Why don't Punjabi farmers learn money management?

Here is an article that shows how Punjab farmers are going in debt just to show off for elaborate weddings, sending kids to foreign lands and buying tractors that they may not even need. I wonder what else these guys are wasting their hard earned money on? I wish Punjabi farmers would get smarter and teach themselves some financing, lending, and money facts to keep the loan sharks and avoid suicides later. The whole thing just makes me sad and shows how materialism and good marketing works everywhere. No offence, but it also reflects on the degradation of good Sikh values among Punjabis and shows how they are being caught up in the same rat race.


"bhukhi-aa bhukh na utree jay bannaa puree-aa bhaar."
The hunger of the hungry is not appeased, even by piling up loads of worldly goods.

Read if you like:


http://www.tribuneindia.com/2006/20060806/spectrum/main1.htm

Sunday, August 6, 2006
Harvest of debtOnce a symbol of the Punjab farmer’s prosperity, tractors have now become a debt trap. Shveta Pathak visits the roaring tractor mandis of Moga and Sangrur and wonders whether the proposal to waive farm loans of around Rs 26,000 crore will help those struggling with reduced outputs and high costs of cultivation
A view of the tractor mandi at Moga: Moneylenders hog almost 50 per cent share in the total farm credit
Time was when while standing amid the vast acreage of lush green fields Sukkha’s heart swelled up with pride. He commanded respect in his village even with a medium-scale land holding. He wanted to increase productivity and scale a new high. But Sukkha is a worried man today because of the decision to purchase a tractor on loan. He thought it would be an asset, increase productivity and save cost on manual labour. The feel of a tractor standing in the courtyard of his house was enriching. The tractor could also help to get a “good” proposal for his son and daughter. When he went to inquire about purchasing one from an agency, he was advised to take a loan. It sounded logical and even before he could consult his family, the company delivered the tractor to his house. He loved his new possession and did not take long to finish the formalities and avail of a loan.
Things did not quite work the way he had thought they would. The produce was low and he had to marry off his daughter. He was provided with a solution by his friends. “Sell off the tractor at a reduced price,” they advised. And so he did. The five-month old tractor was sold off at a lakh less than its purchase. Neither did the buyer talk of transferring papers as his buy was cost-attractive nor did it worry Sukkha. Hence he used the cash towards his daughter’s wedding and thought life would continue as usual since he would pay instalments the way he had planned.
Probably, he forgot his dependence on rain gods. Comfortable living became difficult. Of the two mobile connections his kids had, they gave up one. Other expenses too were curbed as income inflow was reduced and paying off the loan instalment became tough. Recently, bank officials warned him they would take possession of the land Sukkha had pledged. What if they put his name on the list of loan defaulters? Sukhha repents, but there is no way out. He already owes some money to the village ahrtiya. Neither a bank, private financer nor a moneylender would now come to his rescue. And Sukhha is not the only one.
In the state, there are scores entrapped in this vicious debt circle.
“But what should a farmer do? Considering the diminishing margins, there is no way he can do without credit,” says Swaran Singh , from Khwajke, Ludhiana. With over Rs 26,000 crore of credit, Punjab’s farmers wonder whether a waiver would put an end to their woes in the long run. The factors responsible for the plight of the state’s farmers, according to experts, are: Insufficient and lack of timely availability of credit, absence of transparency in lending, lack of awareness among a large section of farming community and unorganised money lenders who still control half of the total lending. It is doubtful that a loan waiver alone has the ability to put an end to these problems.
“A loan waiver as a singular measure is not a long-term solution,” opines Dr S.S. Johl, renowned economist and Vice-Chairman, Punjab State Planning Board, adding, “the root of the problem is low income. Unless alternate employment opportunities are created and reforms in land measures taken, farmers will not be able to come out of the debt-trap.”
Rising debt is co-related to diminishing incomes both of which are a major cause of concern today. As per a report by the National Sample Survey Organisation (NSSO), each farmer in Punjab approximately has a debt of more than Rs 41,000 as compared to the national average of Rs 12,000. To mitigate the debt, the rise in income should be proportional to the rise in cost of inputs like pesticides, diesel, generator, tractor, running the bore etc. Evidently, this is not happening and the gap continues to widen on the negative side.
On the other hand, unlike the rest of the states where most farmers belong to economically weaker sections, Punjab has ‘richer’ farmers. Yet to come to terms with the income that has significantally declined now after the initial spurt in earning on account of the Green Revolution, they do not want living standards to worsen. Providing comforts, if not luxuries, to their families, giving good education preferably in urban areas to their kids, sending children abroad and spending generous amounts at weddings, are things farmers in Punjab have lived with.
“It is worse than an insult for a farmer when his prestige is on stake in the society,” feels Sharan, another farmer. “And what is the harm if a farmer wants to live a decent life? He has been doing so, it is only in recent years that incomes have declined and the problem of debt arisen. This needs to be tackled but the solution is not that farmers start starving and live a life devoid of comforts or luxuries,” says Rajinder Pal Singh Grewal from Barewal. That explains why the state has double the number of tractors it requires. “We have 4,000 plus in the state that requires almost half of these. Of the 1,000 hours a tractor should be used, farmers in our state use it for barely 450 hours,” points out Dr P.S. Rangi, adviser, Punjab Farmers’ Commission, who also emphasises the need to tackle declining margins on a priority basis.
Besides the need to increase agricultural income, there are other loopholes that are doing harm.
Take banks which registered an increase in loan disbursement from Rs 6,706 crore in the year 2002-03, Rs 8,090 crore in 2003-04 and Rs 11,255 crore in 2004-05 to Rs 15, 608 crore in 2005-06. They also consider over 16 lakh Kisan Credit Cards (KCCs) currently in use a big achievement.
And even as lending towards farm mechanisation (most part of which is used towards buying tractors) captures a very small percentage of total credit, it was Rs 2,097 crore in 2005-06, it is this segment where gross misutilisation of funds occurs. “In case of crop loans, towards which most of the credit amount is diverted, repayment is almost regular, irregularities, if any, are found in case of mechanisation,” reveal bank officials.
A visit to any of the tractor bazaars highlights the situation. One finds even a few days’ old tractors up for sale. “Many farmers buy a tractor and sell it off immediately at a lower price when they need cash instantly. We get new tractors they want to sell because they are getting either children married or sending them abroad. A farmer does not want to get entrapped in lengthy bank formalities. He knows even an ahrtiya (a commission agent) would not give him as much money,” said a dealer in the Patiala tractor bazaar.
Quite aware of the problem, banks say they are working towards generating awareness. “Banks are working more towards generating awareness among farmers so that they know the risk is lower and decision wiser when they avail a loan from a bank instead of a money lender,” says I.D. Singh, General Manager, Punjab Zone of Punjab National Bank (PNB), which is the convenor bank for the State-Level Bankers’ Committee meeting.
Farmers still complain and trust the good old ahrtiya (moneylender) more than they would a bank. “Banks keep boasting of their schemes but it is only when a farmer goes to a bank that he realises the hassle of filling unlimited number of forms¸ completing formalities that could take even 20 days or a month and pay an interest that is almost on a par with what a moneylender in the village would charge. I experienced the same and hence went to our village ahrtiya, who trusts me and merely asked for a single signature on his account book and gave the me money instantly. Why should I go to the bank again,” questions Kiranjit Singh, a farmer from Baddhhai Kalan, Moga.
No wonder moneylenders hog almost 50 per cent share in total farm credit. “It is quite simple with us. Since we belong to the village and know farmers, chances of debt going bad are rare,” Ranjit Singh Rana, a moneylender, from village Kalala in Sangrur says. Most moneylenders charge an interest of 1.25 to 2 per cent per month, the economics of which is ignored by a farmer who needs money on an urgent basis.
The existing measures by banks towards increasing credit flow are insufficient, say experts. “The price they get for output has to be increased and at the same time interest rate needs to be significantally reduced,” asserts Dr Rangi.
Regulating moneylenders has been identified as a major challenge. Another major problem that needs attention is banks, particularly private ones and financers that are extending loans only to meet their own targets, without bothering whether the credit facility goes to the rightful candidate or not.
High costs, low returns
Considering average productivity (per acre) of wheat to be 20,000 quintals, a farmer at the prevailing MSP roughly gets a revenue of Rs 14,000. Operating costs come to around Rs 9,000. That excludes other costs like labour, rent etc. “In the last five years, costs involved in growing rice have registered an increase of 49 per cent and those for wheat by 66 per cent. On the other hand, income inflow in case of rice increased only by 26 per cent and for wheat reduced by 1 per cent. Calculate gross margins and these come out to be only seven per cent for rice and 34 per cent on the negative side (cost is more than revenue) in case of wheat,” says Dr Rangi.
Costs rose on account of various factors, he adds. These include requirement of more fertiliser and inputs to obtain the same yield, increase in prices and factors like reduction in water table which result in major expenses averaging Rs 1 lakh every three years, and also over capitalisation like more tractors than required, leaving a farmer with deficit instead of a surplus.
Farmers or traders?
A majority of traders in the market are farmers
Every Sunday, the Moga bypass wears a festive look. Thousands of tractors, ranging from a few days to a few years old, adorn this biggest weekly tractor bazaar in the region. Estimates have it that at one time, this market, which houses 35-odd bazaars has nearly 3,000 tractors on sale. The actual sale in one season, however, squeezes to a few hundreds only. “You get all kinds of tractors here which is why this market has grown so popular over the years, there is no other market that offers such diverse range,” Tejinder Singh, a leading dealer in this market says.
Seems true. One look and you can see shining new ones, many of which are only a few days old, a lot many old ones and variations also come in features like power. The rush begins on Saturday evenings when bookings for place start. Dealers assure you of attractive buys, happy buyers manage striking good bargains and there are those who come to sell.
Even as the state has other weekly tractor bazaars at Barnala, Talwandi Sabo, Jira and Samrala and daily markets at Patiala, Lehra Gagga and Ghagga, the bazaar at Moga attracts buyers from even as far as UP and Bihar.
Commenting on the enormous volumes, Sundaram, who works with a dealer, says: “Many farmers purchase a second-hand tractor when the season begins and sell it off once the season is over.”
An interesting trend in trading is emerging. One finds that a majority of traders in the market are farmers themselves. It is not buyers and sellers who are directly engaged, a fact that explains the jubilant mood the bazaar captures. For, selling an asset for a farmer is not something he feels happy about. “They sell off the tractor whenever money is needed for other purposes and it is not a very pleasant feeling,” a dealer commented.
On farmers taking to trading, says Singh: “Using a tractor makes you learn almost everything about it. Farmers are considering it a good source of additional income helping them when agricultural income is reducing significantly. It has become a normal practice, even with medium-scale farmers, to buy two-three tractors and put them up for sale.”
Regarding the new ones, while no one here admits these are the ones that carry loans, sources say there is no dearth of new tractors which could even be a day or two days old. “Many times, farmers already under debt are refused loans by banks and even moneylenders. It is then that they buy a tractor on loan and sell it off, at times the very next day at a lesser price. They get cash in hand and the other party gets a new tractor for a low price,” a dealer said requesting anonymity.
The catch here is that transfer of tractor is not on paper. “Most such tractors are taken by traders from other markets and sold off, they merely take an affidavit. Banks and financiers can’t do much in such cases, they are not even able to locate the tractor that they sold.” A major problem that those related to this field identify is the urgency with which the selling companies want to meet their targets. “We just went to enquire about the rates and they delivered one at our place. They said we were free to use it. Ultimately, I ended up buying it on loan,” said Iqbal Singh a farmer of village Waraich, Mullanpur.