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Introduction

Agricultural indebtedness in India has worsened in recent years, especially post-Covid-19, despite growth in production. Small and marginal farmers, facing rising costs and limited access to credit, continue to struggle with debt. Understanding the reasons behind this and its impact on the rural economy is crucial for finding sustainable solutions.

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Reasons Behind Increasing Debt of Indian Farmers

• Shrinking Farm Size: The decline in the average farm size leads to reduced economies of scale, making it difficult for farmers to generate sufficient income.
  Eg: The farm size has shrunk from 1.34 hectares in 1991 to 0.74 hectares in 2021-22, leading to greater debt among small and marginal farmers.
• Rising Production Costs: The increasing cost of inputs like fertilizers and pesticides without a corresponding increase in productivity leads to higher debt levels.
• Limited Access to Institutional Credit: Small farm sizes and lack of collateral force farmers to borrow from informal, high-interest sources.
  Eg: According to the NAFIS 2021-22, 24.5% of farmers still depend on money lenders at high-interest rates, pushing them into debt traps.
• Poor Market Access and Low Returns: Lack of proper infrastructure for storage, grading, and quality standardization limits farmers’ ability to get remunerative prices.
• Impact of Covid-19: The pandemic exacerbated existing challenges, disrupting supply chains and increasing operational costs for farmers.
  

Challenges Posed by Increasing Indebtedness of Indian Farmers

• Erosion of Livelihoods: Increasing debt erodes the income of farmers, pushing them further into poverty and economic instability.
  Eg: The rise in suicides among farmers, with 11,290 suicides in 2022, is partly attributed to the rising indebtedness and lack of economic stability.
• Stagnation in Agricultural Productivity: Rising debt limits farmers’ ability to invest in technology and mechanization, hindering productivity growth.
  Eg: Despite the increasing debt, productivity for major pulses, oilseeds, and coarse cereals has remained stagnant, contributing to worsening financial conditions.
• Rural Economic Strain: The growing indebtedness of farmers affects the broader rural economy by reducing spending power, impacting local businesses and services.
  Eg: Small and marginal farmers, making up 92% of the farming population, face financial struggles that impact rural employment and income..
• Social Instability: The financial distress caused by rising debt has broader social implications, including increased family stress and social unrest.
• Impediments to Long-Term Development: Chronic indebtedness traps farmers in a survival cycle, hindering long-term agricultural growth.

Strategies to Improve Agricultural Sustainability

• Promote Cooperative Farming: Cooperative farming can help small farmers achieve economies of scale, gain better access to credit, and secure better prices for their produce.
  Eg: Farmer Producer Organizations (FPOs) have seen success in aggregation and marketing.
• Income Diversification: Encouraging diversification into livestock, poultry, and other agricultural activities can help reduce farmers’ vulnerability to price and weather shocks..
• Optimize Input Use: Promoting judicious use of fertilizers, pesticides, and other inputs can reduce costs while improving resource efficiency.
• Enhance Market Linkages: Creating direct linkages between farmers and value chains can improve access to better prices and reduce dependence on middlemen.
• Policy Support for Financial Inclusion: Increasing access to institutional credit, especially for small farmers, and ensuring timely credit flow are essential for improving financial security.
  

Conclusion

To address rising farm debt, India must focus on cooperative farming, income diversification, efficient input use, and improved market linkages. Strengthening access to institutional credit will also empower farmers and enhance agricultural resilience for long-term sustainability.

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