Monday, September 21, 2015

Ending Debt Cycle Suicides in Telangana

http://www.thehindubusinessline.com/opinion/ending-the-debtsuicide-cycle-in-telangana/article7671053.ece

The State government can take a leaf out of Kerala’s book and enact a law against usury
Recently, the Telangana Agricultural Advisory Forum, consisting of a few university professors and scientists, deliberated on the causes and consequences of the drought and farmer ‘suicides’ in the State. The unofficial number of suicides attributed to farm families is 1,152.
An inquiry into some of the recent suicides reveals an interesting picture. The farmers were not indebted to cooperative credit societies or commercial banks. The case of a farmer in Nalgonda district is typical. He took on lease ten acres of land, dug five bore wells — none of which hit water — incurring huge private debt in the process. On top of this, he cultivated cotton. The crop failed without water, and the debts pushed him to suicide.

Other cases in Medak, Mahabubnagar, Adilabad are similar — farmers went in for crops unsuitable to the soil, or dug bore wells in areas declared as grey by the groundwater department. There were no agricultural extension workers to stop small farmers from carrying out unworkable plans. While this can be just one of the reasons, farmers were also not lending their ears even where advice was available. They were hell-bent on growing cotton or other cash crops as they felt their huge debt would be wiped out if the crop came up!
Despite the Acts
In the past, when borrowers from microfinance institutions (MFIs), burdened by the huge interest and coercive recoveries, committed suicide — of course, far fewer in number — the government quickly enacted a legislation to kill the debt and allow the borrower to live.
Those MFIs took four years to put their houses in order and some of them are now chasing payment bank or small bank licences.
The following laws are in place as on the date of the State Reorganisation: 1. the Andhra Pradesh (Telangana Area) Money Lenders Act, 1349 Fasl; 2. the Andhra Pradesh (Andhra Area) Pawn Brokers Act, 1943; 3. the Andhra Pradesh (Scheduled Areas) Money Lenders Regulation 1960; and 4. rhe Andhra Pradesh (Andhra Area) Money Lenders Act, 1957.
The permissible rates of interest vary from 6 per cent per annum on pledge and secured loans, to 12 per cent on unsecured loans. Commercial banks and cooperative banks, both rural and urban, are exempt from the application of these laws on the money they lend to farmers or entrepreneurs.
None of these Acts has a track record of implementation. Why can’t the Telangana and Andhra Pradesh governments pass new legislation, treating the usurious loans contracted by the farmer from private moneylenders as illegal with a threshold year of, say, 2012, the same as in Kerala?
A good example
The Kerala Prohibition of Charging Exorbitant Interest Bill, 2012, specifically prohibits charging exorbitant interest; if the lender “molests or abets the molestation of any debtor for recovery of any loan shall, on conviction, be punished with imprisonment for a term which may extend to three years and also with fine, which may extend to fifty thousand rupees”.
The Kerala Act also allows for restoration of the property that has been forcefully acquired by the creditor towards the dues to him.
A nominal court fee of ₹100 has been prescribed for a petition under the Act. After this Act came to be implemented, Kerala has distanced itself from farmers’ suicides.
When the problem lies in private debt, input supply, institutional credit on easier terms and ready access, and assured price at the right time to the farmer on sale into his account are essential measures.
If the Telangana government is hesitating to do what Kerala has done, it could be because private moneylenders are politically powerful. No party fighting the cause of farmers is demanding such action. It is time to call a spade a spade and enact a powerful law to prevent suicides of farmers.
The writer is an economist and member of the board of trustees, Farm & Rural Science Foundation, Hyderabad
(This article was published on September 20, 2015)