Monday, January 01, 2007

Risk mitigation

M.S. Swaminathan recommends adopting a Common Minimum Programme for 2007 to give our agricultural sector a "growth momentum" without which, he warns, "there will be widespread agrarian distress and the prospect of reverting to a ship-to-mouth existence." An important part of this programme is risk mitigation (through insurance and easier credit):

Thirdly, timely availability of credit at an affordable rate of interest and the wider adoption of insurance will help to reduce farmers' distress. Agricultural insurance now covers only about four per cent of farmers. Risks are increasing in farming due to meteorological and marketing factors. The position is likely to get worse in the years ahead due to global warming and climate change. Studies in the agrarian hot spot areas of Vidharbha have shown that credit is needed not only for agriculture but also for digging tube wells, healthcare, and domestic needs such as marriage. Integrated group insurance packages, with low transaction cost and the village as the unit of assessment, are needed to save farmers from moneylenders.

To understand for the devastating consequences of debt on the rural poor, listen to what Dilip says:

We have increasing numbers of small farmers -- in many ways the heart and soul of this country -- swallowing rat poison to kill themselves. In Vidarbha last April, I met the family of one such, took his life over a debt of -- are you ready? -- Rs 2000. Two thousand rupees, and he couldn't pay. Think of that. What does two thousand rupees mean to you? To this man, it was life. Death.

Risk mitigation figures quite prominently as one of the policy measures suggested by the research of Prof. Anirudh Krishna, Duke University professor (and an ex-IAS officer). Krishna has done field studies in Rajasthan, Gujarat and Andhra Pradesh to gain a better understanding of how some of the previously poor manage to escape poverty, and how some of the previously non-poor end up falling into it. I wrote two days ago a summary of Krishna's research over at How the Other Half Lives.

Krishna’s research identifies the reasons for the once non-poor families to fall into poverty (some 8 % of all the families). The most important among them are: “health and health related expenses, high-interest private debt, and social and customary expenses”. Other reasons of smaller significance included failed irrigation ventures — “borrowing money to pay for a well or a tube-well that failed to provide water continuously. [The risk inherent in such ventures can be clearly seen from the fact that the same type of investment, when it succeeds, can lift the once poor to non-poor.]