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Where Bangladesh Leaves India in the Dust

Why do so many farmers commit suicide in India despite the country’s booming economy?

November 19, 2007

It is indeed paradoxical that India has made such strides in the economic field and is fast becoming a world power, yet suicide among farmers mired in poverty and indebtedness seems to be increasing as the cycle of drought and floods in the cotton belt keeps taking its toll.

Even Manmohan Singh, India’s prime minister, visited the areas with high farmer suicides and spoke of the need to deal with the problem. The issue was in the top story in the Indian media for a few weeks until other sensational stories pushed it out of sight — and out of mind.

Bombings and other terrorist attacks by proponents and opponents of a plethora of religious, political and ethnic movements — not to mention serial killers, paralyzing strikes and the shenanigans of the celebrities — now take up the space on television screens.

Against this backdrop, it is interesting to compare India with Bangladesh, its eastern neighbor. While India’s economic surge has won global plaudits, much smaller Bangladesh has won international acclaim because of the pioneering work of Nobel Laureate Mohammad Yunus to help the poor — not through charity, but through enlightened money-lending.

As a result, rural finance has increased phenomenally in Bangladesh and has been transformed into a liberating force. Micro-financing by scores of non-governmental organizations has empowered women. That most loans are given to women is all the more remarkable since Bangladesh is a conservative but evidently tolerant society.

Still, the question remains: How is it that India has achieved economic success in big business — but has fallen into rural indebtedness of the wrong kind? It is all the more perplexing because micro-credit was started in India — long before Yunus started his program.

In the early 1970s, Elaben Bhatt founded SEWA (Self Employed Women’s Association) to help poor women in Ahmedabad by giving them small loans to sell vegetables from push carts. SEWA continues to grow, but it never became as popular as micro-credit in Bangladesh.

India takes great pride in the achievements of its industrialists as more and more of them are among the richest men in the world and have an increasingly global reach. Today, overseas Indians employ hundreds of thousands of people on all continents.

Even in India itself, you now find white European waiters and bar managers serving food and drinks to Indians in Western restaurants, owned by Indians — a far cry from the days of the British Raj when it was entirely the other way around. For those lucky enough to enter the nouveau riche microcosm, all the surrounding poverty is an unavoidable nuisance to be endured — and ignored.

For 40 years, India’s secular and socialist philosophy of plain living and high thinking made a virtue of egalitarian poverty. The economy was hogtied with rules and regulations. The poor remained poor — and even the rich were held back from reaching their full potential.

Once the restrictions were eased and global markets became India’s hunting ground, wealth flowed into the country — and the income disparity between the rich and the poor escalated. Yet, it is mainly the entrepreneurship of the globalized capitalists that led to the reduction of poverty in India through attracting foreign investment and creating millions of jobs.

The absolute number of Indians living below the “poverty line” — more than the entire population of the United States — has not declined significantly, but the percentage has been halved from 60% to under 30%. Ironically, the reduction of poverty goes hand-in-hand with increasing income disparity.

There are 83,000 millionaires (in U.S. dollar terms) in India, while an estimated 25,000 Indian farmers killed themselves because of poverty in the last ten years. On the face of it, such income disparity is grossly unfair — and unjust to human dignity.

Farm suicides are not unique to India. In the 1930s, the Dust Bowl that followed the stock market crash and ravaged agriculture in the United States disrupted the lives of hundreds of thousands of farmers and drove not just a few of them to suicide.

Australia’s drought which started six years ago and has no end in sight, is now leading to one farmer taking his life every four days. Steinbeck’s Grapes of Wrath has come to life again in another Dust Bowl half way around the world.

Vidharbal district in Maharashtra has earned the dubious distinction of having the highest number of suicides in the “suicide belt” that stretches across four major states of India. Why do so many small farmers kill themselves? It’s a seasonal thing, declared one politician. The reason is too much alcohol abuse, declared a bureaucrat.

According to some activists, the alleged villains range from ruthless globalization dressed as a benign force, to dumping of agricultural produce by the United States and EU, to heartless multinationals that force farmers to buy genetically modified seeds instead of saving seeds from their own crops, to agro-industrialists who sell expensive fertilizers and chemicals that destroy the natural productivity of soils.

The list goes on to small-time chisellers who sell poor-quality seeds packaged as high-yield variety, to crop failure, to ruthless money-lenders, to unfeeling bureaucrats. It’s a “deadly cocktail” of factors, says Changal Reddy, president of Federation of Andhra Pradesh Farmers Associations.

Some even claim that government support — coming in the form of Rs.150,000 (about $3,000) handouts and other assistance to the relatives of the farmers who committed suicide — acts as an incentive for other desperate farmers to make the ultimate sacrifice for their families.

In a country as vast and diverse as India, farmer suicide is one of a myriad of issues the central and state governments face. The government’s $3,000 handouts, labeled “sops” in a news headline, do not seem to have made much of a dent.

On the other hand, the government of India has taken bold policy decisions on big development projects, approved plans for dams, ports and roads, established Special Economic Zones, cut taxes on urban-oriented item, and launched prestige projects.

But small farmers — 90% of the farmers in this largely rural country of over a billion people — have received little benefit from the economic juggernaut being driven by the government.

If anything, the entry of global agro-business Goliaths coinciding with prolonged drought and the mechanisms of globalization is killing David in the cotton fields of Karnataka.

Compare this to the response of Herbert Hoover to the Great Depression in the United States in the 1930s — the Federal Farm Board, the Emergency Relief and Construction Act, the Reconstruction Finance Act, the controversial Smoot-Hawley Tariff Act — and, of course, the famous package of New Deal reforms of his successor, Franklin D. Roosevelt.

The U.S. small farmer today has a greater net worth than his urban cousin, and the crop subsidy once given to him has metamorphosed into mega-grants to Fortune 500 companies, some congressmen and some very rich celebrities too. Be that as it may, U.S. agricultural power has become the 800-pound gorilla in the WTO china shop.

Whereas some U.S. cotton farms get as much as half of their income from subsidies, the Indian farmer goes deeper into debt when the price of cotton falls. The U.S. government is beholden to the cotton growers in the farm belt — while the Indian cotton grower is beholden to the extortionist money lender in the suicide belt.

Unlike in neighboring Bangladesh, micro-credit has not come to rescue the small farmer at the end of his rope — double entendre intended. Laudable as it is, micro-credit is not the universal engine for economic development of a country — but that is not to say it isn’t important to the individual.

Rather, it is that governments in developing countries should not be in the business of lending money, because they have a dismal record of collecting repayment. Government loans are viewed as eventual write-offs for political reasons.

Therefore, government financing is not only inefficient but counter-productive as well. It undermines the financial discipline and fiscal responsibility that an unforgiving economy demands from producers.

How so? The inherent strength of rural finance — as all financing of small and medium-sized enterprises — relies on the degree of loan “recycling.” The better the repayment discipline, the more loans can be given out — and the more development at the bottom of the economic pyramid can be driven forward.

Micro-credit works because of the innate sense of gratitude and self-respect of the poor borrowers. Peer pressure about timely repayment is a key factor — especially at the village level.

It is that quality that loans handed out by the government lack. That is why governments should stick to what citizens cannot do on their own — set policy, build infrastructure, ensure the rule of law and protect the country’s interests against the world.

Odd as it may seem, it is in the developed, industrialized world that agriculture receives more support from the government than in the so-called non-industrial (that is, agricultural) countries. With new-found strength and confidence at home and abroad, the government of India can do much to rescue the small farmer.

India has become a strong voice for leveling the playing field by demanding the reduction of agricultural subsidies in the West, and for fighting unfair trade practices of the industrialized countries. After all, agriculture is the major issue that has led to the stagnation of the Doha Round of the WTO.

While governments in least developed countries shouldn’t be in the loan business, governments in highly industrialized countries shouldn’t be in the subsidy business. That’s a core lesson the budding global power of India should be insistent to make as its contribution to global fairness — and its own rural development.

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