Sinking in a Sea of Debt

(This factsheet was prepared for Nation For Farmers by Prof. R. Ramakumar of TISS and is based on the extensive work he has done in this field)

AFTER about 25 years of financial liberalisation, rural and cultivator households are worse off and deeper in debt. This is clear from the All India Debt and Investment Survey (AIDIS) reports of 1992 and 2013. The surveys are conducted by the National Sample Survey Office of the Government of India.

The share of Indian rural households in debt rose from 23.4 per cent in 1992 to 31.4 per cent in 2013. The share of indebted cultivator households rose from 25.9 per cent to 35 per cent in the same period. (The AIDIS reports classify all rural households operating at least 0.002 hectares of land as “cultivator households”).

A rise in the share of indebted households need not be terrible in itself. But in this period, it occurred alongside a rise in the debt-asset ratios (which show the extent to which debt is a drain on the value of owned assets) of those households. In 1992, the debt-asset ratio for rural households was 1.78, which rose phenomenally to 3.2 in 2013. For cultivator households, it rose from 1.6 to 2.8 in the same years. Thus, the data point not just to a higher share of indebted households, but also to an intensification of debt burdens.

Also, where did households borrow from? That is a vital question, too. More and more, between 1992 and 2013, Their borrowing, and share of credit, from informal credit sources increased sharply. For all rural households, the share of debt outstanding from the formal sector (banks, cooperatives, etc.) fell from 64 per cent in 1992 to 56 per cent in 2013. For cultivator households, the share of debt outstanding from the formal sector fell from 66.3 per cent to 58.4 per cent in the same period.

The most important reason was the withdrawal of commercial banks from lending to farmers and rural areas. Between 1992 and 2013, the share of debt outstanding from commercial banks fell from 33.7 per cent to 25.1 per cent for rural households. And from 35.2 per cent to 27.7 per cent for cultivator households.

Concurrently, informal sources of credit (moneylenders, relatives, friends) became increasingly important in the 1990s and 2000s. The debt outstanding of rural households from the informal sector was 32.7 per cent in 1992 – but rose to 44 per cent by 2013. For cultivator households, the share of debt outstanding from the informal sector rose from 30.6 per cent to 41.6 per cent in the same period.

Within the informal sector, it was the share of debt from moneylenders that rose most sharply. For all rural households, the share of debt outstanding from moneylenders rose from 17.5 per cent in 1992 to 33.2 per cent in 2013. For cultivator households, in the same years, the share of debt outstanding from moneylenders rose from 17.5 per cent to 31.5 per cent.

Indebtedness, particularly from the informal sector, has been recorded as one of the most common factors amongst those driving the suicides of thousands of farmers.