Monday, September 11, 2006

Tractors- vehicles of development???


Tractors- do they really mean development?
Many of us consider tractors as a general symbol of development in rural India regardless of the profile of the family owning it. Probably tractors as symbols of development have been borrowed from the western societies but having spent sometime at the grassroots, I beg to differ.

First of all, the cost of purchasing a tractor is very high even for a well to do big farmer. Although through subsidies the total cost of a tractor may be around Rs.4.5 lacs, but farmers seldom are able to purchase them by offering cash up front. Rather they have to get it financed from the banks, and the yearly installments for the same comes to be around Rs. 80,000/- which, by all means is an astronomical amount for small and medium farmers. Add to this the cost of maintenance and diesel and the actual money required to have a tractor shoots through the ceiling. The farmer eventually has to pay about Rs. 7-7.5 lacs for even the low end 25 HP tractors and when they are unable to do so, the tractor, which is under hypothecation with the bank is snatched away and auctioned off.

For this threat, many a times the farmers are forced to sell off a portion of their land to pay for the installment of the tractor, which actually makes them poorer rather than adding to their riches by creating a vicious cycle of reducing means of production and increasing the liabilities. Probably for similar reasons, even Mahatma Gandhi opposed the mechanization in agriculture in his book 'Hind Swaraj' written in early 30's.

So, what is the solution?
In my opinion, it is much better for a small or medium farmer to hire a tractor during the crop season on rates varying Rs.400-450 per hour rather than purchasing one. It limits their liability, keeps the cost of maintenance off, and best part- provides employment to another villager, usually a young entrepreneur. The basis for this argument is that the tractor is not able to support its cost if it does not works in at least 10-15 hectare land for various crop operations like tilling, sowing and weeding. Thus any farmer having less than these much land either has to hire out the tractor to the other farmers or bear losses.

So simple! Then why the hell do they get one in the first place?
The question is, if they can not afford to have a tractor, how and why small and medium farmers end up getting a white elephant to their home? The answer lies in the greed of tractor companies and the bank managers. The tractor companies are always in the look out for increasing their sales. For this, they employ agents in the nearby villages who act on dealer’s behalf. This dealer is, in turn, connected with the bank managers of Commercial banks as well as the Regional Rural Banks and Land Development/ Cooperative banks which have got targets to finance tractors under various schemes. Financing a tractor is their favorite finance plan as it is a big transaction and they need to conduct fewer such transactions to achieve their targets rather than going for many smaller transactions like those involved in funding a diesel engine.
The Gameplan of Tractor dealer
The agent in the village provokes the fancy of the farmer, whets his ego by promoting tractor as a mean to show that he is a big guy in the village and brings him to the dealer. The dealer, at times pays off some amount of the initial deposit required for the bank by providing a loan to the farmer on exorbitant interest rates and keeping a blank stamp paper with the farmers sign or thumb impression on it with his land record as a security. Then he gets the tractor financed by the bank, but not before the manager extracts his pound of flesh in form of bribe from the farmer. Thus, the deal is struck. The dealer gets his margin, the agent gets his 'cut' and the manager gets the increment as well as the bribe, but the farmer pays through his nose for all of this.

That’s how another farmer is drawn into the debt trap for the so called symbol of development. Adding to the existing number of tractors in the village, it further reduces the rate that a young entrepreneur was getting as tractor hire and thus the farmer not just hurts his financial interest but also that of others in the village.

Later on, as the farmer is unable to pay the installments in time, he sells of some of his lands, and ultimately the tractor is either snatched off by the bank or the farmer has to make a distress selling to some biggy of the village to pay off the remaining amount of the loan.

It is evident with this that selling tractors to small and medium farmers- without any ethical considerations about their paying capacity and how it would effect their finances in the long run- is ruining thousands of farmer of India.

Is anybody listening?

6 comments:

Anonymous said...

For me this appears to be absolutely correct or true.I know that it is the evil passion of tractor dealers within that ignorant farmers suffer .Aur yehi hamare desh ka sach hai.

Hemu said...

Good article to ponder upon as ususal from the best guy prashant. Good.

Have been seeing similar experience in tractor and crushers in my area, and have been keenly watching changes occuring with purchase of vehicle on profits from agriculture.

Shall be in a position to explain better once tapioca (the main plant cultivated here) reaping is over in my field area.......

Anonymous said...

Prashant, i believe the whole article is a passimistic view of the whole attitude of market development. Do you really feel a tractor is required atall, for any farming work. If it is no, than the tractor company is doing a mistake and putting a worng thing, if you say yes to the above question than there exist a need. Any market is developed in this way only. Let us think about the mobile revolution that we feel proud of.It is a requirement for us to be connected always. The mobile company are just providing the services. so where is wrong in it? The second point u raised is the nexsus between delares and banks. They are only gap full filling mechanism in the whole value chain. in the whole write up u have never analysed the growth in production that might have happened due to this improved farm equipment. And consumers are the best people to understand what is required by them. And mind it, Indian consumers basically rural consumers are the most intelligent and rational buyer. They made a change in the mind set of Big MNCs. So let us take possetively.

Anonymous said...

Hi there!

Thanks for your comment and giving me a new line of ideas to think about. Well, I am sorry if I have given a negative impression about the market forces in my blog- it is highly unlikely, as I am myself a supporter of market forces. I fully agree with you when you give an example of the cell phone boom that has got every nook and corner of India connected. Thanks to it, today I get calls from my beneficiaries, which makes me feel so good, being connected to the people with whom I once worked, facing some daunting challenges in life. How can I say that it is the market forces that are responsible for the misery of these people? No, they are not.

Being a customer of so many esteemed Indian and Multinational Companies in Delhi I can say with confidence that the market forces are a very potent force, as long as you know your rights as a customer, you are able to distinguish between product X and product Y and you can stand up against any exploitation that you suffer with the hands of any of the corporate. Being educated, aware and having hundreds of options to chose from, you are customer the king. However, in case of the poor farmers on rural India this is not the case. They are not literate and they cannot fight back. They might be very rational and bright negotiator but being illiterate they don’t know the difference between Kirloskar Diesel Engines and Amar Shakti Diesel Engines. They cannot differentiate between MAHYCO seeds and Ujala Seeds- there is nothing called brand recognition at the grassroots, the reason being illiteracy and the lack of credit due to which the money lenders force the farmers to buy articles that they sell and not the best ones in the market. This is what is called market imperfection of the economy. Due to these reasons our sometimes na├»ve belief that the farmers, if they are given a free hand would always go for a right choice in terms of products is highly misplaced and needs to be reviewed in the light of prevailing situation in the village.

Coming to the original question of tractors- well of course tractors add to the productivity of agriculture and they are, to a great extent the reasons behind the successful increase in the productivity in Indian states like Punjab and Haryana as well as the western countries like US and Canada. I am not against using tractors in agriculture-that would be a felony on my part. What I am suggesting is that the nexus between dealers, bank managers and agents sell these tractors to unsuspecting small and marginal farmers who neither have enough land to make sufficient use of these wonderful machines neither do they have enough resources to maintain tractors and pay their hefty EMI that are up to Rs 85,000 an year (which is almost equal to what my friend Aruni pays as the EMI of his Wagon R. However, he being a Wealth Manager with Citibank may afford it, but Toofan Singh, a poor farmer with bigha land in Kankerkhedi Village cannot).

I am not against the tractors- if a big farmers of 100 bigha (25 hectare) land buys it, fine. If an entrepreneur in the village buys one and uses it to earn money by using it on the land of other farmers- most welcome. But if a farmer of 8 bighas buys a tractor after getting deceived by the tractor dealer, bank manager and their cronies- and as a consequence has to sell off his land after one or two years and also has to surrender the tractor to the bank, I am dead against it! This is not development, this is not business this is a typical case of conning someone of his money and should be dealt the same way.

I hope I have made my view clearer with this comment. I would love to hear more on it from all of you guys who have enough sensitivity to spend your precious time reading about the forgotten Indian villages and the wretched poor lives that dwell there.

With best regards,

Prashant

monusoft said...
This comment has been removed by a blog administrator.
matt22 said...

Hi,

What you said about the tractor companies and dealer is a truth. As far as prices are concerned it is too high.

Do you have any comparative study between bullock operated and tractorized farm. I need it for my thesis work.

Mathew