The Present Scenario   

• Agriculture has traditionally been the most important profession in the country. It still provides livelihood to 65% of the people.

   

• Even though its share in the GDP has come down from 46% in 1970-71 to 26% in 2004-05.

   

• Reserve Bank of India, Central Government and NABARD have taken several policy initiatives to facilitate hassle free flow of credit from the institutional sector.

   

• These measures have played a significant role in enhancing the credit flow to this sector March ending 2006 has seen banks giving credit to the tune of Rs154900 crore.

   

• These measures have not stopped from the farmers experiencing extreme distress. In 2003 the NSSO found that the difference between urban –rural households and the non-cultivators and cultivators has been growing.

   

The Johl Committee was set up to suggest measures to assist distressed farmers. It was constituted in the year 2006 and was headed by Dr.Johl , a prominent Agricultural Scientist and several other senior academicians and field practitioners.

 Issues Addressed by the Committee

• The Committee addressed economic measures that can be taken up to alleviate the plight of farmers.

   

• Among the economic causes for farmers’ distress, credit related issues normally play a prominent role. It has also been observed that mostly the small and marginal farmers, as well as, tenant farmers and farm laborers bear the brunt of crop failures. Since the impact of such conditions may be less significant for large farmers due to their ability to fall back on their savings in times of need, a differentiated approach is to be adopted in order to address the issue of farmers' distress. Therefore, the target group for preferential treatment should consist of small and marginal farmers, as well as, tenant farmers and farm laborers.

   

• The committee also considered the definition of distress to be used for this particular report.

   

“A farmer will be considered as distressed if it meets any or both of the following criteria:

a) The farmer is indebted to the formal and informal sources of credit to the extent of more than the monetary value of the land and other productive assets owned by the family [negative net

worth] and/or,       

b) The interest liability on loans from formal and informal sources exceeds 50 per cent, of his Gross family income [liquidity crisis leading to inability to meet even consumption requirements.

An understanding of the issues involved 

• Farming as an occupation often leads to inadequate income. The committee found that the field observations also indicate that the returns from agriculture for small farmers and to some extent for semi-medium farmers, particularly in unirrigated areas, are not sufficient to take them above the poverty line even under normal circumstances.

   

• Limited Farm Opportunities means that families whose needs are not met through farming do not have access to many other employment opportunities.

   

• Increasing Output Cost; Cultivation costs have increasingly gone up but the not return from agriculture is not at the same level.

   

• Availability of quality seeds: Most farmers the committee spoke to say that they were not able to procure the seeds on time and in adequate quantities.

   

• De-Skilling: Farmers today also tap on their centuries old farming tradition which is now redundant rendering their enterprise unprofitable.

   

• Inadequacy of institutional Extension service and research: Unfortunately, the situation is such that most farmers in our country do not have access to agriculture or credit counseling which is necessary to improve agriculture production.

   

• Limited Availability of water: Most farmers complain the less   availability of water as being a major hindrance in farming practice. Search for water has led to private investments in the form of digging deeper and deeper bore wells, which have associated miseries of deeper indebtedness and receding water table.

   

• Crop Loss: Crop loss can occur due to a wide variety of reasons such drought and floods and they also contribute to distress caused to farmers.

   

• Market Uncertainties have been known to cause distress to farmers. Factors such as price shocks in both international and national markets can create deep impact in the income patterns of farmers.

   

• Absence of Assets: Most farmers do not have assets of their own. This leads them to borrow, credit to procure assets. But non availability of credit is an important risk factor.

   

• Declining Public Investments: There has been a steady decline in  public investment in agriculture highlighted in the fact that Gross fixed capital formation in agriculture as a proportion of gross domestic product (GDP) declined from 3.1 per cent during 1980-85 (Sixth plan) to 1.6 per cent during 1997-2002 (Ninth plan).

   

• Credit Scenario From the ‘Situation Assessment Survey of Farmers (NSS 59th round, 2003) the source wise distribution of outstanding debt indicates that 58 per cent of it is from formal sources (Government 2.5 percent, cooperatives 19.6 per cent and banks 35.6 per cent), more than one-fourth of the outstanding debt is from moneylenders, and the rest is from other informal sources.

   

• Informal Sources of Credit:The NSS 59th round shows that nearly 61 per cent of the total outstanding debt from informal sources is from moneylenders. Reliance on informal sources in general and moneylenders in particular dominant persons of the village/region and are politically influential. They could be the ones who have more land and benefited from public interventions whether in the form of land improvement or obtaining credit from formal institutions.

   

International Experience

Support systems to address the contentious issues relating to farmers in various countries take different shapes. Usually such initiatives aim to prevent farmers from falling into a situation of distress by addressing the causes of such distress. Such measures normally comprise dispensation of subsidies in various forms, facilitation for crop insurance and derivatives in commodity markets for a price discovery as also to hedge the risk of adverse price movements. These measures largely rest on development of

Systems for effectively supporting their delivery and are of enormous amounts in developed countries.

Internationally farmers are usually not allowed to progress to the stage of Distress. The steps normally taken are:

A) Farm subsidies

• Difference between target price and market price

• Direct payment tied to past production

• Protection of losses from international trade in agricultural

   Commodities

• Loan against losses when interest rates change

B) Insurance

• Crop

• Livestock

C) Commodity markets and exchanges

D) Support in times of distress

Learning Points 

• The major learning point from the international experiences is that subsidies distort the interplay of economic forces. However, direct subsidies are preferred as they are less damaging than indirect subsidies. Also, the direct subsidies are more transparent in their delivery and administration. New Zealand experience has shown that family farming can sustain even without subsidies in the long run.

   

• There is a need to regulate the limit on net forward sale contracts of individual players in the market to a reasonable multiple (ideally the hedge-cover ratio) of the underlying stocks held. Barring a few markets in developed countries, the traders who speculate on agricultural commodities largely use the derivatives market.

   

• The reaction of the governments to natural calamities or disasters varies. The developed nations provide relief to supplement the mechanisms of insurance and farm subsidies. The less developed countries, especially the poorest among them, do not have adequate resources of the State to provide relief either. Besides, budgetary support, they also rely on international aid and NGOs to provide relief to disaster stricken people. In developing nations the situation is mixed, the mechanism of insurance is limited and is supplemented by relief support from government.

   

• Most international credit guarantee have systems often have multiple sources of funding and also have developed a system of specific guarantee (after credit and risk evaluation) exists in most countries. The Indian system of automatic bulk coverage is not adopted by most of them.

   

Learning Points

 International Experience

 An understanding of the issues involved

 Issues Addressed by the Committee