Yashwardhan Joshi

Come elections, and the race for loan waivers starts– a race that many economists say is flawed from beginning to end. The game is said to have kicked off on a big scale when the Congress-led UPA government announced farm loan waivers to the tune of Rs 70, 000 crore in 2008, and increased its tally of seats in the Lok Sabha from 147 to 206. The massive loan waiver is considered to have been one of the main reasons for the Congress’ improved performance in the 2009 elections.

Since then loan waivers are seen as good politics and have come to become one of the key poll promises of most political parties. In the 2017 Assembly polls in the agrarian States of Punjab and Uttar Pradesh, the major political parties– the Congress, the BJP and the Shiromani Akali Dal– promised to waive farm loans if they came to power. Even the Aam Aadmi Party, a new entrant, joined the race, with a manifesto aimed exclusively at the farmers of Punjab. On winning the elections in UP, the BJP government of Yogi Adityanath kept it promise and waived farmers’ loans.

In the Assembly elections last year, the first decision the Congress took on forming governments in Madhya Pradesh and Chhattisgarh was to waive farm loans up to Rs 2 lakh each, thereby fulfilling an election promise to do so within 10 days of coming to power. Those who promise loan waiver see it as a step to reaching the throne, but economists say it is a race to disaster. Farm loan waiver is no panacea, but only an emergency relief for some farmers, and only some, because it benefits only those who have taken loans from institutional sources such as government banks.

At the same time, they say, such a move is disastrous for the banking sector already reeling under mounting non-performing assets (NPAs), besides having a debilitating impact on the finances of States. “Farm loan waivers are a reaction to a crisis which only helps one-third of farmers, but is not a permanent solution,” says Ajay Jakhar, chairman of Bharat Krishak Samaj.

According to a NABARD study, 43.5 per cent of farm households took loans in 2015-16 , of which 60.4 per cent had sourced it from institutional sources and 9.2 per cent from both institutional and non-institutional sources. Thus the likely beneficiaries of loan waiver were only 30 per cent of agriculture households (69.6 per cent of 43.5 per cent).

What is shocking is that these calculations don’t take into account a certain section called the landless households. These are the poorest of the poor who don’t benefit from farm loan waiver at all. They constituted about 56.4 per cent (101 million) of the total rural households in 2011.

Besides, the dynamic of agriculture has been changing overthe years. Agriculture is now dominated by farm labourers, not cultivators. And it is these landless and tenant farmers who suffer the most distress, and their number has been steadily rising. One also doesn’t look at the dark side of loan waivers. There have been cases where farmers have taken loan for farms but used them for their children’s marriage or for building houses. These loans are waived and the ultimate losers are the
banks who give them loans.

It has been suggested that the only way to reduce rural indebtedness is to provide the right price to the farmers for their produce, which is, increasing the minimum support price (MSP) But as the Shanta Kumar committee pointed out in 2015, only 6 per cent of farmers directly gain from selling paddy and wheat to the government agencies. MSP benefits only those with marketable surplus, not all farmers. And what is worse, higher MSPs have their own fallout. Last year we saw markets crashing after higher MSPs were announced in both kharif and rabi seasons. Then, what is the way out.

Telangana and Odisha have come up with their own schemes of investment support for farmers which have been quite successful.

Under the Rythu Bandhu scheme of Telangana, farmers get Rs. 4,000 per acre every crop season for buying seeds, fertilisers, pesticides and other inputs, though it has its own faults as it exclude tenant farmers who cultivate 30 per cent of land in Telangana. The Kalia scheme of Odisha provides Rs 10,000 per family (Rs 5,000 each for kharif and Rabi season) to the small and marginal farmers, covering 92 per cent of the cultivators.

It is said that the Narendra Modi government has taken a cue from the Telangana scheme and has introduced its own scheme in the 2019 Union Budget to ease farm distress– direct benefit transfer for the poor farmers, and to counter the Congress initiative in Madhya Pradesh, Chattisgarh and Rajasthan.

Under the scheme, Rs 6, 000– Rs 2,000 each in three equal instalments– will be transfered every year to the bank accounts of those small and marginal farmers who cultivate less than 5 acres. It is expected to benefit 120 million farmers, entailing a total annual expenditure of Rs 72,000 crore. The first instalment has already reached the farmers ahead of the Lok Sabha elections this year.

But the Opposition and several economists have been quick to dub it as a case of too little, too late. Congress president Rahul Gandhi says the income support of Rs 6,000 per annum, which amounts to Rs 500 a month or just about Rs 17 a day, is an insult to everything the poor farmers stand and work for.

Agriculture economist Ashok Gulati says it is a drop in the ocean and is nowhere near the annual loss of about Rs 2,65,000 crore that farmers have been suffering in recent years because of low prices of their produce. So, what is the solution to rural indebtedness? There is no quick fix solution and no particular one.

Farmers go into indebtedness because their crop fail, and this has to be look into rather than going for easy way out in the form of loan waivers and higher MSPs. There is a suggestion that there should be a balanced production instead of growing only particular crops in large area such as sugacane and paddy which are taken up because they are easy to grow.

We have rice, wheat and sugarcane more in our country than what is required. On the other hand, there is a shortage of oil seeds and pulses, which are then being imported. There is no silver bullet to easing farm distress, but political parties have already started taking aim, anyway.


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