An economic analysis of indebtedness of marginal and small farmers in Punjab

Internationl Research Journal of Agricultural Economics and Statistics Volume 3 Issue 2 September, 2012 235-239 Research Paper An economic analysis of indebtedness of marginal and small farmers in Punjab MANDEEP SINGH, M.S. SIDHU AND A.S. BHULLAR See end of the paper for authors affiliations Correspondence to : MANDEEP SINGH Department of Economics and Sociology, Punjab Agricultural University, LUDHIANA (PUNJAB) INDIA Email : ms_fass@yahoo. co.in Paper History : Received : 17.12.2011; Revised : 05.05.2012; Accepted: 07.07.2012 ABSTRACT : The present study was an attempt to examine the extent and magnitude of indebtedness among the marginal and small farmers across different regions in Punjab. The study found that 80.83 and 84.17 per cent, respectively of the marginal and small farmers were under debt in Punjab in 2005-06. The extent and magnitude of indebtedness was found to be the highest in, followed by and, which reflects that the bulk of marginal and small farmers were living in miserable conditions in the popularly known as cotton belt of the state. It was noted that majority of the marginal and small farmers are still in the clutches of the commission agents. The study suggests that there is a need to deliver more of institutional credit to the marginal and small farmers at low rate of interest with easy repayment facilities. The banking systems also need to be tuned up to serve these particular categories of farmers in a less formal and more user way. There is also a strong need to bring these farmers under the ambit of NREGA so that they can get employment in their villages and will be provided 100 days employment in a year when they are free from the farming. This would certainly increase their income and reduce their indebtedness. KEY WORDS : Small farmers, Indebtedness, Credit, Assets HOW TO CITE THIS PAPER : Singh, Mandeep, Sidhu, M.S. and Bhullar, A.S. (2012). An economic analysis of indebtedness of marginal and small farmers in Punjab, Internat. Res. J. agric. Eco. & Stat., 3 (2) : 235-239. INTRODUCTION Excessive population, depending mainly on agriculture has resulted in the creation of small farms in underdeveloped economies. This is particularly so when size of operational holding is taken into consideration. The marginal and small farmers account for nearly 80 per cent of the total operational holdings in the country, cultivating about 36 per cent of the total area. Punjab also faces the distressed position with 30 per cent of the marginal and small farmers operating only 8 per cent of the total area. The studies conducted in various regions revealed that although our marginal and small farms are as efficient as large farms, they do not generate sufficient income to sustain the landholder s family. Low levels of income on such farms embroil them into indebtedness. It has been witnessed that in spite of significant increase in agricultural output as well as distribution of credit through institutional sources the problem of indebtedness has been continuing among the rural households in Punjab. The agricultural prosperous states are found to have large number of indebted households compared to their number in less prosperous states. Most of the indebted farming households belong to the category of marginal and small farmers and the predominant source of lending is the professional moneylenders (Lenka, 2005). There are various estimates of indebtedness of Punjab farmers. The total debt of the Punjab farmers was estimated to the tune of Rs. 5700 crores in 1997 (Shergill, 1998), which aggregated to Rs. 9886 crores in 2003 (Singh and Toor, 2005). During 2003 the 55 th round of National Sample Survey brought out that 65.40 per cent of the farmers in Punjab are under debt and the average debt per farmer among the indebted farmers stood at Rs. 41576 as compared to Rs. 12535 at the national level. According to the latest study conducted by Punjab State Farmers Commission, the total debt on Punjab farmers has further mounted to Rs. 26000 crores and an average farmer in Punjab is under a debt of more than Rs. 2.5 lakh (Singh et al., 2007). It has been found that on the basis of consumption expenditure, 8.75 per cent of marginal and small farming families were living below the poverty line in Punjab. This figure was 10.83 per cent in case of marginal farmers and 6.67 per cent for

MANDEEP SINGH, M.S. SIDHU AND A.S. BHULLAR small farmers (Singh, 2006). Even by raising the productivity by 10-15 per cent from the present, 75 per cent of realizable potential, these farmers cannot be taken out of poverty cycle (PAU, 1998). It was pointed out that about 36.7 per cent of the farmers have expressed the desire to leave agriculture in the state, as it is not a paying proportion (Gill, 2007). The per capita income in agricultural sector has declined from Rs. 12375 in 2001 to Rs. 11587 in 2004. Because of declining trend in farmer s income in the State, a large number of marginal and small farmers have been pushed into the vicious cycle of debt. An attempt has been made in this paper to provide a detailed analysis on the extent of indebtedness of farming households operating land in different size classes up to two hectares and their degree of incidence of their indebtedness across different regions and at the state level with a view to analyze the economic conditions of these rural cultivators in-depth and to estimate the time period up to which theses categories of farmers could be able to hold the ownership of their land under the burden of debt in Punjab. MATERIALS AND METHODS To ensure that the sample is representative of the state, one district from each of the three well defined agro-climatic zones having maximum concentration of marginal and small farmers in the respective zone were selected. In this way, Ropar district was selected to represent the low-productivity foothills region known as kandi-region (), whereas Ludhiana and Bathinda districts represented the high-productivity central plain region () and southwestern regions (), respectively. Forty marginal and forty small farmers were selected from each zone, thus, making a sample size of 240 respondents. A pre-tested schedule was administered to collect the relevant information regarding farm size, source of income, investment level, source of credit, type and purpose of credit, rate of interest etc. from the selected respondents. The data were processed through simple conventional tabular analysis and percentages were worked out. The data pertained to the year 2005-06. To estimate the number of years it would it take to equate total capital assets and total debt of the marginal and small farmers, the following equation was used : n = LogA/Log 1.14 where, n = Number of years taken to equate both total assets and total debt A = Total capital assets/ total debt RESULTS AND DATA ANALYSIS The findings obtained from the present study are presented below: Extent and magnitude of debt: The analysis of extent of indebtedness showed that 80.83 and 84.17 per cent, respectively of the marginal and small farmers were under debt in Punjab (Table 1). However, there were certain variations across different regions. The percentage of indebted marginal farmers was the highest in (90%) followed by (80%) and (72.5%). Similarly, the percentage of indebted small farmers was found to be the highest in (92.5%) followed by (82.5%) and (77.5%). Therefore, it is very much clear from this table that the incidence of indebtedness was the highest in, which reflects that the bulk of marginal and small cultivators are living in miserable conditions in the popularly known as cotton belt of the state. The information regarding magnitude of per farmer and per acre debt is presented in Table 2. It has been estimated that an average marginal farmer was under a debt of Rs.26024 at the state level whereas the respective figure in case of small farmers was Rs. 58958. The inter-regional analysis of this aspect revealed that the marginal and small farmers in were heavily burdened with 1.13 and 1.61 times more debt on marginal farms and 1.39 and 1.85 times higher debt on small farms as compared to their counterparts in and as far as per farmer debt is concerned. The average amount of debt on marginal and small farms was estimated to be Rs. 19400 and Rs. 42333 in, Rs. 27506 and Rs. 56235 in Region- II and Rs. 31167 and Rs. 78305, respectively in. The average amount of debt on per acre basis was estimated to be Rs. 17053 in case of indebted marginal farmers in the state as Table 1 : Incidence of indebtedness on marginal and small farms in Punjab Farm size categories No. of sample farmers No. of indebted farmers %age of indebted farmers Marginal 40 29 72.50 Small 40 31 77.50 Marginal 40 32 80.00 Small 40 33 82.50 Marginal 40 36 90.00 Small 40 37 92.50 Marginal 120 97 80.83 Small 120 101 84.17 Internat. Res. J. agric. Eco. & Stat. 3(2) Sept., 2012: 235-239 236

AN ECONOMIC ANALYSIS OF INDEBTEDNESS OF MARGINAL & SMALL FARMERS Table 2 : Magnitude of indebtedness among marginal and small farmers in Punjab (Rs.) Farm size categories Total debt (per farmer) Total debt (per acre) Per sample farmer Per indebted farmer Per sample farmer Per indebted farmer Marginal 19400 26994 10960 15223 Small 42333 53474 11825 14937 Marginal 27506 34637 13224 16652 Small 56235 68286 14419 17509 Marginal 31167 35062 17031 19160 Small 78305 82912 22896 24243 Marginal 26024 32231 13769 17053 Small 58958 68224 17040 19718 compared to Rs. 19718 in case of indebted small farmers. The region-wise picture of this aspect showed that the average amount of per acre debt among indebted marginal and small farmers was again found to be the highest in (Rs. 15223 and Rs. 14937) followed by (Rs. 16652 and Rs. 17509) and (Rs. 19160 and Rs. 24243). On the whole it can be concluded that the marginal and small farmers in were having the highest magnitude of debt as compared to the farmers of two other regions mainly because of repeated failure of cotton crop for a number of years. Sources of credit: The analysis of sources of credit of marginal and small farmers revealed maximum indebtedness to non-institutional sources both at the state level and across different regions followed by institutional sources. At the state level the marginal farmers borrowed 68.12 per cent of their credit requirements from non-institutional sources as compared to 31.88 per cent from institutional sources. Among non-institutional sources the major share was of commission agents (49.68%) followed by landlords (10.92%) and relatives/ friends (7.52%). The borrowings from cooperatives and commercial banks were estimated to the tune of 23.05 and 8.83 per cent, respectively. Similarly, the small farmers met their credit requirements in the order of 65.69 per cent from the non-institutional sources against 34.31 per cent from the institutional sources. The commission agents were the major source accounting for 55.86 per cent of the total debt of small farmers followed by landlords (7.57%) and relatives/ friends (2.26%) among non-institutional sources whereas cooperative and commercial banks accounted for 22.67 and 11.64 per cent, respectively of the total debt among institutional sources. The information of inter-regional analysis brought out that the marginal and small farmers of all the three regions were having comparatively more accessibility to non-institutional sources over the institutional sources. The share of commission agents was higher in the total debt of marginal and small farmers at all levels because they have easy access to them in fulfilling their emergent family needs besides meeting their production requirements. The modern development process in the state could not be able to replace the older money-lending system, which remained excessively exploitative (Singh, 2005). Moreover, the marginal small farmers hesitate to indulge in cumbersome formalities and procedures in availing the loans from institutional sources. So, we can safely say that majority of the marginal and small farmers are still in the clutches of the commission agents in agriculturally Table 3 : Sources of indebtedness among marginal and small farmers in Punjab (Rs.) Non-institutional credit Farm size Commission Landlords categories agents 237 Pooled/ State Internat. Res. J. agric. Eco.& Stat. 3(2) Sept., 2012: 235-239 Relatives, friends and others Institutional credit Sub-total Cooperatives Commercial banks Sub-total Marginal 9160 (47.22) 3000 (15.46) 1200 (6.19) 13360 (68.87) 4100 (21.13) 1940 (10.00) 6040 (31.13) 19400 (100.00) Small 21396 (50.54) 3571 (8.44) 2208 (5.22) 27175 (64.19) 9858 (23.29) 5300 (12.52) 15158 (35.81) 42333 (100.00) Marginal 12047 (43.80) 1882 (6.84) 2942 (10.70) 16871 (61.34) 7683 (27.93) 2952 (10.73) 10635 (38.66) 27506 (100.00) Small 31000 (55.12) 1294 (2.30) 1882 (3.35) 34176 (60.77) 14744 (26.22) 7315 (13.01) 22059 (39.23) 56235 (100.00) Marginal 16403 (52.62) 2986 (9.58) 1557 (5.00) 20946 (67.20) 7333 (23.53) 2888 (9.27) 10221 (32.80) 31167 (100.00) Small 44028 (56.23) 8333 (10.64) - 52361 (66.87) 16644 (21.25) 9300 (11.88) 25944 (33.13) 78305 (100.00) Marginal 12928 (49.68) 2842 (10.92) 1957 (7.52) 17727 (68.12) 5999 (23.05) 2298 (8.83) 8297 (31.88) 26024 (100.00) Small 32934 (55.86) 4463 (7.57) 1332 (2.26) 38729 (65.69) 13366 (22.67) 6863 (11.64) 20229 (34.31) 58958 (100.00) Note : Figures in parentheses indicate percentage to total debt Total

MANDEEP SINGH, M.S. SIDHU AND A.S. BHULLAR developed state of Punjab. Purpose of loans: It is evident from Table 4 that an average marginal farmer in the state was indebted for an amount of Rs. 26024, out of which a major share of Rs. 17001 (65.33%) was obtained towards un-productive purposes (Table 4). Similarly, out of a total debt of Rs. 58958 the average small farmer obtained Rs. 35729 (60.60%) towards un-productive purposes. Likewise, in all the three different regions, 62-70 per cent of the total credit taken by the marginal farmers accounted towards non-productive purposes while the respective figure in case of small farmers was 56-66 per cent. In case of productive credit the major share was of crop loan to the tune of 18.85 and 19.61 per cent, respectively in the total credit of marginal and small farmers at the state level. It was followed by livestock (11.03%), farm machinery (2.42%) and irrigation (2.37%) in case of marginal farmers whereas it followed irrigation (8.97%), livestock (7.73%) and farm machinery (3.09%) in case of small farmers. It was noticed that the marginal and small farmers of did not make any investment on farm machinery while the marginal farmers in and invested nothing for irrigation development because of their small land holdings. Total capital assets vis-à-vis total debt: It has been estimated that an average marginal farmer in the state holds total capital assets of worth Rs. 692588 while an average small farmer has an endowment of Rs. 1297525 against a total debt of Rs. 26024 and 58958, respectively assuming zero repayment capacity of the marginal and small farmers because of their falling farm incomes and higher consumption expenditure. It has been estimated that it would just take another 25.05 and 23.60 years when the outstanding debt of respective categories of farmers would mount to such an extent that it would equalize their total capital assets (including land assets). The small farmers would have to experience this situation somewhat earlier than the marginal ones because of their higher per farmer as well as per acre debt (Table 5). It has been reported that the debt constituted more than 85 per cent share in the annual income of those operating less than 4 hectares of land. About 28 per cent of the farmers are such whose outstanding debt is more than their one-year income whereas in case of 13 per cent farmers the debt exceeds their two years income. Out of these, 19 per cent belonged to the marginal and small farm size categories (Singh et al., 2007). The region-wise analysis of this aspect anticipated that marginal and small farmers of the southwestern region () would be affected first Table 4 : Purpose-wise credit among marginal and small farmers in Punjab (Rs.) Farm size Productive credit categories Crop loan Livestock Farm machinery Irrigation Sub-total Un-productive credit Marginal 2260 (11.65) 3200 (16.50) - 1840 (9.48) 7300 (37.63) 12100 (62.37) 19400 (100.00) Small 6240 (14.74) 3750 (8.86) - 8500 (20.08) 18490 (43.68) 23843 (56.32) 42333 (100.00) Marginal 5740 (20.87) 2823 (10.26) 1176 (4.28) - 9739 (35.41) 17767 (64.59) 27506 (100.00) Small 9823 (17.47) 3990 (7.09) 2240 (3.98) 3000 (5.33) 19053 (33.88) 37182 (66.12) 56235 (100.00) Marginal 6263 (20.09) 2300 (7.38) 798 (2.56) - 9361 (30.03) 21806 (69.97) 31167 (100.00) Small 14694 (18.76) 4690 (5.99) 3080 (3.93) 3820 (4.88) 26284 (33.57) 51021 (65.13) 78305 (100.00) Marginal 4906 (18.85) 2870 (11.03) 630 (2.42) 617 (2.37) 9023 (34.67) 17001 (65.33) 26024 (100.00) Small 11562 (19.61) 4557 (7.73) 1822 (3.09) 5288 (8.97) 23229 (39.40) 35729 (60.60) 58958 (100.00) Note : Figures in parentheses indicate percentage to total debt Total Table 5 : Estimation of number of years to be taken to equate both total capital assets and total debt of marginal and small farmers in Punjab (Rs.) Farm size Value of land Other capital Total capital Outstanding debt No. of years estimated to equate categories assets assets both total assets and total debt Region I Region II Region III Marginal 552987 34299 587286 19400 26.03 Small 1023500 62889 1086389 42333 24.77 Marginal 860025 86875 946900 27506 27.01 Small 1804337 98711 1093048 56235 26.88 Marginal 492637 50940 543577 31167 21.82 Small 838625 64512 903137 78305 18.66 Marginal 635217 57371 692588 26024 25.05 Small 1222154 75371 1297525 58958 23.60 Internat. Res. J. agric. Eco. & Stat. 3(2) Sept., 2012: 235-239 238

AN ECONOMIC ANALYSIS OF INDEBTEDNESS OF MARGINAL & SMALL FARMERS because their assets would diminish at a faster rate as compared to the farmers of other two regions. Conclusion: The study revealed that marginal and small farmers were experiencing an uncomfortable environment because of continuous indebtedness. To provide relief to the farming community, some measures in the form of debt waiver and relief were taken in the union budget of 2008-09 but these proved to be insufficient in case of Punjab farmers as the state s share was only 1.69 per cent in the total package of Rs. 71000 crores. To ease the situation from being further aggravated, a holistic approach needs to be taken to deliver more of institutional credit to the marginal and small farmers at low rate of interest with easy repayment facilities. The banking system also needs to be tuned up to serve these particular categories of farmers in a less formal and more user way. There is also a strong need to bring these farmers under the ambit of NREGA so that they can get employment in their villages and will be provided 100 days employment in a year when they are free from the farming. This would certainly increase their income and reduce their indebtedness. Authors affiliations: M.S. SIDHU AND A.S. BHULLAR, Department of Economics and Sociology, Punjab Agricultural University, LUDHIANA (PUNJAB) INDIA LITERATURE CITED Gill, S.S. (2007). Economic distress and farmers suicides in rural Punjab. J. Political Sci., 12 (2) : 219-237 Lenka, J. (2005). Indebtedness of rural farmer households: A profile of major states in India. Indian J.Agril. Econ., 60 (3): 359-362. NSSO (2005). Indebtedness of farmers households: Situation assessment survey of farmers. NSS 59 th Round June-Dec. 2003, National Sample Survey Organization, Government of India, May. Punjab Agricultural University (1998). Proceedings of brainstorming meeting on farmers and farming in Punjab, Ludhiana (PUNJAB) INDIA. Shergill, H.S. (1998). Rural credit and indebtedness in Punjab. Institute for Development and Communication, Chandigarh (U.T.) INDIA. Singh, K., Singh, S., Kaur, M. and Kingra, H.S. (2007). Flow of funds to farmers and indebtedness in Punjab. The Punjab State Farmers Commission and Punjab Agricultural University, Ludhiana (PUNJAB) INDIA. Singh, M. (2006). An economic analysis of small and marginal farmers in Punjab. Ph.D. Thesis, Department of Economics and Sociology, Punjab Agricultural University, Ludhiana, PUNJAB (INDIA). Singh, S. and Toor, M.S. (2005). Agrarian crisis with special reference to indebtedness among Punjab farmers. Indian J.Agril. Econ., 60 (3): 335-346 * * * * * * * * 239 Internat. Res. J. agric. Eco.& Stat. 3(2) Sept., 2012: 235-239