The government did not intervene with any valorisation programmes or with any programme of buying up cotton at a fair price from the farmers. It could have done so, but it was operating with the dogma of leaving everything to the free market. This went on year after year and the fall in prices became a prolonged phenomenon. From the end of 2001, prices started rising slightly but the rise is really nothing compared to the earlier fall. And creditors started foreclosing on the debts. How does a farmer, heavily indebted, deal with this? First he will sell off all his collaterals, he will borrow more from another moneylender to pay off the first loan, but if his crop is pest-affected, his credit-worthiness also comes down. So, in a sense, many farmers have found themselves at the end of their tether.

It is the small and marginal peasants who are committing suicide. These sections are out of the ambit of institutional credit. What are the kind of changes that led to the situation where they became more and more dependent on informal credit. And in what way is the nature of the current indebtedness different from previous situations, including that in colonial India?

In the early 1990s, these sections were not out of the ambit of institutional credit. In institutional credit, I would include not only the banking sector but the cooperative societies as well. I don’t have the data with me right now but if one looks at the data of what proportion of banking credit has been going to the rural areas, there appears to be a sharp fall. The number of beneficiaries in development programmes like the IRDP [Integrated Rural Development Programme] in the 1990s has also come down sharply. It is not that the farmers were always out of the ambit of institutional credit. The whole point of bank nationalisation in 1969 and the sharp extension of credit to the rural areas was to get them inside the ambit. They have been thrust outside the ambit again especially after the financial sector reforms. The main impact of this had been felt in the second part of the 1990s. The entire gamut of policies that has led to the withdrawal of the state, leaving everything to the market, has been completely disastrous. Seed and fertilizer costs have gone up, all input costs have got up and the farmer has virtually no protection from falling prices.

If you ask about history, there is an interesting parallel that one can find with what happened during the cotton boom. In 1861, when the American Civil War broke out and supplies of raw cotton from the United States to the manufacturing centres in Britain and Europe were cut off, they turned to alternative sources of cotton and India was a major source. Suddenly the prices of global cotton went up and the Indian farmer, being always very price responsive, switched over from food crops to cash crops. Immediately, there was a huge expansion of areas growing cotton and a switch from food crops like jowar and ragi to cotton. In order to do so, they borrowed from the sahukars [moneylenders].

When the Civil War ended, the global prices crashed. The story repeats itself in 1996. So one can see this thing being repeated in Andhra Pradesh at least. But what happened was that when the people switched from food crops to cash crops, the food prices went up. With the crash in cotton prices, the farmers found that they could not pay the sahukars. And the sahukars began to foreclose the debts. This led to the Deccan Riots. What happened then was that the Indian farmers actually took on the sahukars and unitedly fought against them, but this time they seem to be taking it out on themselves. They actually attacked the moneylenders and burnt their records. This is an interesting contrast of what happened during the colonial period and what has happened now. It seems they were more optimistic then than they are now. I don’t recall any history book mentioning farmers’ suicides in that period. Even in the non-cotton growing areas, farmers growing food crops suffered but there are no records of any suicides.

Agricultural workers in coastal Andhra Pradesh over the last 10-15 years have rented out land at very high rates - often 60 per cent of the produce in kind. Many suicides among the peasantry have been reported from this region as well. What explains this apparent "irrationality" of the peasant?

No, it is not irrational. When one is in a situation of being a poor landless peasant, one has to make a living somehow. One either does it by leasing land and cultivating it or tries to get work as hired labour. When the market for hired labour is characterised by a very high level of unemployment and by uncertainty of getting sufficient days of employment, there is no guarantee of making a livelihood. But this also means that people without land are unable to make a living out of wages and therefore are going back to the practice of leasing land on terms that are very harsh. The levels of unemployment are much higher now than they were 10 years ago. The government’s development expenditure in rural areas has gone down very sharply. In the pre-reform period, that is the Seventh Plan period, the average expenditure on rural development expressed as a percentage of GDP [gross domestic product] was 14.5 per cent. By 1999-2000 this came down to less than 6 per cent of GDP. In absolute terms, there has been a reduction of Rs.30,000 crores annually. In Andhra Pradesh also, there was a very significant fall in rural development expenditure. The rate of growth of employment all over came down very drastically.

In your opinion, how have the different sections of the peasantry - small, marginal, rich and landlord - been affected by the government’s policies. How have they gained or lost in the last 10-15 years?

In the first two or three years, the rising costs of inputs and falling prices of crops would have affected the small and the medium farmers. But as the period of agrarian distress gets prolonged, it begins to affect every section of the farming community. They do not get access to BPL [Below Poverty Line] ration cards as they own land. Another major factor has been this exclusion from the access to PDS [public distribution system] with the introduction of Targeted PDS. By now it is a generalised agrarian crisis. Some case studies in Andhra Pradesh have shown farmers owning 20 acres getting zero output from their land. The male members try to get work as agricultural workers in that they compete with the full time agricultural workers. So, finally, the income that they get is very little.

Agrarian studies appear to have disappeared from the radar screens of social scientists at a time when rural India has gone through a churn in the last decade. What explains this?

Very true. This is partly to do with the whole market orientation of research. When I started my academic career in the early 1970s, agrarian studies in India had a very important role to play and there were any number of students interested in it. But one of the problems with this neo-liberal paradigm has been to divert the attention of research from this vital area. Even the interest in other productive sectors of the economy like the small-scale sector or the manufacturing sector has got diluted. The emphasis is much more on the financial and the service sectors rather than the real sectors of the economy. But in more recent years, precisely owing to the impact of the neo-liberal policies as well as the WTO [World Trade Organisation] discipline added to these policies and the impact on agriculture, there is a revival of interest. Students who have gone into international economics now come back and say, "Oh I see, so agriculture is an important subject." There are people who are again going into this area, but approaching it from the other end - not from internal class relations but from the international economy back to their own economy.

See online : Frontline


in Frontline, volume 21, Issue 13, Jun. 19 - Jul. 02, 2004.

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