Feb 21 : Farm loan waiver has always been the topic of discussion and recently, various Congress ruled states and other governments have given farm loan waivers worth 1.9 trillion since April last year amid massive farmer protests. Writing off farm loans, certainly gives financial support to the farmers who are in distress, but it has some adverse effects on the economy of the country.
Farm loan waivers are not new in India, these are vote winning gimmicks and Congress announced in a bid to win polls. Uttar Pradesh Chief Minister Yogi Adityanath announced Rs 36,359 crore farm loan-waiver and Congress Government in Punjab is trying to follow the Uttar Pradesh model. On April 4, the Madras High Court directed the Tamil Nadu Government to expand its farm loan-waiver scheme to include farmers who own more than five acres of land. Andhra Pradesh, Telangana and other States may follow the suit.
In 2018, Farmers’ issue seized political parties attention after tens of millions of farmers’ marched to Mumbai from Nashik and agitation by Tamil Nadu farmers’ highlighted the country’s two-decade-long agrarian crisis. As farm input costs i.e. the cultivation costs have risen manifold since the mid-1990s, but the farmers’ incomes have stagnated or declined, but not the prices. If prices of crops are increased, it has cascading effect on the economy. As costs rise ( seed, fertilizer and pesticides),farm debts goes out of control. Agricultural credit from public-sector banks increased significantly benefiting agribusiness, not farmers.
The initiative of writing off farm loans has been done by earlier governments also. Since former Deputy Prime Minister Devi Lal’s time in 1989-1991, loan waiver was done.
But these loan waivers won’t stop farmer suicides but will give an immediate and temporary relief to them. Secondly, it has a moral hazard as it corrupts the mind of the farmers by killing the repayment culture among the farmers subjecting the banking system to higher stress. Thirdly, the loan waiver scheme in 1990 had proved a costly affair for the banks and economy. It installed belief among farmers that they could default with freedom and wait for the next election cycle to have the benefit in lieu of loan waivers.
Fourth, banks take several years to recover from its impact connecting to high scale defaults.
But the real solution is to empower the small and marginalised farmers, the Reserve Bank of India has raised the limit of collateral-free agricultural loans to Rs 1.6 lakh from the current Rs 1 lakh .
The Union Budget had also announced measures to boost the farming sector in addition to annual payment of Rs 6,000 to small and marginal farmers.
For the first time in India’s history, Modi government talked about doubling of farmer’s income by 2022 rather than giving them loan waivers as promised by Opposition as a part of their election propaganda.
Measures such as systematic and long term reforms focusing on productivity, conserving soil health, sustainable water resources, drought resistant seed varieties, pest and disease tolerant varieties of crops can help secure high farm incomes for the farmers.
By Arti Bali