VZCZCXRO1441
PP RUEHBI RUEHCI
DE RUEHBI #1266/01 1880645
ZNR UUUUU ZZH
P R 070645Z JUL 06
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 3986
INFO RUEHBI/AMCONSUL MUMBAI 8749
RUEHCG/AMCONSUL CHENNAI 1124
RUEHCI/AMCONSUL CALCUTTA 1032
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 MUMBAI 001266 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DOC FOR 4530/MAC/AMESA/ASO/LDROKER/ASTERN 
USDA FOR FAS'ITP/TPOMMEROW/JFLEMINGS/MFORD 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EAID PREL IN
SUBJECT: FARMER SUICIDES PROMPT PM SINGH TO ANNOUNCE AGRICULTURAL 
RELIEF PACKAGE 
 
Summary 
------- 
 
¶1. (U) Over 1,600 farmers in eastern Maharashtra's 
drought-affected cotton belt in the Vidarbha region have 
committed suicide in the past five years.  The GOI has cited 
crop failure, depressed cotton prices and spiraling debt as the 
chief reasons for the suicides.  During his June 30-July 1 visit 
to the region, PM Singh announced an $830 million relief package 
for the farmers.  It includes debt rescheduling, interest 
payment waivers, cash disbursements, funds for improved 
irrigation and water harvesting techniques and measures to 
diversify income sources for cotton farmers.  Despite repeated 
demands from the farmers, the PM did not announce measures to 
prop up the low cotton prices that he himself acknowledged as a 
main cause of rural indebtedness.  The opposition BJP focused on 
the price support issue in its criticism of Singh's package, 
saying that the Congress-led government's reduction of tariffs 
on imported cotton was a main cause of the farmers' plight. 
Congress, which came to power largely because of the rural vote, 
has been tardy in addressing this issue.  Political compunctions 
will now force it to spend lavishly on relief measures that 
still may not convince skeptical farmers that it cares.  End 
Summary. 
 
Cotton Producing Vidarbha Region Plagued by Farmer Suicides 
--------------------------------------------- -------------- 
 
¶2. (U) Over 1,600 farmers in the Vidarbha region of eastern 
Maharashtra have committed suicide over the past five years, 
with more than 600 taking their lives in this past year alone. 
Most were cotton farmers who faced serious crop failures and 
mounting personal debt and the loss of their land, which they 
had presented to banks as collateral.  The state of Maharashtra 
accounts for 20 percent of India's cotton production.  Most of 
the area is under dry land farming and chiefly dependent on 
rainfall for irrigation.  Crop failure due to insufficient, or 
poorly timed, rainfall and depressed cotton prices has left many 
farmers unable to repay loans. 
 
PM Intervenes and Announces Debt Relief Package 
--------------------------------------------- -- 
 
¶3. (U) On July 1, during his two-day visit to the affected 
areas, PM Manmohan Singh announced a package of incentives for 
farmers in the six-worst drought-hit districts of the Vidarbha 
region - Amravati, Akola, Washim, Buldhana, Yavatmal, and 
Wardha.  The relief package, worth roughly $830 million, is a 
grant and will come from the Prime Minister's National Relief 
Fund.  The Prime Minister will head a yet to be formed special 
group to implement it. 
 
Immediate Relief Measures 
------------------------- 
 
¶4. (U) The government will allocate around $100,000 to district 
collectors in the six districts to be "used judiciously" for 
immediate assistance to families affected by suicides and debt. 
In addition, farmers will receive a waiver of overdue interest 
on loans taken out before June 30.  The financing, about $158 
million, will be born equally by the federal and state 
governments.  Singh said the debt relief will free up farmers to 
take out badly needed fresh loans. 
 
Longer Term Measures 
-------------------- 
 
¶5. (U) The GOI intends to implement cash allocations and 
interest rate relief on short notice.  Other, longer-term 
measures announced by Singh include: 
 
-- The rescheduling of delinquent loans currently worth about 
$290 million.  Farmers will now have three to five years to pay 
back their loans, and will not have to service them for one 
year.  The farmers' interest burden on these rescheduled loans 
will not change.  They will only pay the interest accrued on the 
original loan for the repayment period. 
 
-- The National Bank for Agricultural and Rural Development 
(NABARD) will dispense additional agricultural credits of around 
$283 million in the six districts during the current Indian 
fiscal year, which ends in March of 2007. 
 
-- Farmers will receive new cotton seeds worth about $40 
million. 
 
MUMBAI 00001266  002 OF 003 
 
 
 
-- The GOI will allocate about $53 million for water harvesting 
projects. 
 
-- The government will create additional income sources for 
farmers through a $30 million program aimed at establishing 
cattle breeding facilities and fisheries. 
 
-- A $50 million National Horticulture Mission will help 
distressed orange cultivators. 
 
-- The government will allocate around $484 million in the next 
three years to complete irrigation projects in the six 
districts. 
 
-- The government will create an expert group to study the 
problem of rural indebtedness, which will submit its findings 
and recommendations within six months. 
 
Singh said similar relief measures will also be implemented in 
25 other debt-affected districts in India - 16 in Andhra 
Pradesh, six in Karnataka, and three in Kerala. 
 
Not Surprisingly, Opposition Criticizes Singh's Initiative 
--------------------------------------------- ------------- 
 
¶6. (U) Low cotton prices are the main reason for the debt 
problems that have plagued small farmers in eastern Maharashtra. 
 The average farm is too small and too unproductive to weather a 
significant downward shift in cotton prices.  Not surprisingly, 
the BJP opposition was quick to point out that the package 
announced by Singh failed to address the price issue.  Several 
party spokesmen called on the GOI to increase its minimum 
support prices for cotton, saying the relief package took "no 
concrete steps envisioned for a holistic and long-drawn 
solution."   Party spokesmen laid the blame for the suicides on 
the GOI's reduction of import duties on cotton, which critics 
claim has suppressed domestic prices.  (Comment:  The current 
government has actually increased the tariff for cotton from ten 
to 14.67 percent by introducing the education cess and the 
special additional duty. End Comment)  Others expressed 
skepticism that the money would actually reach the affected 
farmers.  BJP critics also focused on the Congress-led 
Government of Maharashtra's decision to withdraw so-called 
advance bonuses to farmers. 
 
The Economics and Results of Poor Policy 
---------------------------------------- 
 
¶7. (U) Cotton prices are lower because the Maharashtra state 
government has withdrawn its cotton monopoly procurement program 
and poor cotton yields related to adverse weather have 
negatively affected cotton farmers' net returns. In the late 
1970s, Maharashtra implemented a cotton procurement scheme which 
gave a state government agency a monopoly to procure cotton from 
the farmers at a pre-determined price.  The state's monopoly 
prices were well above (30-40 percent) the minimum support price 
(MSP) announced by the central government, and generally higher 
than market prices in other states.  The higher monopoly prices 
led farmers to increase their cotton cultivation in the state. 
 
¶8. (U) However, the program was a big drain on the state's 
fiscal budget, due to the higher cost of cotton procurement and 
other inefficiencies absorbed by the state such as the storage, 
processing and marketing of cotton.  Despite various review 
committees' recommendations to end it, the Government of 
Maharashtra maintained the program because of political 
compulsions.  Three years ago, the state government decided to 
phase out the program and allow procurement by private traders. 
For the first two years it froze the monopoly procurement 
prices, i.e., not allowing annual increases.  For the third year 
(2005/06 crop year), it eliminated the price support completely, 
and procured cotton only at the lower MSP set by the Center. 
Consequently, farmers received lower prices for their cotton 
during the 2005/06 season. 
 
¶9. (U) Because of the state's procurement program, cotton 
emerged as the main cash crop in the Vidarbha region, displacing 
many traditional crops like coarse cereals.  However, cotton 
farming requires higher cash expenditures for inputs such as 
seed, pesticides and water compared to other crops.  This 
compelled most farmers to borrow money from moneylenders to buy 
these inputs.  Many Indian farmers live on the margin and are 
therefore only able to offer their land as collateral to obtain 
loans.  Unfortunately, adverse weather conditions in the 
 
MUMBAI 00001266  003 OF 003 
 
 
Vidarbha region during the last two seasons resulted in cotton 
crop failures and poor yields.  This, combined with lower 
prices, resulted in sharply reduced net returns to farmers for 
their cotton crop during the 2005/06 season, leading to 
increased indebtedness and suicides. 
 
Comment: 
-------- 
 
¶10. (SBU) Although urbanization is reducing the numbers of 
Indians living off of the land, sixty five percent of Indians 
still live in villages and most Indians have family members in 
the countryside.  This means that farmer suicides hit a 
sensitive nerve in Indian society, with politicians, media 
commentators and NGOs from across the political and ideological 
spectrum quick to provide their own explanations for the deaths. 
 Critics of globalization and liberalization, in particular, 
like to cite farmer suicides as an example of the pitfalls of a 
market-based modernization strategy.  In reality, the rural 
indebtedness and general hopelessness that leads to the deaths 
in the poor rural regions of eastern Maharashtra are not new 
phenomena.  Indian policy has suffered from a strong urban bias 
resulting in decades of systematic neglect by the central and 
state governments which has denied most farmers the opportunity 
to modernize and escape the vicious cycle of nearly subsistence 
agriculture.  Successive Maharashtra governments deserve 
particular criticism for ignoring the needs of the state's 
poorest farmers.  One cannot claim that the state ignores 
agriculture, since it does have a track record of inefficient 
and distorting support schemes for farmers, such as power and 
water subsidies.  However, much of the state's attention goes to 
the wealthier sugar and wine industries that have the cash flows 
and financial resources to support the patronage and pork barrel 
politics so characteristic of Maharashtra state politics. 
 
¶11. (SBU) Most political observers credited the UPA's 2004 
electoral victory to rural frustration with the NDA government's 
concentration on the urban middle class.  Despite this, the UPA 
has taken over two years to focus on the plight of the Vidarbha 
farmers and has now had to scramble to put together a very 
expensive relief package.  To his credit, PM Singh did not 
mention any plans to raise import tariffs on cotton during his 
Vidarbha visit, although it would have silenced the opposition 
and provided tangible political benefits.  Reversing such an 
important liberalization measure as the systematic lowering of 
India's import tariffs would have sent all the wrong signals 
about the GOI's commitment to reform and diverted attention from 
the complex political, economic and social reasons for farmer 
suicides.  End comment. 
 
¶12. (U) Embassy New Delhi cleared this cable. 
OWEN