The principal reasons for farmer indebtedness were identified as the growing cost of cultivation owing to higher input prices and higher cost for labor which increased the requirement for cash in the farm families. On the other hand, prices for agriculture products were plummeting.
The combination of high cost of production, low market price and non availability of easy credit to meet the cash requirements of the farm family led to an astronomic debt burden that the farmers could not cope with. In addition to the agriculture loans, the farmers’ debt burden became heavier because of personal loans taken for social needs like marriages and education.
The study found that the crisis becomes acute when the farmers have exhausted their credit with banks (when such were available), and have turned to the private money lenders who charge usurious rates of up to 60 per cent per annum. These cannot be repaid given the adverse economics of production costs.
Heavy rural indebtedness is the result of diminishing investment in agriculture which has reduced credit availability to cultivators. Allocation to agriculture and allied sectors from the total outlay for the Five-Year Plans has fallen from 14.9% during the First Plan to 5.2% during the Tenth Plan.
Apart from the crisis of available credit, crop failures have risen, especially in the last four to five years during which period farmers had moved increasingly to cash crops. This happened even when the monsoons were good. The crop failures were found correlated with heavy outlay on agrichemical inputs , use of hybrid seeds and genetically engineered cotton. According to the TISS report, the crisis in Vidarbha was more pronounced in the rainfed areas than in the irrigated areas, indicating the limiting role that the availability of water is beginning to play in agricultural productivity in all parts of India.
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