The inseparable bind between farmers and loans

In everyday life, we usually take loans when there is a big event in life – it could be for funding higher education, or for buying a new property, a vehicle, or in many cases, even for a wedding. We don’t often think of taking a loan to run our day-to-day lives, do we? Have you ever wondered, then, why there is an almost inseparable bind between farmers and loans? Why does a farmer continually feel the need to take loans/borrow money? Indebtedness is the major reason why farmers commit suicides. 

According to the agricultural census, there were almost 146.1 million farmers in India in 2015-16. Farmers are categorized based on their landholdings. Among these, 0.6% are large farmers, who own more than 10 hectares of land, 13.2% are medium farmers, who own 2-10 hectares of land and the rest 86.2% are small and marginal farmers who own less than 2 hectares of land (1 hectare of land = 4 bigha or 2.47 acre). Most often, it is the small and marginal farmers who have the dire need to borrow money. And this money, unlike for you and I, is for farmer’s working capital – the day to day running of the crop. Let’s do a deep dive into an agricultural season to understand why this happens. We interviewed Mr Anjan Patel of Hirapur Village, Ahmedabad district, a 4th generation farmer and also a medical student. Anjan’s family primarily cultivates wheat and paddy and also some vegetables. According to him, the major costs for a farmer who’s beginning a new agriculture season can be categorized into input costs, processing costs and transportation costs. Input costs include seeds, fertilizers, fuel for tractor, and pesticides. Processing costs are the costs associated with aspects such as cleaning, destoning and polishing grains (for ex: rice or wheat) so that they get a better price in mandis, and storage costs in the event that there is a delay in the sale of the crop. Then there are transportation costs – for example, fuel for the trucks for transporting the produce from the farm to the mandi or renting a truck for this. To cover all these costs, a farmer could start by digging into her profits from the previous season. However, let’s assume that the previous season was a disaster because of heavy rains, or because of drought, which is quite commonplace in India. Since the farmer has no capital, she has to borrow money. The farmer assumes that she would be able to repay this borrowed money, and interest (the entire process from sowing seeds to selling the produce in mandis lasts a few months during which the borrowed money incurs interest), with the revenue from this season. Sadly, that may not be true. Very often, the farmer ends up making a loss. 

Anjan gave us some startling insight into the numbers involved. The costs add up to Rs 4000 per bigha (seeds - Rs 1100, labour cost for plantation - Rs 500, fertilizer - Rs 900, pesticides – Rs 150, harvesting – Rs 900, the processing cost of cleaning and polishing – Rs 400), there might be variations depending on whether they are buying seeds or resowing them from the earlier season and whether they are renting water from a nearby farm in case they don’t have irrigation facilities or a borewell. Anjan’s recent wheat crop fetched Rs 8250 per bigha. The cost doesn’t even include the hours of hard work put in by the entire family. This is his per bigha income of an entire cropping season spanning 4-5 months on average. This meagre income is hardly sufficient for their day to day expenses and thus there is a recurring need to borrow for the next cropping season. If unfortunately, there are too much or too little rains and the crop goes bad, then the debt cycle begins. Anjan further states that in most professions, there is an income rise of 4-5% due to the rising inflation. The selling price of wheat has remained constant since the last 5 years while input costs have been considerably rising. Most farmers are contemplating selling off their lands and finding alternative employment. 

Earlier, they had taken a loan from a bank. There are other sources of credit such as cooperative societies, microfinance institutions, money lenders etc. Anjan, while talking about the need to borrow money laments, that “small and marginal farmers are forever trapped in the vicious cycle of interest payments and more borrowings. They live hand to mouth and even one bad season means that they have to borrow money. Luckily, the government-owned banks have made the whole process easy and require only 2 main documents – 7/12 and 8A. In recent decades, the banks have genuinely ironed out the procedural difficulties and have become the preferred source of borrowing money.” However, if this were true, what would explain the fact that many farmers still go-to money lenders? Here’s the thing. Banks lend farmers money but because of the dire situation of crops going bad, or farmers unable to avail good prices for their crop, they find it impossible to pay the interest amount. Anjan recalls the incident where they grew bottle gourd (lauki) and could only fetch Rs 1/kg from the local trader. They threw away all their bottle gourds and incurred heavy losses. Such incidents are not uncommon and many times the small and marginal farmers fail to pay the interest and the loan amount. Once this happens, the banks seize their tractors or their lands to recover their money. For a farmer, this is catastrophic because all they have is their farm. If the banks seize them, they will be landless labourers earning daily wages which are atrociously low. To avoid this situation, they are left at the mercy of loan sharks or moneylenders. Moneylenders are present in every village. They are popular, as they provide instant loans without procedural delays and documentation. The flip side is they charge exorbitant interest rates, sometimes up to 60 per cent per annum and resort to coercive means to collect payment. Thus, we can understand that farmers don’t prefer moneylenders but end up going to them just to repay what they owe to the banks. The result is the vicious circle which almost always ends up in farmer suicides. 

The large and medium farmers are relatively more insulated from these scenarios. Over the years, they have built sufficient wealth to be able to absorb the loss from a bad season, and not get into a cycle of debt. But in the case of the small farmer, this is almost a certainty. On the one hand, we have microfinance institutions, Kisan credit card and PM Fasal Bima yojana to offset the dependence on moneylenders but on the other hand, we cannot ignore the grim reality of agrarian distress, farmer’s indebtedness and resulting suicides. It is not straightforward. Is accessibility to easy credit the solution? We don’t think so. At best it is a short-term solution. Unless there are long term investment policies in place, farmers will continue to remain dependent on short term credit and will never really come out of the vicious cycle of bad crops and loan payments. 

There are several root-causes for this farmers’ indebtedness, throughout the entire process – from loans to heavy dependence on the weather to making losses at the mandis. What is the solution? Do let us know what you think!

Anjan Patel:

Illustration: Riya Shah


  1. Superb work! Thanks much for such type of ground level research in agriculture sector.

  2. Wonderful... Bringing the ground reality of the farmers in India.

  3. I believe that multipurpose co-operative credit societies in every village which can provide one stop solution from educating the farmers regarding usage of better seeds, right quantities of fertilisers, renting of simple tools , providing them loans for productive purposes, get them better price for the produce. Regional Rural Banks and Cooperative societies can play a very good role if NABARD can provide refinance facilities.

  4. The above comment is from prof Usha Venkatesan

  5. Preeti Suchak. Dear Priya,very well analysed and written the article. Wonderful work you are doing. Because in my opinion agriculture is the most ignored subject in our country, although we are known agriculture intensive country. I hope your research work may help the students interested in agriculture and the government in policy making.


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