Fortune at the bottom of the pyramid?

Waiver of small and marginal farmers’ loans amounting to Rs 60,000 has been termed path breaking  by the government.The budget, however, offers little to address the larger problem of agricultural recession, the main reason behind severe indebtedness of farmers .

Official data shows that areas with the maximum concentration of small and marginal farmers will not benefit from the waiver. The Economic Survey that preceded the budget had suggested: “A second Green Revolution, particularly in the areas which are rainfed, may be necessary to improve the income of the persons dependent on the agriculture sector.” . It clearly suggests that farming has become almost an unviable option owing to increase in input costs and lower realization from produce which has unleashed a viscious cycle of indebtness amongst the farming community.

Unsustainable

Small, marginal farmers make loss

Source: National Sample Survey Organization, Situation Assessment Survey of Farmers, 2003

As per Mohan Guruswamy, chairperson of the Delhi-based Centre for Policy Alternative “Seventy per cent of farmers who own less than one hectare do not opt for commercial credit. So the waiver bypasses them,”

Finance Minister P Chidambaram waived all ‘overdue’ loans due till December 31, 2007, of farmers with landholdings of up to two hectares (ha). For other farmers, the government has offered a one-time settlement: a rebate of 25 per cent if a farmer pays 75 per cent of the loan overdue. The waiver does not cover loans farmers are regularly paying—only 20 per cent farmer households are paying loans regularly. Only those who borrowed from government institutions will be covered so those who borrowed from moneylenders and other informal sources will not get any relief. And this is where a big portion of debt lies.Being illeterate farmers do not approach the banks due to lengthy procedures and paperwork – apart from all the paperwork a farmer has to get a letter from all banks operating in his area that he does not owe them any money before a loan for him can be considered.
The government claims the proposal will benefit 40 million farmers.Every second Indian farmer household is indebted. Of the 89.33 million farmer households estimated in 2003, 43.42 million were indebted. The average debt per farmer household was at Rs 12,595, and per indebted farmer household at Rs 25,902. Of late, farmers with more than two hectares of land are increasingly availing agricultural credit. The outstanding loan amount too has grown faster in case of farmers having more than 2.5 ha as compared to marginal (holding less than 1 ha) and small (less than 2 ha) farmers. On the other hand, the share of marginal farmers in formal credit distribution has come down from 28 per cent in 1981-82 to 25 per cent in 2003-04. The share of large farmers (with landholding above 2 ha) has remained at around 51 per cent since 1981-82. These figures demonstrate that farmers with large as well as small land holdings take credit but are not able to repay them due to adverse economics of the agricultural sector.

The current proposal will cover less than 50 per cent of the total debt of farmers in India. In 2003, the government estimated the total debt of farmers at Rs 1.13 lakh crore. Farmers owed Rs 65,000 crore to formal institutions and Rs 48,000 crore to non-institutional agencies. The debt has gone up since then.

Smaller the landholding, more the farmer depends on non-institutional credit

Out of relief net

Source: National Sample Survey Organization, Situation Assessment Survey of Farmers, 2003

The bigger picture
According to the Economic Survey, the growth rate of food grain production is 1.2 per cent, lower than the annual population growth rate of 1.9 per cent. Creation of additional irrigation potential has come down from 3 per cent annually in the 1990s to 1.8 per cent in 2007. Agricultural growth is expected to be around 2.6 per cent against 3.8 per cent in 2006.In such a scenario it will take a long time before we can see disposable incomes which will boost consumption for discretionary items on a farmers shopping list such as apparel,footwear,toiletries etc.

Fortune at the bottom of the  Pyramid ?

While a romantic idea,with the above in view I fail to recognize how the Indian farmer can be described as :

The world’s most exciting, fastest-growing new market? and fortune where you least expect it: at the bottom of the pyramid. Collectively, the world’s billions of poor people have immense entrepreneurial capabilities and buying power(??).

The book talks about Co creation and  challenges readers to re-evaluate their pre-conceived notions about the commercial opportunities in serving the relatively poor markets of the world.Somehow I cannot understand how someone who is already not able to repay his debts will transform into a profitable customer to serve and how those who are not even able to distribute the largesse effectively will make it possible.

The website further describes the book as :

“The Bottom of the Pyramid belongs at the top of the reading list for business people, academics, and experts pursuing the elusive goal of sustainable growth in the developing world”

I sincerely feel that that’s exactly where it will remain for a long long time to come at least in the context of India,if things do not change at the grassroot level.