Farmer Suicides in India:

Breaking the Debt Cycle

Akshay Sinha, Jayati Sethi, Cameron Vea, Khasan Khamudkhanov, Anthea Piong

April 2014

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Table of Contents List of acronyms .................................................................................................................................................................. 4

1. Executive Summary ...................................................................................................................................................... 5

2. Background .................................................................................................................................................................... 6

3. Causes ............................................................................................................................................................................. 9

3.1 Environmental .......................................................................................................................................................... 9

3.2 Social ........................................................................................................................................................................ 10

3.3 Psychological .......................................................................................................................................................... 11

3.4 Financial .................................................................................................................................................................. 11

4. Current and Past Attempts at Addressing the Problem ....................................................................................... 13

4.1 Government of India Programs .......................................................................................................................... 14

4.1.1 Examples of Government Relief Measures ............................................................................................... 14

4.1.2 Dharwad Case Study ...................................................................................................................................... 16

4.2 Measures Undertaken by NGOs ......................................................................................................................... 18

5. Potential Options ........................................................................................................................................................ 19

5.1 Maintain status quo ................................................................................................................................................ 19

5.2 Counseling & Mental Health Support ................................................................................................................ 19

5.3 New Crop Insurance ............................................................................................................................................. 20

5.4 Crop Finance/Agriculture Venture Capitalism Model .................................................................................... 21

6. Focus of our Model: Crop Finance/Agriculture Venture Capitalism ................................................................ 24

6.1 Basic principles of our model: Islamic Microfinance ....................................................................................... 25

6.1.1 Applications of Islamic Microfinance ......................................................................................................... 25

6.1.2 Successful Experiences with Islamic Microfinance .................................................................................. 26

6.2 Process of the Model ............................................................................................................................................. 28

6.3 Human Resources and Infrastructure................................................................................................................. 32

6.4 Financial Resources ............................................................................................................................................... 34

6.5 Budgeting ................................................................................................................................................................ 35

7. Pilot Project ................................................................................................................................................................. 40

7.1 Location – Arni, Yavatmal, Maharashtra ........................................................................................................... 40

7.1.1 Rationale for Choosing Location................................................................................................................. 41

7.2 Pilot Project Activities ........................................................................................................................................... 43

7.3 Human Resources and Infrastructure................................................................................................................. 46

7.4 Pilot Project Budget............................................................................................................................................... 48

8. Stakeholders ................................................................................................................................................................. 53

8.1 Local ......................................................................................................................................................................... 53

a. Farmers .................................................................................................................................................................. 53

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b. Moneylenders ....................................................................................................................................................... 53

c. Landlords .............................................................................................................................................................. 54

d. Village Council ..................................................................................................................................................... 54

e. Cotton Buyers and Sellers .................................................................................................................................. 55

8.2 State .......................................................................................................................................................................... 55

a. District Administration ....................................................................................................................................... 55

b. State Government ............................................................................................................................................... 56

8.3 External ................................................................................................................................................................... 57

a. Our Client/Donor (IFAD) ................................................................................................................................ 57

9. Challenges..................................................................................................................................................................... 58

9.1 Organizational Challenges .................................................................................................................................... 58

9.1.1 Corruption amongst village agents .............................................................................................................. 58

9.1.2 Maintaining authenticity of inputs ............................................................................................................... 59

9.1.3. Transportation of inputs to farmers........................................................................................................... 59

9.1.4. Coordinating the sale of cotton .................................................................................................................. 60

9.2 Contextual Challenges ........................................................................................................................................... 61

9.2.1 Farmer Uptake ................................................................................................................................................ 61

9.2.2 Overlap between Public/Government and Private Schemes ................................................................. 62

9.2.3 The political economy of village heads, moneylenders and landlords ................................................... 62

10. Monitoring and Impact Evaluation .......................................................................................................................... 65

10.1 Impact Evaluation ............................................................................................................................................... 65

10.2 Monitoring Yields - Annual Survey .................................................................................................................. 66

10.3 Monitoring Debt Levels - Annual Survey ........................................................................................................ 67

10.4 Monitoring Suicide Levels .................................................................................................................................. 68

11. Next Steps: Scaling Up ............................................................................................................................................... 69

11.1 Scenario 1: Lack of profitability ........................................................................................................................ 69

11.2 Scenario 2: Profitability and Self Sufficiency ................................................................................................... 70

Appendix ............................................................................................................................................................................ 71

A. Process and Costs of Cotton Farming ............................................................................................................... 71

B. Pilot Project Expenditures ................................................................................................................................... 76

C. Interview with an expert ...................................................................................................................................... 77

D. State and Local Administration Hierarchy in India ........................................................................................... 82

Endnotes ............................................................................................................................................................................ 83

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Who we are

Our client

Pragati (Hindi for “progress”) is a trusted non-governmental organization established in

2005 and based in Mumbai, India. We strive to provide support for rural peoples

through agricultural development, offering assistance through fundraising and project

implementation. Our mission is to act as a support system promoting the well-being of

Indian farmers through agricultural development. In the past, Pragati has been involved

in projects such as advising on the construction of irrigation infrastructure for rural

farms, providing technical assistance in farming methods, and conducting financial

literacy workshops for farmers.

The International Fund for Agricultural Development (IFAD) is a specialized agency of

the United Nations, and was established as an international financial institution in 1977 to

finance agricultural development projects primarily for food production in the developing

countries. IFAD funds projects for rural development, tribal development, women’s

empowerment, natural resource management, and rural finance around the world.

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List of acronyms

ABSUMI Agricultural Bank of Sudan Microfinance Initiative

DM District Magistrate

IBBL Islami Bank Bangladesh Limited

IFAD International Fund for Agricultural Development

IFFCO Indian Farmers Fertiliser Cooperative

INR Indian Rupees

MENA Middle East and North Africa

MSP Minimum Support Price

NAIS National Agriculture Insurance Scheme

NCRB National Crime Records Bureau

POP Point of Purchase

RDS Rural Development Scheme

RKBY Rashtriya Krishi Bima Yojana

SH Sankata Harana

SMART Specific, Measurable, Attributable, Realistic and Targeted

TK Bangladeshi Takas

UAM Union Agriculture Ministry

WB World Bank

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1. Executive Summary

Many farmers in rural India have been, and continue to be, trapped in a cycle of debt. Irregular weather

patterns and lack of proper inputs can lead to poor yields. Consequently, farmers are forced to borrow

from moneylenders on the black market who charge steep interest rates. A plentiful harvest can turn

farmers’ fortunes around, but compounded with high initial loans and the risk of subsequent poor

yields, farmers often fail to make adequate profit to pay their debts back.

Thousands of farmers see no end in sight and end up taking their own lives. Maharashtra, a state in

Central India, has one of the highest incidence of suicides among farmers. The debt burden is left to

farmers’ families, who are forced to deal with the same problem.

Although India’s national and state governments have tried various schemes that have dealt with

farmers’ problems, none have successfully broken the debt cycle. This paper proposes a crop

finance/agriculture venture capital model that will provide farmers with the necessary inputs (seeds,

fertilizer, pesticides, etc.) at the start of the year, and collect a portion of the farmer’s profits at the

end of the year. We expect this to break the debt cycle and make the farmer more self-sustainable,

thus reducing the incidence of farmer suicides.

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2. Background

In Central India, there is a large and increasing problem with farmers committing suicide. Many of

these farmers take out loans from moneylenders, who are often the only source of credit in rural

areas. Farmers are unable to pay back these loans, get caught in a cycle of debt, and end up committing

suicide. The “Big 5” states of Central India (Maharashtra, Karnataka, Andhra Pradesh, Chhattisgarh,

and Madhya Pradesh) have seen a rise in farmer suicides, and account for 64% of the total farmer

suicides in the countryi. A significant portion of this figure comprises of cotton farmers. With their

deaths, these farmers leave behind massive debt with only their next-of-kin to carry on the burden.

Figure 1. Farmer Suicides in India

Source: Down to Earth Magazine, November 2011

(http://www.downtoearth.org.in/content/45-farmers-commit-suicide-each-day-india)

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Following two years of drought in 1965 and 1966, the Indian government made a push for genetically

modified seeds, believing them to be high yielding. Combined with generous government subsidies,

farming yields saw an initial increase over the next two decades. However, the overuse of chemical

fertilizers and the genetic variety of crops used led to a decline in yields after initial success.

In 1991, as an outcome of economic liberalization, the Indian government decided to slash farming

subsidies. In response, farmers increasingly began to switch to commercial crops and use genetically

modified seeds in order to compete in the global marketplace. As the price of crops fell with increased

competition, agricultural returns decreased. Farmers began to resort to more expensive inputs in the

hope of higher yields and thus higher returns. Thus, as capital requirements rose, farmers had to take

out larger loans to cover increasing costs, and expected that larger yields would provide them with

enough returns to relieve them of their debt.

Economic reforms have opened Indian farmers to global competition and reduced cotton prices. The

near domination of genetically modified seeds in the marketplace has been coupled with a price

increase to twice that of ordinary seeds. Farmers often have to turn to moneylenders in the black

market since they don’t qualify for bank credit.

The Data

According to the United Nations Division for Sustainable Development, over 100,000 farmers in

India have committed suicide since 1997, which adds up to about one every 32 minutes. The latest

National Crime Records Bureau (NCRB) data shows that farmer suicides rose sharply by almost 450

in the Central Indian state of Maharashtra in 2012 to touch 3,786 (the state recorded 3,337 suicides in

2011). This is Maharashtra’s worst annual increase in seven years. It also brings the state’s total tally

to a staggering 57,604 farmer suicides since the NCRB began recording farm data in 1995ii. In 2012,

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Maharashtra had the highest number of farmer suicides in India at 3,786, which is 50% more than the

next highest state of Andhra Pradesh.

Figure 2: States with the Highest Incidence of Farmer Suicides

Source: National Crime Records Bureau (2012)

(http://en.wikipedia.org/wiki/National_Crime_Records_Bureau)

3,786

2,572

1,875

1,172

1,081

745

564

499

344

276

270

146

119

75

68

29

19

18

14

11

10

10

10

4

1

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Maharashtra

Andhra Pradesh

Karnataka

Madhya Pradesh

Kerala

Uttar Pradesh

Gujarat

Tamil Nadu

Assam

Haryana

Rajasthan

Odisha

Jharkhand

Punjab

Bihar

Himachal Pradesh

Sikkim

Tripura

Uttarakhand

Arunachal Pradesh

Meghalaya

Mizoram

Jammu & Kashmir

Chhattisgarh

Goa

Number of Deaths

Farmer Suicides in India by State, 2012

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3. Causes The causes for farmer suicides can be grouped into four categories: environmental, social,

psychological, and financial. These do not exist in isolation; instead, they are often intertwined with

each other, creating a much larger and complex problem that is difficult to solve.

3.1 Environmental

If nature were fair and predictable, we would not see such a high level of farmer suicides in India –

but this is not the case. Farmers living in the states of Maharashtra and Karnataka are subject to

droughts and floods which occur every few years and result in large crop failures. In this region of

India, farms are often planted with monocrops (single-variety crops) which depend on timely

monsoon rains to be productive and profitable. In years where there is no drought, farmers may be

able to produce enough cotton to sell in order to be able to buy inputs for the next year. But when

exogenous environmental shocks hit, these farm systems are unable to regenerate or “bounce back,”

and farmers slowly fall into debt.

Furthermore, droughts and floods sometimes occur in consecutive years, not allowing farmers the

time to recoup their losses with a good crop the next year. A lack of effective irrigation infrastructure

is also a significant part of the problem, as it relies heavily on government provision which is lacking

in rural areas.

Since farmers rely heavily on environmental factors such as rain, a dry year can trigger a series of other

problems that can ultimately lead to a farmer’s suicide. Additionally, many rural areas lack access to

either natural or man-made irrigation systems such as streams and rivers, making dry weather harder

to cope with.

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3.2 Social

While the unpredictability of the environment plays a significant role in contributing to farmer suicides,

a number of social issues can also act as catalysts to this problem. When interviewed, many widows

of farmers say that “drinking is a major problem for most of the familiesiii.” Studies have shown that

alcoholism plays a significant role in suicide in India: alcohol dependence and abuse were found in 35%

of suicides. Around 30-50% of male suicides were under the influence of alcohol at the time of suicide

and many wives have also been driven to suicide by their alcoholic husbandsiv.

There are also social and cultural norms that prevent farmers and their wives from getting the help

they need. Farmers borrow money at high interest rates from local moneylenders, but when they are

unable to pay back their loans and begin to receive threats from these shylocks, they do not “go to

the police about moneylenders because they are afraid they will need a loan in the futurev.” The power

dynamic between farmers and shylocks is self-perpetuating and fuelled by fear, continuing the cycle

for the family even after the farmer’s death.

Farmers also realize that the world is increasing becoming competitive, and are cognizant of the fact

that their children need a good education to break out of the poverty cycle. However, some farmers

become unsustainably aspirational, insisting on sending their children to private schools instead of

government ones: “they are going for false prestige, they don’t really take note of their own financial

statusvi.” To these small farmers, the social value of having an educated child is worth more than the

economic losses that they have to suffer.

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3.3 Psychological

Depression amongst farmers is a strong indicator of the propensity for a farmer to commit suicide.

Debt-ridden farmers face immense mental pressure, especially as they are often the sole earner for the

entire family. These adverse conditions can sometimes lead to depression, which results in suicide.

This exacerbates the problem irreversibly, especially since it is known that their debt will not be erased,

but will be passed on to surviving family members. Farmers turn to suicide because they cannot see

past immediate problems and are unable to cope with the disappointment of failed crops.

In addition, suicide in India is not seen as a terrible result of clinical depression, but as a “natural

consequence of bad moral choicesvii.” Farmers who suffer from depression are thus held back by

social stigmas about their condition and do not seek psychological counseling – some even refuse to

confide in their spouses for moral support about the challenges on the farm. Furthermore, the absence

of rural mental health services and public awareness of mental health disease does little to help the

problem of farmers contemplating suicide.

3.4 Financial

Insurmountable debt faced by farmers has been argued to be, by far, the biggest underlying cause of

farmer suicides. According to a study by the Indian government, about 60% of those who committed

suicide in Maharashtra had debts between US$110 (INR 6,680) and US$550 (INR 33,420)viii.

After a bad year of drought or poor crop yield, a farmer has no profits to buy the necessary inputs for

the following year. In many cases, he also does not have enough savings from previous years to cover

future inputs costs. The farmer then takes loans from local moneylenders in order to purchase seeds

and fertilizers for the upcoming year in the hope of a better harvest. However, if the droughts happen

in sequential years, the farmer once again makes a loss for that year, adding on to the debt incurred in

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the previous season. The cycle is perpetuated as the farmer borrows more and more money from

shylocks at high interest rates, and eventually finds himself in debt with no way out.

Another contributor to this cycle of debt is also the type of seeds that these farmers buy. Cotton

farmers in Maharashtra buy Bt Cotton seeds, a genetically modified seed variety that produces higher

yields, but cannot reproduce seeds for the next harvest. As a result, farmers have to purchase new Bt

Cotton seeds at the start of every farming season and pay with ready cash. In addition to the non-

renewable nature of Bt Cotton seeds, farmers are often sold spurious seeds that have low yields. Such

genetically modified seeds are also more expensive than traditional seeds, but farmers still purchase

the expensive varieties as these comprise a lion’s share of the market. Moreover, genetically modified

seeds are expected to be more resistant to pest attacks, and thus are predicted to have higher yields.

The recurring cost of seeds is not the only thing farmers are spending on. Farmers also take out loans

to hire drilling companies to dig bore wells, but disappearing underwater aquifers make finding water

a challenging task. In an attempt to mitigate the risk of depending on the weather, some farmers try

to branch out by borrowing money to take up other jobs or transition to different types of crops, but

often meet with failure.

These four causes are inexplicably intertwined, and any combination of these can lead to a farmer

committing suicide. Bad weather results in crop failure and debt. Debt, alcoholism, and social stigmas

lead to depression. Depression can lead to hasty financial decisions, exacerbating debt and depression,

and eventually suicide. While some wives may say that their husbands committed suicide because of

alcoholism or depression, the common theme amongst all suicides is the incidence of debt. As such,

in our proposal we will look at debt as being the primary cause of farmer suicides in India, and make

recommendations on addressing this problem through a financial framework.

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4. Current and Past Attempts at Addressing the Problem

In the past, the Indian government has attempted to address the problem of farmer suicides through

various crop insurance schemes, but these efforts have been woefully inadequate. The programs have

failed to address the debt trap, which is one of the primary reasons for failure.

In its current form, crop insurance is financially unsustainable. Existing crop insurance schemes are

mostly focused on individual states or regions. The issue that arises is related to reimbursements: in

the event of a bad year, the majority of farmers on crop insurance will try and get reimbursed. This

creates a problem where a scheme may not have the adequate funding (from premiums) to reimburse

everyone at the same time without taking on great losses. Therefore, an insurance scheme with poor

financial health has a high risk of failure. Furthermore, the process of obtaining insurance payouts has

often been arduous and slow. Weather and yield-based insurance plans have also proven to be

unsustainable due to the difficulty in matching historical weather trends to future performance as well

as distinguishing between actual damage due to weather and inherent poor quality of the crop.

Farmer suicides started to become a significant problem when the Indian government privatized and

liberalized its agriculture industry. Rather than using seeds that they had saved, farmers started using

genetically modified seeds. The changes imposed by the World Bank’s (WB) structural adjustment

program led to many uncertainties for farmers. Many small farmers quit the profession. Those who

continued farming but could not adjust to the changes in the market have suffered. The national

government and the various state governments have attempted to create different schemes to address

the issue.

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4.1 Government of India Programs

In 2006, the government of India created a rehabilitation package amounting to US$3.19 billion (INR

191.6 billion) that covered 31 districts and four states. The four states were Andhra Pradesh, Karnataka,

Kerala and Maharashtra. The project was initially supposed to be implemented until 2009, but the

government extended the implementation period to 2011. As part of this package, the Union

Agriculture Ministry (UAM) created guidelines that help determine which farmer suicides are eligible.

A victim’s family is eligible for compensation if they meet all 40 conditions listed.

An example of shortcomings in government programs can be seen in an initiative implemented by the

government of Karnataka. At the onset of this particular program, the state government paid

US$1,667 (INR 100,000) to the families of victims. However, suicide rates kept increasing, possibly

because the compensation was large enough that it encouraged farmers to take their own lives in

exchange for the payout. Rather than solving the problem, one could argue that this scheme further

exacerbated the issue.

Another possible reason for increasing suicide rates is the farmers’ inability to get compensation from

the government. The bureaucratic nature of the schemes is inefficient in dealing with social issues that

need immediate attention.

4.1.1 Examples of Government Relief Measures

Various relief measures are available for farmers, offered by both the national and state governments.

The schemes include but are not limited to: Rashtreeya Krishi Bhima Yojana (RKBY), Minimum

Support Price (MSP), Sankata Harana (SH), and the National Agriculture Insurance Scheme (NAIS).

These schemes mainly include the sale of seeds and other agricultural products to farmers at subsidized

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rates, training in the operation of new agricultural technology, and the provision of a crop loan by the

banks at a 3% interest rate. Below, we provide an overview of some of those schemes.

a. Rashtriya Krishi Bima Yojana (RKBY)/National Agriculture Insurance Scheme (NAIS)

The Rashtriya Krishi Bima Yojana (RKBY) is a crop insurance scheme that was first introduced and

implemented at the state level from 1985 to 1999. It was later adopted by the government and became

the National Agriculture Insurance Scheme (NAIS). NAIS was introduced by the national government

in 1999. The purpose of this scheme was to provide insurance coverage for farmers in bad years when

crops failed due to natural exogenous factors. An underlying aim of this scheme was to encourage

farmers to use better farming practices to increase yields. Within the scheme, any debt owed by the

farmer would be waived in the case of his death. Furthermore, in the event of a death, compensation

would be provided to the family.

This scheme has several problems. First, it can be difficult to receive compensation in bad years.

Secondly, and more importantly, the family debt relief option under the scheme – although put in

place with good intentions – has the capacity to further increase farmer suicide rates. A farmer who

owes a large debt to a lender could take his own life in order to reduce the debt burden on his family.

b. Minimum Support Price

The government introduced the MSP in order to reduce the level of uncertainty in prices faced by

farmers. Under this scheme, the government mandated minimum prices for crops, including but not

limited to: maize, paddy, tea, soybean, cotton, and others. Such a scheme would reduce uncertainty

for the farmer by guaranteeing them a certain price for their crops.

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c. Sankata Harana (SH)

The SH scheme was introduced in 2001-2002 by the Indian Farmers Fertilizer Cooperative (IFFCO).

Under the SH scheme, farmers who purchased fertilizers through cooperative societies would be

eligible for financial relief in the case of that farmer’s death. This also added to the moral hazard

problem where farmers are incentivized to commit suicide in order to receive compensation for their

families.

d. Karnataka State Agriculture Budget

Karnataka is the first state in India that has an Agriculture Budget, which was undertaken in order to

help the agriculture sector. The main points of the budget are:

Provision of crop loans at a 1% interest rate. US$2.98 billion (INR 178.6 billion) in loans is

set aside for agriculture and irrigation sector development.

Cooperative company crop loan interest rates will be reduced from 3% to 1% on loans to

US$5,000 (INR 300,000).

In order to develop and improve the farmer’s families, US$16.67 (INR 1000) is provided to

10 families under the Suvarna Bhoomi Yojana Scheme.

US$333 million (INR 20 billion) is set aside and used to encourage farmers to practice organic

farming.

Interest free loans are provided to farmers children in order to help provide those children

with higher education.

4.1.2 Dharwad Case Study

The Dharwad case study is an excellent example of the deficiencies of government programs, and can

be used as a proxy to study the deficiencies of government agricultural programs in India.

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Between 2003 and 2010, the Dharwad district had 75 farmer suicides on record. Under the

compensation scheme, a thorough enquiry was made by a committee (for each case) in order to

determine if those farmers’ families were eligible for compensation. Compensation was only paid to

21 out of the 75 families (28%). As part of the compensation scheme, each of the 21 families received

US$1,667 (INR 100,000) from the government. This example shows the inadequacy of current

compensation schemes. The requirements for compensation are too high, and it is difficult for families

to meet all 40 of the requirements as underlined by the government guidelines. Furthermore, out of

the 75 cases of farmer suicides in the district, only 15 families were compensated for the crop insurance

that they had in place. This further demonstrates the inefficiency of the system.

Out of the 75 farmers that committed suicide, 19 of those farmers had taken crop loans from financial

institutions. However, the true number of indebted farmers could be larger as many farmers choose

to take out loans from private moneylenders who are unaccounted for. A very small percentage of

farmers had taken out loans from financial institutions that charge far lower interest rates than private

lenders. One reason for that is the lack of knowledge on the part of the farmers about such schemes.

Another possibility could be the difficulty in obtaining a loan from a financial institution, due to the

paperwork and time required to get a crop loan.

The Ministry of Agriculture has implemented a helpline for farmers throughout the country. The

purpose of this scheme is to provide farmers with a way to get easy access to information. The service

can educate farmers on farming related topics, and can provide the help and advice needed when they

are experiencing trouble with their crops. As part of the study, the families of the 75 farmers who

committed suicide were asked if they were aware of such a service. Out of the 75 families, 45 (60%)

did not know about the helpline, and out of the 30 farmers who knew about the service, only 7 (23%)

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had used it. This example shows that the government of India has not been doing a good job when it

comes to educating the farmers about the options that are available to them.

4.2 Measures Undertaken by NGOs

India does not have adequate mental health services, especially in rural areas. There are approximately

3,500 psychiatrists within the country. In light of inadequate infrastructure and support for individuals

suffering from depression and suicide-prone illnesses, many NGOs have cropped up in both rural

and urban India with the goal of providing support for such individuals.

Such NGOs are an access-point for individuals that need assistance. Once the door has been opened,

the organizations can provide professional counseling and mental health. The NGOs have also

attempted to bring the issue of suicides to light by raising awareness in the public and the media.

However, it must be pointed out that there is a lot of variation in the quality of NGOs. Many of these

NGOs hire volunteers, where there is a lot of variability in expertise. Furthermore, there is a lack of

proper quality control measures within these NGOs, and no proper monitoring or evaluation is

undertaken.

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5. Potential Options

5.1 Maintain status quo

Our first option is to maintain the status quo. Existing environmental, social, psychological and

financial constraints will continue to thrive and we expect there to be no reduction in farmer suicides.

Therefore, it is imperative that an external solution be implemented.

5.2 Counseling & Mental Health Support

There are various models of counseling and mental support that could be employed. The idea would

be to help farmers deal with the depression that often leads to suicide. The assumption of this model

is that depression is a significant causal factor behind farmer suicides and confronting poor mental

health would therefore be the most effective option.

Because farmers reside in rural areas, they often lack common services that would otherwise be

available in an urban setting. People who are fortunate enough to recognize and accept that they

may be depressed have the chance to seek counseling, given they have the time and resources.

A rural model that would provide counseling and mental health support would have to be community-

based. Since rural communities are small, farmers are more comfortable talking to people they know

rather than mental health professionals from urban areas. Fellow villagers would have to be involved

as they would be the closest persons available. Self-help groups can act as a support system that

farmers could go to at their own discretion.

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A second alternative could involve women-led counseling groups. These women would act as

counselors who actively make an effort to identify depressed farmers around the community. Current

projects in states such as Maharashtra and Andhra Pradesh involve holding telephone calls or video

conversations with mental health practitioners in cities. Automobiles with the required technology

infrastructure travel to different villages so that farmers can receive consultations.

While such a model would offer solutions aimed at dealing with farmers’ mental health, it may not

necessarily address the vicious cycle of debt. Farmers would still be subjected to droughts that damage

crop yields, and would still be in debt. In the short term, we would not see a significant change in

farmer suicide rates in the region since the program would need time to take effect. Feedback from

various parties would be required, which could be time-consuming, expensive and unmanageable.

Lastly, an impact evaluation of these services would be difficult to administer. We would expect to see

a reduction in the number of farmer suicides and an overall improvement in farmers’ health and well-

being, although the degree of efficiency may be difficult to measure.

5.3 New Crop Insurance

A crop insurance plan could be implemented to deal with the cycle of debt that entraps cotton farmers

across India. This would address the incremental loan required by farmers to cover losses due to poor

agricultural returns.

There have been previous attempts at setting up a viable crop insurance scheme. Initial attempts by

the central government intended to simply provide a payout for individual farmers if their crop failed.

The scheme proved to be unsustainable since there were too many farmers who needed a payout and

too few who could provide funding for the rest; each farmer was subject to the same type of risk. In

21

such an environment, there are no private firms willing to enter the market. Later insurance plans also

failed to diversify risk. Insurance schemes were often based on states and regions. If there is a drought,

it is going to affect every farmer. Village group insurance plans faced the same problems. Consequently,

obtaining a payout became an arduous process.

Some insurance plans have looked at mitigating this risk by offering weather-based or yield-based

payouts. Such schemes would examine trends over a ten-year period or assess the quality of the cotton

yield respectively. The difficulties lie in observing these trends and distinguishing real damage from

poor quality cotton. Any new insurance plan would have to account for these problems or accept that

it may not always break-even.

Most importantly, crop insurance schemes are a cure for debt; they are not a preventive measure. Any

financial solutions needs to address the root causes for debt – that of high costs and poor returns.

Crop insurance may actually contribute to the debt cycle, as insured farmers would be more willing to

take out a loan if they believe that they have a crop insurance safety net to tide them over in the event

of poor returns. We believe that any sustainable and long-term solution needs to focus on erasing the

cause of debt rather than providing a mechanism to repay it.

5.4 Crop Finance/Agriculture Venture Capitalism Model

In order to break the cycle of debt, a more viable solution would be to introduce a scheme where

farmers would receive seeds (and other inputs) as a form of credit and repay with a percentage of their

crop yields. Many farmers lack the initial capital necessary to begin farming; they often turn to

moneylenders on the black market who charge exorbitant interest rates. Credit mechanisms based on

principles of Islamic Microfinance would allow farmers to obtain funding for their various inputs

22

without having to pay any interest or provide collateral. Instead, farmers would pay a fixed “mark-up”

on their goods, or pay financiers in crop yields only if and when they produce positive yields.

Because Islamic Microfinance prohibits the accumulation of substantial interest payments, this allows

the farmer to obtain the necessary input without having to bear the risk of repayment in the event of

failure. Instead, financiers would share the risk. However, due to the nature of the policy problem,

financiers would have to accept a high risk of default.

As a starting point, we have to address the issue of seed funding. We would need donors to initially

contribute larger sums of money in order to start a pilot project. This would either require private

donations or government involvement. Given the extensive red tape plaguing the Indian bureaucracy,

it would be more efficient to have philanthropic involvement from other parties in the pilot stage. The

key aspect here would be to provide authentic and not spurious inputs, and thus address some of the

root causes of low yields. Higher yields should lead to higher returns, which in turn can help farmers

become self-sufficient in the long term.

This scheme targets the farmer suicide problem in India by tackling its roots, and may also account

for factors such as weather or other unforeseen circumstances. Rather than dealing with the effects of

depression and farmer suicides, this plan aims to mitigate the initial danger of debt in the earliest stage

of the farming process. This saves farmers from having to enter into predatory financial agreements,

and gives them the opportunity to create savings. Most importantly, this plan focuses on attacking the

existing political economy of rural debt in a way that none of the aforementioned options do. We

believe that such a solution will have maximum impact in comparison to other solutions.

23

Problems with this scheme could stem from the difficulty in observing positive results or sustainability

in the short run. Yields would increase slowly in the short run, but should reach the required levels

(for financial sustainability) for most cotton farmers in the medium-term. Therefore, the scheme may

not be financially sustainable until the medium term.

24

6. Focus of our Model: Crop Finance/Agriculture Venture Capitalism

As we have discussed earlier, farmers do not possess their own capital to bear the input costs of

cultivation. Consequently, they have to borrow the necessary funds from a variety of sources, which

is the primary causal factor for the constricting debt trap that sometimes forces farmers to commit

suicide. Crop insurance only provides farmers with a potential safety net in case their crops fail and

they are unable to pay off their debts – but it does not attempt to break the cycle of debt. In fact, it

can even be said that crop insurance actually reinforces the existing predatory model as it does not

provide farmers with the alternative of not having to take a loan, but merely provides them with a

means to temporarily pay off moneylenders.

Our organization will be called “Pragati,” which means progress. The objective of this model is to

benefit farmers, and set them on the path of self-sufficiency and development. In other words, our

organization aims at being a catalyst for progress.

The key aim of our model is to target the causal factors of the debt trap and nullify the conditions

which lead it to flourish. Our objective is to provide farmers with alternate means of finance and

capital so that they can reap the benefits of cotton cultivation without having to borrow funds from

predatory moneylenders and other sources. We aim to finance farmers and cultivators that will cover

the separate items required in the cultivation process (see Appendix A). If there is no debt, there is no

harassment, and there is no mental pressure. Farmers can actually concentrate on the cultivation

process and be free from the pressures and worry of having to figure out how to make enough to pay

back their loans. If the objective is to reduce the suicide rate by decreasing the debt burden – the

marginal impact of funds spent (or lost) on crop finance will be much greater than the marginal impact

25

of the same amount of funds that is spent on crop insurance or mental health initiatives. We believe

that the effective implementation of a crop finance initiative, whether through the public or private

sectors, will completely revolutionize cotton farming by empowering farmers and providing them with

a less risky livelihood.

6.1 Basic principles of our model: Islamic Microfinance

Our proposed crop finance model is based on existing principles of Islamic Microfinanceix. This refers

to “the provision of financial services for low-income populations in which the services provided

conform to Islamic financing principlesx.” Also referred to as “Ethical Finance,” it is primarily based

on the principle that “money is not an earning asset in and of itself.” In essence, a financier provides

money to an entrepreneur who then uses his or her skills to invest the money in a business venture.

The profit from the business venture is then shared between the financier and the entrepreneur. It is

important to note that profit-sharing is always a percentage of the realized profit, and never a

predetermined lump-sum. However, in the case of loss, the financier loses all of the invested capital

while the entrepreneur only loses time and effort spent on the venture. This is the most distinguishing

feature of this model, as the risk for the venture is borne completely by the financier and not by the

entrepreneur.

6.1.1 Applications of Islamic Microfinance

Experiments with Islamic Microfinance have drawn attention as an innovative and effective means of

alleviating poverty to those excluded from the mainstream banking system through the provision of

credit access.

26

In a 2007 global survey on Islamic Microfinance across 125 institutions, experts showed that Islamic

finance had a total estimated global outreach of 380,000 customersxi. Although we do not have exact

numbers, we infer from newspaper reports that the market today has tripled to 300 Islamic

Microfinance institutions, offering their services to 1.6 million clients in approximately 32 countriesxii.

The supply of Islamic Microfinance is mainly concentrated in the Islamic countries of Indonesia,

Bangladesh, and Afghanistan, accounting for 80% of global outreach. These services are also being

provided on a smaller scale in Pakistan and throughout the (Middle East and North Africa) MENA

region, including Jordan, Algeria, Syria, and Yemen.

6.1.2 Successful Experiences with Islamic Microfinance

a. The Case of Islami Bank Bangladesh Limited’s (IBBL) Rural Development Scheme

A similar approach to our model has been implemented successfully in Bangladesh under the Islami

Bank Bangladesh Limited’s (IBBL) Rural Development Scheme (RDS) started in 1995. Bangladesh

has had a long history of operating financial institutions based on Islamic principles with support from

the government. Bangladesh’s rural landscape is similar to that of India; a majority of the population

is engaged in agriculture, lives below the poverty line, and has limited access to formal financial

institutions.

Under the program, instead of cash transfers, loans are provided in the form of capital assets that

individuals can use towards income-generating activities such as agribusiness, farming, self-

employment, and setting up small businesses. Liabilities are redeemed on a profit- and loss-sharing

basis. As of February 2012, RDS disbursed US$580 million (TK 45 billion), benefiting 624,591 people

in 13,373 villages within 61 districtsxiii. Women constitute 94% of the beneficiaries, of which nearly

27

half (41%) are between the ages of 18-30. An evaluation of the program showed that clients who

joined the program in 2006 have benefitted from a 33% increase in household incomexiv.

The scheme is primarily funded through the Corporate Social Responsibility arm of IBBL which is

itself financed through the Bank’s investment fund. It has therefore been able to function on a non-

profit basis without financial support from the government or external donors. IBBL has also

established a number of safeguards to ensure long-term sustainability. Given the scheme’s community

development approach, individuals receiving loans are organized into groups, where each individual

serves as a guarantor for other members. Group members meet regularly where field officers inform

members about moral and religious frameworks underlying the scheme and their social rights and

responsibilities towards repayment. Group members also receive other services such as skill training

on entrepreneurship and financial management. The rate of return (based on profit and loss method)

is at 12.5%. Timely repayment is rewarded by a 2.5% rebate, and so a successful member pays only

10% of his or her profit to the bank. RDS’s current repayment rate is staggeringly successful at 99%

of individuals who have made profits from their loans.

b. Evidence of International Donors Supporting Islamic Microfinance

Presently, IFAD is proactively funding and promoting similar initiatives in the Near East, North Africa

and Europe. IFAD’s current pilot projects that are based on similar principles are being carried out in

Sudan, Syria, and Bosnia and Herzegovina where it is testing different contract modalities of the

schemexv. Although the programs are still in a pilot stage, and we do not have confirmed results of

impact, the pilots are showing positive outcomes. For instance, the Agricultural Bank of Sudan

Microfinance Initiative (ABSUMI), which provides loans for agricultural activities and livestock

28

rearing (among other enterprises) with a loan portfolio of US$700,000, had mobilized savings worth

US$72,000 among its 4,500 borrowers.

6.2 Process of the Model

Our model is a venture capitalist model that seeks to adapt the principles of Islamic Microfinance to

crop finance. The financiers will be donor organizations such as foundations, charities or even

corporations, while the entrepreneurs are the farmers themselves. Donor organizations will provide

capital for the cultivation process to farmers. The farmers will then share a percentage of their end of

the year profits with donor organizations. If the crop fails, due to any reason whatsoever, the donor

organizations lose the money they have invested in cotton cultivation while the farmers lose the time

and effort they spent in cultivating the crop.

The key difference with our model in comparison with traditional forms of microfinance is that at

least initially, inputs for crops will be financed purely from a source akin to a charitable donation. The

objective of this model is not to generate a profit for financiers, but to provide farmers with the tools

and means by which they can earn their livelihood without having to resort to predatory elements.

Therefore, it is imperative that financiers be prepared to lose the entire amount invested for a

particular year in case the crop fails.

Support will be provided to farmers in the seed and fertilizer procurement process, as well as in the

final sale of the crop to traders and federations. This non-monetary support also provides advantages

in terms of monitoring the efficiency of the model as well as of the cultivation process. It ensures that

the funds provided are spent on authentic seeds and fertilizers, and not spurious products that will

considerably lower crop yields. It also provides a mechanism for farmers to get an appropriate price

29

for the produced cotton, while providing financiers with an on-the-ground awareness of the actual

yield and the profits from cotton cultivation.

Each stage of the process is explained below:

Stage 1: Initiation

The focus here is to engage with potential donor organizations and obtain funding for the program.

It is critical that the program be marketed not from a profit-making point of view, but more from a

social responsibility point of view. It is imperative that donor organizations be clear that they bear the

entire risk if the crop fails, and that in such cases, there will be no profit for the farmer to share with

them.

Once donors are on board, the next step is to engage with the farming community in focus. The

financing mechanism will need to be clearly explained to farmers to get their buy-in. Once farmers

have agreed to participate, the agreement details will need to be worked out. In essence, this basically

means that the costs and the profit sharing percentages will need to be agreed upon. A great deal of

information will be needed to calculate this figure including total acreage of arable land possessed by

the farmer, average yields predicted, quality and price of inputs requested, existing market sale price,

etc. Once this hurdle has been crossed, a contract may be signed with the farmer detailing out the

agreed terms and conditions.

There are two issues to consider in signing contracts. Illiterate farmers may be reluctant to sign

contracts without knowing the terms and conditions written therein. Therefore, literate volunteers

from the village community may need to be co-opted to verify the contracts before the farmer signs.

A second issue may be that farmers do not possess titles to their land. However, this will not really

pose a problem since our model does not envisage using land as collateral. All that the model is

30

concerned with is the cost of inputs and the profits generated from selling the harvested crops. It is

not necessary that a farmer owns the land he cultivates for him to participate in this program.

This process will happen during before March.

Stage 2: Finance for Inputs

After agreements on profit-sharing with both farmers and financiers have been concluded, the

requisite amount of finance will be invested in seeds, fertilizers, and other agricultural inputs that need

to be purchased before the pre-sowing stage. The critical aspect here is to ensure the purchase of

authentic inputs, and not spurious variants that are available in village markets. This is where the first

stage of non-monetary support also comes in. Our model envisages direct purchase of inputs from

manufacturing corporations themselves. It will also incorporate the transportation expenses of these

implements to concerned farmers from the point of purchase (POP). Many agri-business

organizations have POPs at large peri-urban centers; therefore, the additional costs of transportation

will not be too high in comparison with the cost incurred in the actual purchase of inputs. Moreover,

buying large quantities would facilitate the provision of discounts and other benefits accruing through

economies of scale.

Finance for labor expenses, if required, will have to be dealt with in a different manner. These expenses

are not a one-time expense, and are incurred throughout the period of cultivation. Accordingly, an

assessment will be done on the amount of labor required for each farmer, which will be based on the

amount of arable land he possesses and his cultivation practices. Once the requisite labor hours are

evaluated, a lump-sum will be provided to each farmer to cover his labor costs.

31

The entire process will need to be completely documented. Area of arable land, quantities, per unit

and total costs of inputs, and the total amount of labor man-hours and the funds provided for labor

will be recorded at the site at the time of delivery.

This process will happen during the months of March to May.

Stage 3: Periodic monitoring and follow up

Once the inputs have been provided to farmers, they proceed with the cultivation process. At this

point, the farmer is left to focus completely on cotton farming. Sites can be visited periodically to

monitor the cultivation process, and provide any non-monetary assistance in the event of unforeseen

difficulties. For example, information may be provided on weather patterns allowing farmers to

evaluate whether they need to adjust practices during the sowing or growing periods. Other forms of

assistance may entail liaison with village authorities to provide labor if required. Information generated

through these periodic visits will also be transmitted back to financing organizations so that they are

kept completely aware of the health of their investment.

This process will happen during the months of June to September.

Stage 4: Harvesting and Profit

The final key stage comes during the harvesting and sale season. The model does not seek to intervene

in the harvesting process. However, it seeks to streamline the sale of cotton. Traders and federations

will be contacted either prior to or during the harvesting to agree upon prices that are either greater

than or equal to the MSP. In essence, we will identify certain traders or federations to whom we will

arrange the sale of the crop at competitive prices. As a significant area will be covered, it will be

possible to compare prices across village centers to determine the higher prices being offered by

32

various federations as well as the quantities they wish to purchase. Accordingly, assistance will be

provided to farmers to transport the plucked cotton to various warehouses where the sale will be made.

At the point of sale, the quantity sold, the selling price and the total profit accruing to the farmer will

be documented. Immediately after the farmer has sold his product and collected his revenue, the profit

will be split amongst the farmer and the financing organizations as per the terms that had been agreed

earlier.

In case a farmer chooses to circumvent our identified buyers, it will be difficult to collect our share of

the profit. Accordingly, such farmers will be identified and input support will not be provided to them

for a period of the time in the future.

In the case of crop failure, the exact reasons for crop failure will be documented. The sites will be

visited to assess damage to the crop, and to evaluate if there is any possibility of generating revenue

for the farmer. If some amount of the crop can be salvaged, it will be harvested and sold as per the

process illustrated above. If the entire crop has been lost, this will be documented and the farmer will

be released of the liability of sharing any profit with the financier.

This process will happen during the months of October to February.

6.3 Human Resources and Infrastructure

To implement the crop finance model effectively, a lean organization will have to be set up. The

primary responsibilities of this organization will be to obtain funding through donor organizations,

and employ staff to engage with farmers for the duration of the process. Operations will not be steady.

Instead, the number of activities will rise and fall at various times of the year.

33

We envisage a hub-and-spoke organization structure. Each district will have one supervising manager

who will be responsible for all activities pertaining to that district. There will be a number of village

agents reporting to this supervisor. We foresee that during peak activities, one village agent per village

will be required. The responsibilities for this village agent during the pre-sowing stages will be to survey

the land cultivated by each farmer in the village and conclude the agreement on initial capital and

profit-sharing. Additionally, the village agent will also be required to coordinate the provision and/or

transportation of agricultural inputs to farmers. During the growing season, when activities are

restricted to periodic monitoring visits, one village agent may be responsible for 5-10 villages.

Activities will again scale up during the harvesting season; consequently, village agent deployment will

be required to be increased to one village agent per village.

There will also need to be personnel based at the district headquarters, whose job will be to coordinate

operations with village agents as well as provide assistance to the supervising manager. Additionally,

they will be required to document contracts and information collected at the village level pertaining

to farmers as well as predicted yields. District headquarter assistants can also monitor weather patterns

and prevailing cotton market prices in real-time, which can then be furnished to village agents in the

field. Ideally, 2-3 assistants will be required at each district headquarters.

A separate location that will serve as the overall organization headquarters will need to be established.

The responsibilities at this location will be to obtain funding and engage with donors, as well as

perform oversight activities of the various district headquarters. The headquarters may be staffed

sparingly until the organization reaches a significant scale.

34

As the number of activities is predicted to vary, a mixture of permanent and temporary personnel can

be employed. Village agents can be either temporary or permanent, as the required number of

personnel will vary depending upon the season. However, all personnel based at district headquarters

as well as the overall organization headquarters will need to be permanent as activities at these

locations will go on throughout the year.

6.4 Financial Resources

Establishing the financial health of the organization will have to be done over two stages. The first

stage will be in the short term when the crop finance model is just being launched and then scaled up.

For the first few years, as farmers begin to move up from a subsistence level of farming, crop yields

will still be low and revenues generated from profit-sharing will not be enough to cover the costs of

funding agricultural inputs as well as other administrative costs that will be incurred. Therefore, initial

funding will have to be provided purely from a developmental point of view. The objective of

spending this money is to reduce farmer suicides by breaking the debt trap. Consequently, the primary

targets for this kind of funding will have to be charitable organizations, wealthy trusts, foundations,

as well as socially responsible organizations. Another mechanism for raising resources would be to

engage with agri-business organizations, especially those that produce seeds and other inputs.

In the second stage, over the long term, the net effect of breaking the debt trap should empower

farmers to further refine agricultural techniques. Farmers may be able to use better quality inputs, and

infrastructure may also improve. This will have a tremendous impact on yields. Therefore, as yields

increase over time, profits generated will also rise. At some point in time, revenues generated from

profit sharing may be enough to break even for that particular year. At this point, the model can be

transitioned into a pure financial services organization that specializes in providing crop finance.

35

Funding from donor organizations may no longer be required, as now we can resort to seed funding

from venture capitalists. However, the business model would still remain unchanged.

6.5 Budgeting

Table 1 provides illustrative income and expenditures for the model. The input and related costs are

on the basis of Yavatmal, a specific district in Maharashtra xvi which has witnessed a significant

proportion of farmer suicides. Costs for cotton farming are similar across India as most farmers have

access to similar inputs and broadly follow similar cultivation activities.

We have made key assumptions in preparing this income and expenditure statement. These are as

follows:

1. All our costs are shown per acre. We assume organizational costs (personnel, infrastructure,

miscellaneous and others) to be 10% of the total investment costs per acre. Further

justification for this is shown in the pilot project cost structure. The assumption here is that

some non-investment costs such as personnel and miscellaneous costs will increase

proportionately when acreage covered increases. Further justification can be seen in the cost

structure for the pilot project.

2. Farmer debts in Yavatmal are around US$130 or INR 8,000xvii. We do not have data on land

ownership, therefore we cannot calculate average farmer debt per acre. Hence, we are

assuming average land ownership to be 1 acre per farmer. This translates to average debt of

US$130 or INR 8,000 per acre. If land ownership is higher than our assumed amount, average

debt will decrease which will only have a positive impact on the cost structure.

36

3. We are considering a timeframe of five years. This gives us a clear line of sight into a farmer’s

actual income and expenditure during this period.

4. We will fund the entire cost of cultivation for the first year for each farmer. For every

subsequent year, we will only provide funds for seeds, fertilizers, and pesticides. As seen in

Table 1, this translates to roughly 50% of the total cultivation cost.

5. We have assumed a profit-sharing percentage of 50% of the total annual yield of the farmer

for each year of the five year timeframe.

6. Average cotton yields across India are 194 kg/acrexviii. The average cotton yield for Yavatmal

is 210 kg/acrexix. We also have trial data for certain variants of cotton seeds that have produced

yields of up to 800 kg/acrexx. As we are providing authentic and not spurious inputs, we believe

that this will have a positive impact on cotton yields. Accordingly, we are projecting that yields

will progressively increase across the five year timeframe from 210 kg/acre to 500 kg/acre.

7. Revenue per acre has been calculated based on both the projected yields and the existing

MSP which is US$6.67/kg or INR 4,000/kgxxi. The MSP is a price floor. Consequently, if

cotton is sold at a market price that is higher than the MSP, revenues will only increase.

However, as cotton prices fluctuate considerably year-on-year, we are basing our calculations

on the MSP.

8. According to a report by the Indian Meteorological Departmentxxii, the probability of a normal

drought in Maharashtra is 20%, and the probability of a severe drought is 7%. Therefore, we

37

have assumed that one out of every five years will see adverse environmental conditions, and

the entire crop will be lost. Consequently, we have accounted for losses faced by both Pragati

and farmers due to this one bad year.

9. Costs have been grouped into Investment Expenditure, Personnel Expenditure, Infrastructure

Expenditure and Miscellaneous Expenditure. For a further breakdown of each cost grouping

into individual, please refer to the cost structure of the pilot project as well as Appendix B.

From the budget, it is clear that even if there are major environmental shocks once every five years,

farmers will still be able to erase their debt within six years of implementation. Our model will be

profitable in its 10th year of implementation even after accounting for environmental shocks.

38

Table 1 – Income and Expenditure over a 10-Year Timeframe

Table 1.1 – Income and Expenditure over years 1 to 5

Sr no

Description Year 1 Year 2 Year 3 Year 4 Year 5

($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre)

1 Farmer Debt at Year Onset 130 7800 30 1800 21.33 1280 129.33 7760 87.33 5240

2 Total Cost of Cultivation 216 12960 216 12960 216 12960 216 12960 216 12960

3 Amount Funded by Pragati 216 12960 108 6480 108 6480 108 6480 108 6480

4 Amount Funded by Farmer (2-3)

0 0 108 6480 108 6480 108 6480 108 6480

5 Farmer Debt prior to cultivation (1+4)

130 7800 138 8280 129.33 7760 237.33 14240 195.33 11720

6 Projected Yield 3 180 3.5 210 0 0 4.5 270 5 300

7 Total Revenue (MSP*Projected Yield)

200 12000 233.33 14000 0 0 300 18000 333.33 20000

8 Profit Share accruing to Pragati

50% 50% 50% 50% 50% 50% 50% 50% 50% 50%

9 Pragati Income (Profit Share*Total Revenue)

100 6000 116.67 7000 0 0 150 9000 166.67 10000

10 Farmer Income (7-9) 100 6000 116.67 7000 0 0 150 9000 166.67 10000

11 Farmer Debt at Year End (5-10)

30 1800 21.33 1280 129.33 7760 87.33 5240 28.67 1720

12 Pragati Profit (9-3) -116 -6960 8.67 520 -108 -6480 42 2520 58.67 3520

13 Pragati Overall Profit/Loss since onset

-116 -6960 -107.33 -6440 -215.33 -12920 -173.33 -10400 -114.67 -6880

39

Table 1.2 – Income and Expenditure over years 6 to 10

Sr no

Description Year 6 Year 7 Year 8 Year 9 Year 10

($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre)

1 Farmer Debt at Year Onset 28.67 1720 -30 -1800 -88.67 -5320 19.33 1160 -39.33 -2360

2 Total Cost of Cultivation 216 12960 216 12960 216 12960 216 12960 216 12960

3 Amount Funded by Pragati 108 6480 108 6480 108 6480 108 6480 108 6480

4 Amount Funded by Farmer (2-3)

108 6480 108 6480 108 6480 108 6480 108 6480

5 Farmer Debt prior to cultivation (1+4)

136.67 8200 78 4680 19.33 1160 127.33 7640 68.67 4120

6 Projected Yield 5 300 5 300 0 0 5 300 5 300

7 Total Revenue (MSP*Projected Yield)

333.33 20000 333.33 20000 0 0 333.33 20000 333.33 20000

8 Profit Share accruing to Pragati

50% 50% 50% 50% 50% 50% 50% 50% 50% 50%

9 Pragati Income (Profit Share*Total Revenue)

166.67 10000 166.67 10000 0 0 166.67 10000 166.67 10000

10 Farmer Income (7-9) 166.67 10000 166.67 10000 0 0 166.67 10000 166.67 10000

11 Farmer Debt at Year End (5-10)

-30 -1800 -88.67 -5320 19.33 1160 -39.33 -2360 -98 -5880

12 Pragati Profit (9-3) 58.67 3520 58.67 3520 -108 -6480 58.67 3520 58.67 3520

13 Pragati Overall Profit/Loss since onset

-56 -3360 2.67 160 -105.33 -6320 -46.67 -2800 12 720

40

7. Pilot Project

7.1 Location – Arni, Yavatmal, Maharashtra

We have selected the Yavatmal district in the Central Indian state of Maharashtra to run our pilot

project. Yavatmal is a district located in the eastern region of Vidarbha, in the Indian state of

Maharashtra. The district extends over a total area of 13,584 km2 with a population of 2,775,457

constituting about 2.46% of Maharashtra’s total population (India Census, 2011). From 1991 to 2001,

Yavatmal’s population increased at a rate of 18.35%. However, the latest Census noted a sharp decline

in the decadal growth rate for the period 2001 – 2011 at 12.78%, well below the national average of

17.61% (India Census, 2011).

Figure 3. Map of District Yavatmal

Source: Maps of India, Based on the Indian Census 2011 (http://www.mapsofindia.com/maps/maharashtra/districts/yavatmal.htm)

41

Yavatmal consists of 16 Talukas (administrative divisions). The District Magistrate (DM) appointed

by the State is responsible for all the administrative and financial activities of the district. In India,

rural districts are further decentralized into local administrative subdivisions. A lower level of local

government is the Gram Panchayat, headed by a locally elected representative known as the Sarpanch,

who oversees administrative matters for a cluster of villages (usually 2-3). Each village in turn is led

by a Gram Sabha and Village Council. Yavatmal has 1,207 Gram Panchayats with 6,272 members. For

an organizational chart showing the hierarchy of Indian government, see Appendix D.

The total cultivable area of the district is 898,214 hectares (74.75% of the total geographical area),

which is split amongst food grains, cotton, and other cash cropsxxiii. Out of this, 401,861 hectares

(44.74%) is used to cultivate cotton. It is not impossible to run a pilot in this district. We will focus

on a region comprising 10 villages around the town of Arni in the center of the district. On average,

each village cultivates about 187 hectares of cotton. Therefore, our pilot project will be run across a

total cultivable area of 1,870 hectares, which translates to about 4,606 acres. In addition, Arni has a

significant cotton market, and has better accessibility and connectivity due its proximity to a state

highwayxxiv.

7.1.1 Rationale for Choosing Location

The district of Yavatmal has seen some of the highest number of farmer suicides in India. It is at the

heart of the crisis in Vidarbha, a region that reports the highest farmer suicides in the country. Between

the 2000-2012 period, 2,837 farmers committed suicide in the district, and the magnitude of the

problem continues to worsen. According to the most recent figures, 141 farmers had committed

suicide between January and August last year (2013)xxv.

42

Moreover, the prevailing political, environmental and social conditions are an accurate reflection of

traditional areas where the farmer suicide problem is observed. Weather conditions in the district

swing from one extreme to the other; hot and dry in the summer, and very cold in the winter with

monsoon showers mid-year. These weather conditions are characteristic of the regions located along

India’s central belt. The average annual rainfall is between 900 to 1100 milliliters. While rainfall has

been within range over the past decade, it is untimely rain that severely impacts agricultural

productivity. For example, a recent hailstorm in March 2013 destroyed over 90,000 hectares of the

crop in Yavatmal, completely wiping out the cotton harvestxxvi.

Additionally, the district is predominantly rural and tribal with 78.42% of the population residing in

rural areas. A low level of industrial development has confined employment opportunities to

traditional occupations such as agriculture, mining, and forestry. 63% of the working population is

engaged in agriculture. The lack of infrastructure in the region has contributed to poor social and

economic development in the region. Consequently, there is a significant lack of opportunities for the

rural poor to pursue non-farming means of livelihood. This is, again, typical of most rural districts

within the country.

As political, social, and environmental conditions in Yavatmal are representative of the Central cotton

growing belt in India, we believe that a test run of our model in this area would provide both internal

and external validity for any evidence which can support the extension of our model to a greater part

of the country.

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7.2 Pilot Project Activities

Stage 1: Initiation

Two key activities need to be done as part of the initiation stage. These activities must be completed

before March. The key activities are:

I. Funding

o Obtain funding for the pilot in association with the principles enunciated earlier.

II. Outreach and Data Collection

o Engage with Village Councils and farmers to explain the financing mechanism, as well

a step-by-step explanation of expectations, with a clear emphasis on potential benefits.

For the pilot project, we will focus on a profit share of 50% of the total revenue

generated by the farmer.

o Collect detailed data on land ownership patterns, agricultural inputs used (variants of

seeds, fertilizers, pesticides, and others), annual labor costs, potential yields,

procurement and marketing mechanisms, historical and prevailing weather patterns,

water and electricity availability and usage, and cotton cultivation timelines.

o Sign binding contracts or documents once all conditions have been agreed upon and

data has been collected.

Stage 2: Provide Inputs

The main focus of this stage would be to provide all agricultural inputs and resources to farmers. This

must be completed between March and May, or as early as possible. The key activities are:

44

I. Purchase the requisite amounts of particularly high-yielding variants of seeds, fertilizers,

pesticides and other inputs directly from organizations.

II. Arrange for the transportation of agricultural inputs to farmers.

III. Provide cash directly to farmers for labor expenses.

IV. Certify that all goods and cash have been provided to farmers at the time and site of

delivery.

Stage 3: Periodic monitoring

This stage is less intensive in comparison with other stages. The timeline is from May to September,

before harvesting begins. The main activities are:

I. Periodic site visits to monitor the cultivation process.

II. Provide any non-monetary assistance in the event of unforeseen difficulties. (For example,

information on weather patterns and assistance in obtaining agricultural labor)

III. Keep donors apprised on pilot project progress.

Stage 4: Harvesting and Generating Revenue

This is one of the most critical parts of the entire pilot project. Activities will center on the actual

harvesting and sale of cotton, as well as collection of the 50% share of the profit from farmers. This

process will happen from October to February.

In the event that the crop is a success, the key activities will be:

I. Demand-side

o Identify potential buyers in Arni to whom our chosen villages can sell their produce.

45

o Engage with cotton buyers to gain an understanding of prevailing cotton market prices

in the Arni cotton market.

o Finalize cotton quantities and prices with buyers.

o Agree on a window of 2-4 days with buyers, when the produce of all 10 villages can

be brought to Arni for sale and collection of revenue.

II. Supply-side

o Liaise with Village Councils and farmers to ensure that all harvesting activities are

completed prior to the opening of the buying window.

o Arrange logistics and any related support for farmers to transport the entire yield from

the village to the market during the buying window. Economies of scale can be

generated here.

III. Overseeing transactions

o Assign personnel at each buyer’s location to direct farmers to authorized buyers,

monitor cotton handover, and oversee revenue collection.

o Facilitate and monitor transaction between buyers and sellers, and document price,

quantity sold and profit generated by each farmer.

o Collect 50% share of the profit from each farmer as in pre-agreed terms, as soon as

buyer-seller transaction is concluded.

IV. Follow-up

o Certify collection amounts through contracts and related documentation.

o Identify Village Councils and farmers who have violated the agreement in terms of

chosen buyers and inform them that they will not receive inputs for the next five years.

46

In the event of a crop failure, the key activities will be to:

I. Visit sites

o Document exact reasons for crop failure, assess actual damage to the crop, and

evaluate if there is any possibility of salvaging.

II. If any amount of the crop can be salvaged, it will be harvested and sold per the process

illustrated above.

o In case of total crop loss, this will be certified in the presence of the village council

and the farmer, who will then be released of any liability.

7.3 Human Resources and Infrastructure

For a robust execution of the pilot project, our personnel will need to cover 10 villages. We will also

need a regional office with geographical proximity to Arni as an overall coordination and oversight

hub. The regional office will have a lean staff of three personnel, including the operational director of

the project. In addition, we will need to set up another hub in a metropolitan city which will be

responsible for managing donor relationships. The regional office will also have a staff of three

personnel, including the overall project director who will be directly coordinating with donors.

All activities at the village council across all four stages of the pilot will be handled by village agents.

As the number of activities rises and falls, especially during different stages, we will need a mix of

permanent personnel and volunteers. During peak season activities, we will need a total of 10 village

agents (one village agent per village), which can be reduced to four village agents during the monitoring

47

stage (one village agent per 2.5 villages). These four village agents will be permanent personnel. For

the permanent personnel, we will hire recent college graduates from the district itself as they will

possess required knowledge of local conditions and language skills. For our remaining six village agents,

we will hire six volunteers, who will be existing college students. While our permanent personnel will

be salaried employees, our temporary volunteers will be unpaid interns. We believe that experiential

learning and knowledge will be a strong incentive for them to come on board, along with the

opportunity of permanent employment in the future should this start to scale-up.

We propose Nagpur as the location for the regional office. Nagpur is a large urban center about 200

km away from Arni. It has modern infrastructure, and has strong connectivity to major metropolitan

centers such as New Delhi and Mumbai. Moreover, in Nagpur, it will be much easier for us to procure

essential office supplies such as furniture, desks, computers, and access to the internet.

Our operational director will be hired on a permanent basis. We would ideally focus on hiring someone

with experience in microfinance as well as agriculture. For the two supporting personnel at the regional

office, we will hire interns who will be recruited from institutions of higher education in Nagpur. We

will pay these interns a reasonable stipend.

We propose to have Mumbai serve as the location for our headquarters. As real estate in Mumbai is

very expensive, we would ideally not look at renting out commercial spaces. We can run donor-based

operations smoothly even from a small studio apartment, which will be much cheaper. Mumbai will

provide us with all the required facilities and amenities to run a small office. Similar to the two

supporting personnel at the regional office, the main office will also be staffed with two interns who

48

can be sought at the many higher educational institutions in Mumbai itself. We will pay these interns

a reasonable stipend.

Figure 4 indicates the organization structure for the pilot project.

Figure 4: Pilot Project Organization Structure

We will pay our permanent village agents US$10,000 (INR 600,000) annually. This is a competitive

salary for college graduates even in peri-urban centers. For our operational director, we will have a

salary budget of US$25,000 (INR 1,500,000) annually. Additionally, we will have a total budget of

US$16,000 (INR 960,000) for our four interns at both the regional offices and at headquarters.

7.4 Pilot Project Budget

Table 2 provides the expenditure and income details for the pilot project. The key assumptions for

our pilot project are the same as assumptions 3 to 9 in our budget model in section 7.5, with some

slight differences. For the purposes of clarity and convenience, we list them here again:

1. We are considering a timeframe of five years. This gives us a clear line of sight into a farmer’s

actual income and expenditure during this period.

Project Director (Mumbai)

Operational Director

(Nagpur)

6 Volunteer Village

Agents (Nagpur/Arni) 4 Permanent Village

Agents (Nagpur/Arni) 2 Regional Office

Interns (Nagpur) 2 Headquarter Interns

(Mumbai)

49

2. We will fund the entire cost of cultivation for the first year for each farmer. For every

subsequent year, we will only provide funds for seeds, fertilizers, and pesticides. As seen in

Table 1, this translates to roughly 50% of the total cultivation cost.

3. We have assumed a profit-sharing percentage of 50% of the total annual yield of the farmer

for each year of the five year timeframe.

4. Average cotton yields across India are 194 kg/acrexxvii. The average cotton yield for Yavatmal

is 210 kg/acrexxviii. We also have trial data for certain variants of cotton seeds that have

produced yields of up to 800 kg/acrexxix. As we are providing authentic and not spurious

inputs, we believe that this will have a positive impact on cotton yields. Accordingly, we are

projecting that yields will progressively increase across the five year timeframe from 210

kg/acre to 500 kg/acre.

5. Revenue per acre has been calculated based on both the projected yields and the existing

MSP which is US$6.67/kg or INR 4,000/kgxxx. The MSP is a price floor. Consequently, if

cotton is sold at a market price that is higher than the MSP, revenues will only increase.

However, as cotton prices fluctuate considerably year-on-year, we are basing our calculations

on the MSP.

6. According to a report by the Indian Meteorological Departmentxxxi, the probability of a normal

drought in Maharashtra is 20%, and the probability of a severe drought is 7%. Therefore, we

have assumed that one out of every five years will see adverse environmental conditions, and

the entire crop will be lost. Consequently, we have accounted for losses faced by both Pragati

and farmers due to this one bad year.

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7. Costs have been grouped into Investment Expenditure, Personnel Expenditure, Infrastructure

Expenditure and Miscellaneous Expenditure. For a further breakdown of each cost grouping

into individual, please refer to the cost structure of the pilot project as well as Appendix B.

Table 3 provides the cash flow statements per projected incomes and expenditure for the five year

period. The assumptions made are the same as above.

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Table 2: Expenditure and Income 5-year projection

Sr No

Description

Year 1 Year 2 Year 3 Year 4 Year 5

Amount (US$)

Amount (INR)

Amount (US$)

Amount (INR)

Amount (US$)

Amount (INR)

Amount (US$)

Amount (INR)

Amount (US$)

Amount (INR)

Expenditure

1 Investment Expenditure 994,896 61,397,980 479,024 29,155,980 479,024 29,155,980 479,024 29,155,980 479,024 29,155,980

2 Personnel Expenditure 101,000 6,060,000 101,000 6,060,000 101,000 6,060,000 101,000 6,060,000 101,000 6,060,000

3 Infrastructure Expenditure 13,000 780,000 13,000 780,000 13,000 780,000 13,000 780,000 13,000 780,000

4 Miscellaneous Expenditure 15,000 900,000 15,000 900,000 15,000 900,000 15,000 900,000 15,000 900,000

5 Total Expenditure (1+ 2+3+4) 1,123,896 69,137,980 608,024 36,895,980 608,024 36,895,980 608,024 36,895,980 608,024 36,895,980

Income

6 Projected Yield (qt/acre) 3.00 3.00 3.50 3.50 0.00 0.00 4.50 4.50 5.00 5.00

7 Total Revenue 921,246 55,272,000 1,074,787 64,484,000 0 0 1,381,869 82,908,000 1,535,410 92,120,000

8 Profit Share accruing to Pragati 50% 50% 50% 50% 50% 50% 50% 50% 50% 50%

9 Pragati Income (Profit Share*Total Revenue)

460,623 27,636,000 537,394 32,242,000 0 0 690,935 41,454,000 767,705 46,060,000

10 Farmer Income (7-9) 460,623 27,636,000 537,394 32,242,000 0 0 690,935 41,454,000 767,705 46,060,000

11 Pragati Profit (9-5) -663,273 -41,501,980 -70,630 -4,653,980 -608,024 -36,895,980 82,911 4,558,020 159,681 9,164,020

12 Pilot Project Overall Profit/Loss since onset

-663,273 -41,501,980 -733,903 -46,155,960 -1,341,927 -83,051,940 -1,259,017 -78,493,920 -1,099,336 -69,329,900

Table 3: Cash flow statement summary

Sr No

Description

Year 1 Year 2 Year 3 Year 4 Year 5

Amount (US$)

Amount (INR)

Amount (US$)

Amount (INR)

Amount (US$)

Amount (INR)

Amount (US$)

Amount (INR)

Amount (US$)

Amount (INR)

1 Funds Available 0 0 460,623 27,636,000 537,394 32,242,000 0 0 690,935 41,454,000

2 Total Projected Expenditure 1,123,896 69,137,980 608,024 36,895,980 608,024 36,895,980 608,024 36,895,980 608,024 36,895,980

3 Amount of Funding Required (2-1) 1,123,896 69,137,980 147,401 9,259,980 730,630 4,653,980 608,024 36,895,980 0 0

4 Total Income for the Year 460,623 27,636,000 537,394 32,242,000 0 0 690,935 41,454,000 767,705 46,060,000

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From both income and expenditure and cash flow statements, we see that a total infusion of US$1.95

million (INR 120 million) will be required over the five year period. In Year 1, US$1.12 million (INR

69 million) will be required. This decreases to US$147,401 (INR 9.3 million) in Year 2. However, as

yields are now predicted to increase, funding requirements for Year 3 will fall to US$70,630 (INR 4.65

million). Funding will again rise in Year 4 as we are projecting Year 3 to be a year of crop failure due

to external shocks. Therefore, in Year 4, US$608,024 (INR 36.9 million) will be required. Since we

expect Year 4 to be a good year with high yields, we will not need funding for Year 5.

We project that our pilot project will become profitable in Year 4. Profit for this year is predicted to

be US$82,911 (INR 4,558,020). Year 5 will have higher profits at US$159,681 (INR 9,164,020).

However, over the five-year period, the project will make a net loss of US$1.1 million or INR 69

million. This is because the first two years have low revenues as yields are still low, albeit slowly

increasing. Moreover, a complete loss of revenue in Year 3 will also contribute to this net loss.

However, as has also been shown earlier in the 10 year cost structure per acre, after Year 5 onwards

the project should be profitable except in bad years when the crop fails. Over a five year cycle, enough

profit will be generated over the remaining four years to cover the losses made in the one bad year.

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8. Stakeholders

8.1 Local

a. Farmers

Role: Farmers are the targeted beneficiaries of the various public and private schemes proposed to

address farmer suicides. Farmers who do not own land but typically lease the land from an absentee

landlord are called “sharecroppers” or “tenants”.

Position: We anticipate buy-in from farmers, given that they would receive capital to cover a

substantial portion of their input costs, and would not need to resort to higher levels of debt. Because

the farmers’ next best option would be to stick with the status quo, they would earn a higher overall

profit as they now have to repay a much smaller amount of debt.

b. Moneylenders

Role: Because farmers have limited access to credit from traditional financial institutions, black market

moneylenders have generally been the only channel through which farmers could access finance.

These moneylenders charge high interest rates on loans, and they are a major contributor to the high

debt levels that result in farmer suicides.

Position: Because the model eliminates or severely restricts the demand for additional finance among

farmers, moneylenders would likely be opposed to this plan. They have generally benefited from the

farmers’ cycle of debt.

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c. Landlords

Role: Landlords lease their land to farmers. Because many of the landlords are city dwellers (or

“absentee landlords”), it is more efficient and profitable for them to lease out the land rather than

engage in farming activities themselves.

Position: Landlords benefit in the existing scenario as they collecting rent from tenants. Most

landlords would be indifferent towards a new scheme aimed at farmers, given that they would still be

receiving rent.

d. Village Council

Role: The local Village Council and Gram Panchayat are the lowest grassroot representative bodies

that interact with local farmers. The head of the Gram Panchayat, the Sarpanch, is charged with

various administrative responsibilities. Because of the small and varying size of villages, Village

Councils have limited capacity. They do, however, have the most contact with individual croppers and

would have the most information about each client farmer. Gram Panchayats encompass multiple

villages and would have common information across a number of villages. Gram Sabhas – meetings

involving the entire eligible voting population from the village – ensure that Gram Panchayats

faithfully carry out their duties.

Position: Gram Panchayats would have to be involved with the implementation and evaluation

processes of any new program. The Sarpanch would have the massive task of helping to determine

who would participate in the program and work with Pragati’s village agents. Assuming we see a high

demand for our new scheme, the Gram Sabhas would be a significant source of support and

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information. They would also be interested assisting in implementation with a view to improve both

efficiency and governance.

e. Cotton Buyers and Sellers

Role: Wholesale cotton buyers source their product from local farmers. Because of the competitive

nature of the cotton farming industry, the government has introduced a MSP. In many cases, cotton

traders form a federation and buy in bulk from local farmers. Cotton prices may also fluctuate with

rising supply and demand, and especially in response to global price fluctuations. However, the actual

price does not fall below the government mandated MSP or price floor.

Position: We do not expect wholesale cotton buyers or cotton farmers to oppose our new program.

An increase in cotton in the market would benefit all parties. Wholesale cotton buyers may be more

likely to support our program since they would expect to see more consistent yields and more choice

in choosing their suppliers.

8.2 State

a. District Administration

Role: There are various government actors who would have a role in any new scheme. The three tiers

in the structure of local governance are, in descending order: District, Taluka, and Gram Panchayat.

The administrative head of a particular District is known as the District Magistrate (DM) who is a civil

servant appointed by the government. District-level government is the main contributor of funds at

the local level. The district administration is appointed and is responsible for the entire district – in

our instance, Yavatmal. Yavatmal’s district is divided into 17 sub-divisions (or Taluka). The Taluka is

56

the administrative division of the national government composed of various civil servants. For an

organizational chart showing the hierarchy of Indian government, see Appendix D.

Position: Given that our pilot is fairly small and concentrated over 10 villages in Arni, the district

magistrate (DM) is unlikely to be directly involved. Considering the hierarchical nature of the

government administration and power the DM holds in the district, support from the DM for our

project will facilitate our interactions with officials at the village level. District Officials have their own

objectives, based on our experience from working in India and from our interview with Dr. Srijit

Mishra (See Appendix C). However, we feel that it will be not too difficult to convince DM and district

officials of the logic behind our intervention and they will be supportive of our project.

b. State Government

Role: The state government appoints all administrative officials in the district and organizes Village

Councils and Gram Panchayat elections. The government is also responsible for various schemes and

measures that seek to provide relief to farmers. In addition, the government is also responsible for

supporting agricultural activities and controls a number of organizations that directly deal with farmers.

Position: Suicides in Maharashtra’s Vidarbha region have attracted considerable political and media

attention, much to the detriment of the state and national government. With national elections

currently underway and state elections scheduled later in the year, we do not expect any disruption

from the elections since we plan to begin implementation in January next year. It will, in fact, be an

opportune time for initiation, as there have been a number of campaign visits by politicians across

party lines in the area promising better infrastructure and support. With a new government in place

both at the national and state level, there are increased probabilities that there will be greater

momentum towards positive developments on the infrastructure front, which will complement our

57

efforts. We see no opposition from the state government. In addition, if our model is funded by IFAD,

the government should be extremely supportive of our intervention.

8.3 External

a. Our Client/Donor (IFAD)

Role: The International Fund for Agriculture and Development (IFAD) is a specialised agency of the

UN, and was established as an international financial institution in 1977. IFAD has hired Pragati to

come up with a model that addresses the issues of farmer indebtedness that contribute to the rising

number of farmer suicides in Maharashtra.

Position: We anticipate buy-in from IFAD as they are our client. In 2009, IFAD established a US$40.1

million (INR 2.4 billion) fund to assist farmers in Maharashtra. IFAD finances agricultural

development projects in developing countries, specifically in helping Indian farmers overcome

agrarian distress. With this fund, we believe that IFAD will adopt the model that we propose in this

paper. IFAD has already implemented projects in Maharashtra to help address related issues. We do

not expect any significant opposition to our program from IFAD. A model that attempts to directly

address one of the main causes of farmer suicides (debt) will be beneficial to and is in line with IFAD’s

mission in Maharashtra.

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9. Challenges

We foresee a number of challenges in establishing Pragati on the ground. These can be either

organizational or contextual. Organizational challenges would be specific to the actual roll-out of each

stage that would affect efficiency and profitability. Contextual challenges would be due to the

prevailing political and socio-economic environment that would hinder effectiveness.

9.1 Organizational Challenges

9.1.1 Corruption amongst village agents

Effective revenue collection is dependent to a large extent on village agents. Village agents are the

primary source of information regarding the actual yield of the farmer, and therefore, the actual

revenue generated. There is an attractive opportunity for a village agent to collude with farmers and

underreport yields. This would result in the organization generating a lower profit than what should

actually be accrued, with the village agent pocketing the difference. Having more than one village agent

overseeing a particular transaction may be one way to address this gap; however, this may lead to a

significant increase in administrative costs. Moreover, there may be a possibility of collusion amongst

village agents to defraud the firm. An alternative method would be to provide farmers with the ability

to report such incidences of fraud if observed. However, instituting such a mechanism would again

increase administrative costs. This strategy will not work if the farmer himself colludes with the village

agent to underreport yields.

Solution: Pragati’s strategy of centralizing the buyer-seller transaction at Arni would serve as a

safeguard against potential corruption. Centralizing transactions at a particular geographic location as

well as a specific time period facilitates the presence of almost all 10 village agents. The possibility of

59

collusion amongst all 10 village agents will be relatively low as each can act as an observer and a check-

and-balance. Moreover, as some village agents will be temporary personnel (unpaid interns), they will

not have the time or opportunity to develop strong relationships and internal trust required for such

corruption to take place.

9.1.2 Maintaining authenticity of inputs

A critical requirement for success of the project is authentic inputs. Spurious inputs such as seeds,

fertilizers and pesticides would cause yields to stagnate, thus threatening the financial viability and

sustainability of the model. It is critical that proper inputs are sourced so that yields increase and lead

to greater returns for both farmers and Pragati. In this scenario, the only factors that may threaten

higher yields would be environmental factors, which in any case, cannot be controlled.

Solution: Procuring inputs directly from agri-business companies would guarantee authenticity of

inputs. As inputs are directly sourced from the seller, Pragati would need to focus on rural markets

where spurious inputs are prevalent. Specific high-yielding variants of seeds, fertilizers and pesticides

can be procured from reputed vendors which would contribute to higher crop yields. Moreover,

sourcing inputs in bulk from chosen vendors would also generate economies of scale. This can be

translated into discounted prices and other post-sales services that would help in lowering costs and

boosting overall profitability.

9.1.3. Transportation of inputs to farmers

Once inputs have been procured, there is the matter of transporting them to farmers. This would

entail logistical costs as well as a certain effort required in coordinating between vendors and farmers

60

(the end customer). If not managed well, such costs can be significant and harm the financial viability

of the project.

Solution: Economies of scale can be generated to lower costs of transportation. A significant

advantage for the pilot project is that our villages are in close proximity to each other as well as the

large agricultural market in Arni. One potential strategy can be to source the inputs directly from

approved dealers or distributors in Arni itself. This will significantly lower transportation costs as well

as the effort required to coordinate between vendors and farmers. Another potential strategy would

be to persuade the vendor to transport the inputs to farmers directly at their own cost. It may be

possible to pursue this outcome as bulk purchasing would lend Pragati with significant bargaining

power vis-à-vis vendors.

9.1.4. Coordinating the sale of cotton

The harvested cotton needs to be sold at a competitive price (or at least the MSP) for both the farmer

and Pragati to earn revenue. This revenue is critical not just for ensuring Pragati’s long term

sustainability, but also to provide the farmer with a stable income and the means to escape the debt

trap. Moreover, a steady revenue stream will be a fillip to potential donors and would help us to obtain

funds. Consequently, if we are unable to facilitate the sale of cotton, the model would face a significant

threat.

Solution: The key strategy here is to network with federations of cotton traders and textile companies.

Such entities buy cotton in bulk, either for further sale or internal production. By partnering with such

organizations, we can negotiate a competitive price as well as facilitate the sale of a significant portion

of the yield produced by farmers in our 10 chosen villages. Establishing a strong relationship with

61

potential buyers would also lead to future benefits as farmers can now focus on becoming long term

suppliers to these entities, thus guaranteeing a steady income from agriculture for the future.

9.2 Contextual Challenges

9.2.1 Farmer Uptake

One of the primary impediments to the success of government-sponsored crop insurance schemes

(such as the NAIS) as well as private insurance products designed to compensate low-income indebted

Indian farmers is low rates of adoption by farmer households. For instance, the NAIS covers only 25

million of the 110 million farmer households in Indiaxxxii. The key barrier to participation is related to

the inability to pay for insurance premiums due to credit constraints and the lack of liquid funds

available to poor households. While newer schemes have attempted to address these obstacles by

offering discounts on premiums, reducing transaction costs, and delaying payments, demand for

insurance remains highly price elastic. Secondary obstacles to adoption include partial understanding

of insurance products, financial illiteracy, and reluctance to trust service providers.

Solution: Our proposed solution is narrowed to address the root cause of credit constraint that

inhibits the demand for insurance. We expect there to be considerable demand for our product for

two main reasons:

1. A 2011 survey of the area reveals that more than half of the Indian farmers in Yavatmal

were in debtxxxiii. In our model, farmers are not required to make commitment in cash until

their crop is harvested. Unlike any other scheme, we share the losses of crop damage,

ensuring that our intervention does not burden farmers with additional debt liabilities.

2. Institutional borrowing requires collateral, which many farmers cannot provide. Moreover,

the average rate of interest paid by suicide affected farm households to moneylenders is

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67% per annum. Thus, existing options are highly unfavorable to cotton farmers in the

region. Our solution is the only alternative where the farmers well-being the primary

objective. Marketing it as such, we will recruit community volunteers to promote and

increase awareness about the scheme to help overcome the secondary obstacles of trust

and financial illiteracy outlined above.

9.2.2 Overlap between Public/Government and Private Schemes

Since 2003, the government has opened up the crop insurance market to private players resulting in

greater competition between public and private players. There could be a concern that we are

duplicating the efforts of various interventions in the region and playing a role that should rightfully

be under the government’s domain.

Solution: Existing alternatives that do not serve farmers’ interest have failed to reduce farmer suicides

and failed to serve farmers’ interests. On the contrary, we have witnessed a steep rise in farmer suicides

in recent years. The objective of our model is to provide a better alternative to existing options.

Furthermore, we do not expect competition or overlap from other players to impact the market. The

focus of this pilot project is to address the gaps resulting from the poor reach and low levels of

coverage of other schemes, which continues to leave a large majority of farmers vulnerable to the

vagaries of crop failure. Participation in the scheme will be completely voluntary and efforts will be

made to ensure that farmers who are involved make an informed choice.

9.2.3 The political economy of village heads, moneylenders and landlords

A majority of farmers have tenancy agreements with landlords who grow crops on their land.

Landlords often hold administrative power as the village head, but in many cases they also double up

63

as moneylenders, making the farmer dependent on one source for land, capital and rights. The power

imbalance further impoverishes farmers. This model addresses a part of this production paradigm by

decreasing farmer dependence on credit. There is the possibility that the landlord may evict current

farmers and hire labor on contract to till the land so that the benefits of the intervention accrue directly

to him. Moneylenders may also view any new solution as a threat to their existing cash flow.

Solution: We do not see this as a considerable challenge given that the returns from agriculture are

low. Farming is extremely labor intensive and requires high levels of supervision and monitoring. Most

landlords are not involved in the process of farming, and it is unlikely that they will have the inclination

to directly supervise the process. They are also likely to have alternative sources of income from

employment in urban areas. In our meetings with the Village Council and Gram Panchayat, we will

highlight the fact that this intervention will be beneficial to them and the village as a whole since a rise

in farmer incomes and agricultural productivity will increase their overall income as well.

Landlords could decide that they can earn higher returns through our model by purchasing inputs,

rather than continuing to lease their land and engage a tenant who currently bears input costs.

However, in this scenario, the tenant would in effect become an agricultural laborer or an overseer,

who provides a specific service to the landlord for a regular income. As the nature of cultivation

activities is not changing, the level of employment will remain the same so there would be little or no

job loss. While the tenant would now possibly earn lesser income, he would no longer need to take

out a loan since he is not bearing the cost of inputs.

Given the often poor repayment rate, some moneylenders could actually benefit from a new

program that would make farmers more self-sustainable, and thus more likely to repay loans. We

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cannot assume this to be the case for all moneylenders, but we might be able to mitigate backlash if

they see themselves as partners in creating a new client base.

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10. Monitoring and Impact Evaluation

10.1 Impact Evaluation

Our impact evaluation model will be based on a “results chain”, We will observe the different stages

of our project through the lens of inputs, activities, outputs, outcomes, and final outcomes. The first

four stages will deal with implementation. The final two stages will involve an assessment of the ends

we wish to reach. Throughout our model, we will seek to carry out SMART (specific, measurable,

attributable, realistic, and targeted) performance indicators based on the World Bank’s Impact

Evaluation in Practice.

The inputs that our organization will be providing to the farmers will largely depend on the financial

resources that are available to us. We have outlined the different farming activities and their associated

costs in Appendix A. Our chief concerns include determining the best way to distribute funds,

providing necessary capital, and deciding which farmers could benefit the most from the program.

We will have a number of students (preferably those with knowledge of the area and/or agriculture)

work with several farmers, depending on the location of the farms and the availability of students.

These students will help assess what inputs the farmer already has, and determine what level of

additional inputs the farmer would need based on the available arable land.

In order to ascertain the effect of the project, we have to be able to accurately measure the outcomes

of the project. The results we measure will include yield rates, farmer debt levels, amount of inputs

and, in the long run, suicide rates within the area that we are focusing on. We hypothesize that we will

not see significant increases in yields in the near term. However, as farmers become more efficient,

we expect to see significant gains in yields in the medium term. We do not expect farmer suicide rates

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to change in a statistically significant manner in the short run; however, we expect suicide rates to fall

in the long term.

Outcomes will be based on the resulting debt held by the farmers. We want to avoid an increase in

farmer-held debt from the onset of the program, and achieve an eventual reduction in debt in the

medium term. The solution ultimately requires that the program is able to control debt among

farmers in the initial years of implementation, with a slowing rate of debt in the years that follow. In

the short run, we do not expect the farmers existing debt levels to decrease by a significant margin.

However in the medium and long term, as farmers’ savings increase, we expect debt levels to be

reduced to zero.

Final outcomes will be determined based on the number of suicides among farmers, particularly

those among communities in which our program is present. If this is successful, we expect to see a

significant reduction in the number of farmer suicides in the district of Yavatmal, and an expansion

of this program to other parts of the state once funding is available.

10.2 Monitoring Yields - Annual Survey

In order to assess the performance of the program when it comes to improvements in yield rates, we

will conduct two separate surveys. First, we will randomly survey farmers in a control group and ask

them about their yields. The survey will also include other questions that will help us control for

factors that could influence a farmer's decision to join a program. The answers will initially be

recorded on paper, and then transferred to an electronic spreadsheet at the head office. The control

group will consist of farmers in the area that we are serving, but are not in the program. We will then

randomly survey farmers who are in our program, and ask them the same set of questions as we

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used on the control group. Furthermore, we will supplement the yield data gathered from surveys

with yield data that we will get at the end of the season when we collect money from them. After the

data is collected from both the control and treatment group, we will analyse the data to see if there is

a statistically significant difference between yields in the treatment and control group.

10.3 Monitoring Debt Levels - Annual Survey

In order to keep track of our farmer’s debt levels, we will randomly survey farmers who are both in

the treatment group, as well as in the control group. The survey questions include, but are not

limited to:

a. How many times have you been visited by a debt collector in the past six months?

b. On a scale of 1 to 5, how manageable is your current debt level? (1 being not very

manageable and 5 being very manageable)

c. What is your current debt level?

d. Did you get your loan from a financial institution or a private lender?

These questions will help us ascertain the debt level of the farmers. Since we do not expect all

farmers to accurately tell us the current debt level, we will also use other data (such as visits by

collectors) as proxy variables for debt data. This data will be analyzed and tracked on an annual

basis, in order to determine if our program has a statistically significant effect on farmer debt levels.

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10.4 Monitoring Suicide Levels

In order to ascertain the effects of our program on farmer suicide levels, we will keep track of

farmer suicides within our treatment group. If a farmer who is a part of our program takes his own

life, the information will be noted within our database. We will look at the farmer’s characteristics

that we gained over the years through our surveys, to try and determine a driving factor behind his

suicide. Furthermore, we will examine suicide rates in the area that we are serving once our program

is in place, and compare it to historical suicide rates within the area. This data will be obtained from

the Gram Panchayat and Village Council. The data will be analyzed to determine if there are

statistically significant suicide rates before and after the program has been implemented.

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11. Next Steps: Scaling Up Based on how the crop finance model is implemented over the long term, along with changes in

geographical factors and evolution of agricultural inputs and infrastructure, we have identified two

possible scenarios and consequent strategies over the long term for scaling up the provision of crop

finance.

11.1 Scenario 1: Lack of profitability

In the event that yields do not increase as predicted, there will be a significant threat to the long term

sustainability of the model. It is impractical to assume that funding will be available every year to cover

costs without generating significant revenues. Moreover, even in a particular year, the total amount of

finance that can be raised (purely from the point of view of development) is not very high and thus

the model can reach out to a very limited number of farmers. Over the course of time, the model will

operate in very niche geographical areas and will scarcely have any significant impact on the rate of

farmer suicides across the country.

In this scenario, the ideal strategy would be for the government to take over the financier role. It has

already been demonstrated that crop finance is a far more effective way of protecting farmers than

any existing government scheme such as crop insurance or victim compensation. Depending on how

costs work out, the government may actually save money over the long term because it can allocate

existing funds currently spent on other schemes on crop finance. Moreover, it is only the government

that has the vast financial resources to reach out to cotton farmers across the country. The government

is also the most extensive organization in rural India, and can synergize crop finance activities with

the existing role of the district administration. Another benefit for the government would be that it

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would be able to obtain actual on-the-ground information on land ownership patterns that would

facilitate the effective implementation of other schemes that depend upon this information.

11.2 Scenario 2: Profitability and Self Sufficiency

In this scenario, yields improve over time as farmers employ more effective agricultural techniques

and inputs. This also may occur if the government builds rural infrastructure such as irrigation facilities

and a regular energy supply. In this event, the model can be transitioned to become a pure business

venture that would work on the basis of profitability. While the business model will be replicated

across geographical areas, annual profits can be used to finance expansion.

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Appendix

A. Process and Costs of Cotton Farming

The cotton cultivation process encompasses a number of different stages of cultivation. Each stage

requires specific inputs such as fertilizers, pesticides, and insecticides. There are multiple varieties of

cotton produced in India that vary by region and infrastructure available. This also has an impact upon

cotton yields. However, the cotton cultivation process followed is largely similar for most varieties of

cotton. Water is a primary input, not just for crop nourishment and growth, but also as a medium for

the application of fertilizers through agricultural techniques such as foliarxxxiv. Foliar feeding is a

technique of applying liquid fertilizers directly to plant leaves, as a significant amount of absorption

takes place through leavesxxxv.

The different stages of cotton cultivation are illustrated broadly belowxxxvi. Cotton prices as published

by the Directorate of Cotton Development for each stage have also been listedxxxvii. The prices vary as

per region and available agricultural infrastructure. For instance, cultivation costs are different in

Northern India than in Central India. Moreover, cultivation costs for rain-fed cotton are lower in

comparison with irrigated cotton. For the pilot project, the focus will primarily be on Central India

where irrigation infrastructure is weak. Therefore, the costs presented here are for Central India and

rain-fed cotton cultivation.

Stage 1: Pre-sowing

The pre-sowing process typically takes place around Marchxxxviii. This encompasses all activities before

the actual planting of the crop. Typically, it envisages the purchase of fertilizers and seeds. A number

of activities take place prior to planting such as application of fertilizers to the soil. Fertilizer quantities

also vary depending upon the prior crop grown on the same land. Fertilizers are mixed proportionally

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with water and applied directly to the soil, concentrating on the root zone. Additionally, after the seeds

are purchased, they are soaked fully in water mixed proportionally with fertilizer. This enhances

germination, seedling vigor, and root development of the crop.

Average cost per acre: US$31 (INR 1,860)

Stage 2: Sowing

The next stage is the actual sowing process after fertilizers and similar nutrients have been applied to

both seeds and soil. This typically happens from March to Mayxxxix. Furrows are made in the soil on

the basis of a grid, and accordingly seeds are planted. Mechanization is very low so indigenous

implements are used. Cattle are used to plough the field. The sowing process is typically manual in

nature, and therefore is quite labor intensive. The farmer’s own family, as well as other agricultural

laborers are employed. Laborers are paid a daily wage, for which the amount may vary both within

and outside a particular district.

Average cost per acre: US$33 (INR 1970)

Stage 3: Growing

The growing stage primarily encompasses periodic application of fertilizers and insecticides or

pesticides, as required. This is on-going after the sowing has been concluded and typically up to

Septemberxl. Foliar techniques may be used. The application of fertilizers depends upon the growth

of the crop. For instance, one round may be added 2-4 weeks after leaves have emerged. Additional

doses may be applied after 4-6 leaves are observed per plant. Before the first bloom, up to three

applications may proceed, and the process continues from the first flower to peak flower stage.

Suggested rates of application vary as per climatic conditions, water quality, soil types and application

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processes. Ideally, soil and leaf sap tests should be conducted prior to application to determine the

exact quantity of additive needed. However, in many cases, this is not possible and the farmer basically

estimates the quantity required by his own prior knowledge and experience of prevalent conditions.

Average cost per acre: US$64 (INR 3,790)

Stage 4: Harvesting

The harvesting process is the final stage before raw cotton is sold to buyers. Harvesting takes place

from October to Februaryxli. As observed in the sowing stage, the process is primarily manual in

nature. Agricultural labor is used to pluck the crop, which is then stored by the farmer. During this

process, yields are determined. In some cases, the farmers are also required to transport the plucked

cotton to buyers, for which he bears the cost of transportation. In other cases, however, traders and

federations that purchase raw cotton transport the produce themselves to warehouses and other

storage locations.

After the cotton has been plucked from the fields, it is usually sold to intermediaries who are individual

cotton traders or federations such as the Maharashtra State Co-op Cotton Growers Marketing

Federation (MAHACOT)xlii. Unsold cotton may be bought by the Cotton Corporation of India (a

public sector organization) at the government-mandated Minimum Support Price (MSP)xliii.

Average cost per acre: US$19 (INR 1,150)

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Other Economic Costs

Farmers also bear several economic costs through the process, which may not be related to the process

of cultivation. Examples of these include interest payments on debts and other capital costs. In some

cases, these may also include transportation costs in some cases, which vary significantly. For instance,

a private moneylender in a particular village may charge different interest rates from those in other

villages. Interest rates are not fixed and depend to a large extent on the relationship between the

borrower and the lender. However, we have included average costs based on studies conducted by the

Directorate of Cotton Development.

Average cost per acre: US$20 (INR 1,200)

The average cotton cultivation cost per acre (including economic costs) totals up to US$165 (INR

9,900). However, as geographical conditions, quality of inputs, and agricultural processes and practices

vary considerably, actual costs for a particular farmer may be different.

To illustrate the difference in costs, we have detailed below (Table 4) the actual costs incurred by

cotton farmers in the Yavatmal district in the central Indian state of Maharashtraxliv. The costs shown

here are presented in the input form, which may be spread across stages. In particular, it is interesting

to note the specific costs of various items such as seeds and fertilizers. The amounts are significantly

different from those shown below, which only serves to reinforce the point that costs vary

tremendously.

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Table 4: Itemized Cotton Cultivation Cost Per Acre

Item-wise Cotton Cultivation Costs Per Acre

Item Cost (US$ per acre)

Cost (INR per acre)

Ploughing 16 1000

Harrowing 20 1200

Seeds 13 830

Sowing 8 500

Weeding & Intercultural

16 1000

Gap Filling 4 250

Fertilizers 25 1500

Pesticides 66 4000

Spraying 6 400

Harvesting 16 1000

Threshing 6 400

Interest on Capital 5 350

Labor Costs 15 900

Total Costs 216 13330

Using 2011 prices

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B. Pilot Project Expenditures Illustrated below is a detailed list of various expenditures to be incurred under investment in personnel, infrastructure, and miscellaneous. The costs are provided for the pilot project, which covers a total area of 4,606 acres. In Year 1, all expenditure items under investment will be incurred. From Year 2 onwards, only seeds, fertilizers, and pesticides will be incurred as investment expenditure.

Item

Amount (US$)

Amount (INR)

Expenditure

Investment Expenditure

Ploughing 73,696 4,606,000

Harrowing 92,120 5,527,200

Seeds 59,878 3,822,980

Sowing 36,848 2,303,000

Weeding & Intercultural 73,696 4,606,000

Gap Filling 18,424 1,151,500

Fertilizers 115,150 6,909,000

Pesticides 303,996 18,424,000

Spraying 27,636 1,842,400

Harvesting 73,696 4,606,000

Threshing 27,636 1,842,400

Labour Costs 69,090 4,145,400

Interest on Capital 23,030 1,612,100

Total Investment Expenditure 994,896 61,397,980

Personnel Expenditure

Operational Director 25,000 1,500,000

Permanent Village Agents 60,000 3,600,000

Interns 16,000 960,000

Total Personnel Expenditure 101,000 6,060,000

Infrastructure Expenditure

Nagpur Rental 2,000 120,000

Mumbai Rental 4,000 240,000

Utilities (Nagpur/Mumbai) 2,000 120,000

Furniture & Computers 5,000 300,000

Total Infrastructure Expenditure 13,000 780,000

Miscellaneous Expenditure

Travel 10,000 600,000

Other Miscellaneous 5,000 300,000

Total Miscellaneous Expenditure 15,000 900,000

Total Expenditure 1,123,896 69,137,980

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C. Interview with an expert

Dr. Srijit Mishra, Faculty Member, Indira Gandhi Institute of Development Research (IGIDR),

Mumbai, India.

Dr. Mishra has researched and written extensively on farmers' suicides and the larger agrarian crisis in

India. His research has focused on the state of Maharashtra including Yavatmal.

We are doing a group project where we try to devise a solution to a policy problem and then implement it, keeping in

mind the specific context of that region. Our chosen policy problem is farmer suicides in India and we are specifically

looking at the district of Yavatmal in the Vidarbha region in Maharashtra. We want to plan a development intervention

based on the principles of Islamic Microfinance. (Explained our proposed model in detail).

What is the reason for poor yields? Is it any or all of the conditions below? And how exactly do these conditions impact

yields?

a. Unreliable weather patterns such as too little or too much rain

b. Poor quality of inputs such as spurious seeds or bad fertilizers

c. Low irrigation and / or a low water table

d. Lack of electricity

In the Yavatmal region, agro-climatic areas are not suitable for inter-cropping. It is suitable for a single

crop. We cannot just pinpoint one reason or the other. If you go plot-wise, poor yields can be due to

many reasons – because of weather fluctuations, or moisture and water related exigencies which can

occur at various point in the process at a time when you need growth and you don’t get water. It could

also be that you get rain at time when your cotton yield is ready in which case your crop will be

destroyed. These are the peculiarities of agriculture. These are rain-fed areas and farmers will get some

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amount of rain, but it is the fluctuation in the rain that can considerably influence the outcome. There

are villages that will get rain and those that do not. Spurious seeds and other inputs can be other

reasons. These instances do take place and the reason why they happen is because farmers are

dependent on the market, which is largely unregulated. If there are players selling spurious seeds, we

will not be able to know. Fertilizer, pesticides, everything can be spurious.

Do you think the problems of spurious seeds and fertilizers, and poor quality of inputs is a problem in general in the

area?

It can be. One has to look at the context specifically and where exactly you are doing the survey. For

example, when I visited these areas, these problems did exist. Whether it is widespread it will be very

difficult to for me to say. Mine was not a sample survey geared towards understanding how prevalent

this problem is in the region.

Does Bt cotton actually improve yields? Currently, there is no evidence for the same, but are there extraneous conditions

that affect Bt cotton yields or is there something wrong with the Bt cotton seed itself?

The pro-Bt or anti-Bt stand takes us away from the real question. My take on Bt is a little different. Bt

as a technology was meant to prevent certain kinds of pests. This particular technology has nothing

to do with yields. It is not a yield-enhancing technology, it was meant to stop cotton bollworm or

pesticides that could affect your yield. If in an area, there has not been a bollworm attack, then we

cannot say that Bt has led to an increase in yields. Yield increase can happen because of various other

reasons. The Bt gene is put on seeds so the quality of seed itself can be improved and result in a higher

yield. Since all the seeds that we have these days have Bt in it, we cannot tell whether it is Bt or the

seed that is enhancing yields. Bt plays a role if there is a bollworm attack, but that is a counterfactual

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question and difficult to determine. We also have a problem of Bt worms evolving and becoming

immune to Bt. For example, Bt was introduced in 2002. Around 2009 Monsanto agreed that the first

generation of seeds was susceptible to bollworm attack. Subsequently, they introduced more varieties.

New kinds of pests are also emerging which we haven’t heard of before. We cannot say that the

success of a yield is because of a yield of Bt, nor can we necessarily attribute failure of a crop to it.

Do you think reducing debt will help alleviate the problem of farmer suicides?

Debt and credit is not a problem in itself. Entrepreneurs all over the world work with credit. The

problem with Indian agriculture is that doesn’t provide enough return on your investment. You make

an investment but don’t get enough back to reinvest, grow and sustain. It’s not enough to give you

surplus or take care of farmer needs.

Right now in this situation, do you think there is a need for an alternative to existing means of finance such as crop

insurance and other government programs? Some sort of a safety for the people living in the area?

Your intervention of not charging interest is a positive thing in what you are trying to do. There is a

cost and risk element to all interventions. Farmers’ per capita income per day is between US$0.20-

0.25 (INR 10-15). Their return from agriculture is that low. If your interventions adds costs for the

farmers, that would be risky and would not help them. The question is – can you bring in suggestions

whether it is technological or financial which reduces the cost for the farmer instead of increasing it?

If you can bring in such an intervention, then that would be positive.

If you are bringing in a new technology then there is also an ethical question. Why should the farmers

share the yield if you are doing a trial or introducing a new method? Informed consent is of utmost

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importance and an ethical question you have to consider. If you are doing a trial, farmers should get

an income out of it; why should they share their income with you?

But if we do not introduce a technology, we are providing the same inputs, but ensuring that their inputs are not

spurious, would that be a trial?

You have to be aware of these issues.

Do you think Indian farmers would be willing to participate in a scheme like ours?

That is an important ethical question. That should be their choice. We cannot enforce it on them. If

you tell them what you are planning, some of them may take it up.

Compared to existing schemes, would this be more beneficial for the farmer?

You are trying to do something that you think would be beneficial, but whether or not it is actually is

to be seen only once you implement it and we see results. The actual intervention should be open-

ended, and should take local knowledge into account.

From a research point of view there is a need for such a thing because there are hardly any people

working on these issues. So if you are working on it there is a strong case for doing it. These are

important questions.

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We are trying to understand the political and administrative context. What is the attitude of the district administration

to such interventions? Do they interfere or are they open?

The administrators have their own compulsions, but if they see the logic of the interventions and are

convinced that it will be helpful, they will agree to it. If you can convince them they should be willing

to cooperate.

How do we work with the Gram Panchayat and Village Panchayat? Should we expect any opposition from locally

elected representatives?

Once you go there, you have to develop contact in the area. They will want to know what you want

to do and how. You can work through civil society organizations working in the area since they know

the panchayat members. If you are talking of a bottom-up, pro-poor approach, it is all a matter of how

you can convince them. You should go to the field to gauge the situation and talk to the people there

and interact with them. These kinds of questions are context specific. In some villages it may be

smooth sailing, while in others you may face opposition. Panchayats and landlords will agree to such

an intervention if it improves their own livelihood and income.

What is the typical crop sharing arrangement between sharecroppers and landlords? Does the absentee landlord bear any

of the costs of production? And how does the landlord collect rent?

Different kinds of tenancy agreements exist. You may not have sharecropping as in Bihar and U.P.

Sharecropping is changing, and by and large there will be tenancy contracts in the area; some of it

could be sharecropping.

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D. State and Local Administration Hierarchy in India

Source: Adapted from the Commonwealth journal of Local Governance and World Bank report “Overview Of Rural Decentralization In India: Volume 1, September 27,2000”

Stakeholders in green are not relevant during the pilot state. We will only need to interact with stakeholders in blue.

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Endnotes i P. Sainath, “Farm suicides rise in Maharashtra, State still leads the list” The Hindu ,July, 2012

http://www.thehindu.com/opinion/columns/sainath/farm-suicides-rise-in-maharashtra-state-still-leads-the-

list/article3595351.ece ii P. Sainath, “Farm suicide trends in 2012 remain dismal” The Hindu, June 29, 2013

http://www.thehindu.com/opinion/columns/sainath/farm-suicide-trends-in-2012-remain-dismal/article4860980.ece iii Ellen Barry, “After Farmers Commit Suicide, Debts Fall on Families in India” The New York Times, February 22, 2014

http://www.nytimes.com/2014/02/23/world/asia/after-farmers-commit-suicide-debts-fall-on-families-in-

india.html?_r=1 iv Lakshmi Vijaykumar “Suicide and its prevention: The urgent need in India” Indian Journal of Psychiatry. 2007 Apr-Jun;

49(2): 81–84.

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2917089/ v Ellen Barry, “After Farmers Commit Suicide, Debts Fall on Families in India” The New York Times, February 22, 2014

http://www.nytimes.com/2014/02/23/world/asia/after-farmers-commit-suicide-debts-fall-on-families-in-

india.html?_r=1 vi ibid. vii Ilan Greenberg, “Why Are So Many Farmers Killing Themselves?” Modern Farmer, December 2013 http://modernfarmer.com/2013/12/farmer-suicide/ viii UN International Farmers Suicide Crisis Presentation http://www.un.org/esa/sustdev/csd/csd16/PF/presentations/farmers_relief.pdf ix The scheme will not be marketed as Islamic Microfinance by Pragati for two reasons. Firstly, its association with Islam

is likely give rise to unnecessary controversy. Secondly, while we borrow the idea of Islamic Microfinance, we have made substantial modifications to the model to make it suitable to the Indian context. x Nimrah Karim, Michael Tarazi, and Xavier Reille, “Islamic Microfinance: An Emerging Market Niche” CGAP Focus Note 49, August 01, 2008 http://www.cgap.org/publications/islamic-microfinance-emerging-market-niche xi Ibid. xii “Islamic microfinance market size reaches $1b, says Pakistan body” The Hindu Business Line, April 22, 2013

http://www.thehindubusinessline.com/industry-and-economy/banking/islamic-microfinance-market-size-reaches-1b-says-pakistan-body/article4643014.ece xiii “Poverty Reduction: Scaling up local innovations for transformational change” UNDP, November 2012 xiv M Mizanur Rahman, “Islamic Micro-finance Programme and its Impact on Rural Poverty Alleviation” International Journal of Banking and Finance vol. 7, no. 1: 119–138, March 21, 2010 www.tinyurl.com/MRahman2010 xv IFAD’s factsheet on Islamic Microfinance http://www.ifad.org/operations/projects/regions/pn/factsheets/nena_islamic.pdf xvi Dnyandev Talule “Political Economy of Agricultural Distress and Farmers Suicides in Maharashtra” International Journal of Social Science & Interdisciplinary ResearchVol.2 (2), February 2013 xvii Ibid. xviii Anupam Barik “Cotton Statistics at a Glance” Directorate of Cotton Development, Ministry of Agriculture, Government of India,

Mumbai, 2010 xix Dnyandev Talule “Political Economy of Agricultural Distress and Farmers Suicides in Maharashtra” International Journal of Social Science & Interdisciplinary ResearchVol.2 (2), February 2013 xx Anupam Barik “Cotton Statistics at a Glance” Directorate of Cotton Development, Ministry of Agriculture, Government of India,

Mumbai, 2010 xxi “Minimum Support Price of Cotton” Ministry of Agriculture, Government of India, 2013 xxii Indian Meteorological Department, Ministry of Earth Science, Government of India

http://www.imd.gov.in/ xxiii Dnyandev Talule “Political Economy of Agricultural Distress and Farmers Suicides in Maharashtra” International Journal of Social Science & Interdisciplinary ResearchVol.2 (2), February 2013 xxiv “Arni, Maharashtra” Wikipedia http://en.wikipedia.org/wiki/Arni,_Maharashtra xxv Pavan Dahat “Suicides increase as rain submerges crops in Yavatmal” The Hindu, September 4, 2013 http://www.thehindu.com/news/national/other-states/suicides-increase-as-rain-submerges-crops-in-

yavatmal/article5090575.ece

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xxvi “Hailstorm Destroys Over 90,000 Hectare Crop in Yavatmal” Tehelka, March 12, 2014

http://www.tehelka.com/hailstorm-destroys-over-90000-hectare-crop-in-yavatmal/ xxvii Anupam Barik “Cotton Statistics at a Glance” Directorate of Cotton Development, Ministry of Agriculture, Government of

India, Mumbai, 2010 xxviii Dnyandev Talule “Political Economy of Agricultural Distress and Farmers Suicides in Maharashtra” International Journal of Social Science & Interdisciplinary ResearchVol.2 (2), February 2013 xxix Anupam Barik “Cotton Statistics at a Glance” Directorate of Cotton Development, Ministry of Agriculture, Government of India,

Mumbai, 2010 xxx “Minimum Support Price of Cotton” Ministry of Agriculture, Government of India, 2013 xxxi Indian Meteorological Department, Ministry of Earth Science, Government of India

http://www.imd.gov.in/ xxxii World Bank Policy Research Working Paper, 5987 xxxiii Dnyandev Talule “Political Economy of Agricultural Distress and Farmers Suicides in Maharashtra” International Journal of Social Science & Interdisciplinary ResearchVol.2 (2), February 2013 xxxiv “Cotton Cultivation: A New Package”

http://www.agriinfotech.com/htmls/PDF-Files/GENERAL/COTTON%20Package.pdf xxxv http://en.wikipedia.org/wiki/Foliar_feeding xxxvi “Cotton Cultivation: A New Package”

http://www.agriinfotech.com/htmls/PDF-Files/GENERAL/COTTON%20Package.pdf xxxvii Anupam Barik “Cotton Statistics at a Glance” Directorate of Cotton Development, Ministry of Agriculture, Government of

India, Mumbai, 2010 xxxviii Emeka Osakwe “Cotton Fact Sheet, India” May 19, 2009

https://www.icac.org/econ_stats/country_facts/e_india.pdf xxxix Ibid. xl Ibid. xli Ibid. xlii Jayashree Bhosale, “Maharashtra Cotton Traders Resolve to Develop Mahacot Brand of Cotton” The Economic Times,

September 21, 2013 xliii M. Soundariya Preetha, “CCI keeps options to buy at minimum support price” The Hindu, November 9, 2013 xliv Dnyandev Talule “Political Economy of Agricultural Distress and Farmers Suicides in Maharashtra” International Journal of Social Science & Interdisciplinary ResearchVol.2 (2), February 2013