Farm loan waiver: Different facets

Please read this article before going through the following piece.

Facet 1: Farm loans have long been used by political parties

The United Progressive Alliance government’s loan waiver scheme of 2008 helped it retain power in 2009.

Since then, political parties have used farm loan waivers to woo voters.

In the current assembly elections, nearly all political parties contesting election in Punjab and Uttar Pradesh promised farm loan waiver.

Facet 2: Loan waivers are not the only way to help the farmers. They, in fact, end up helping many non-deserving farmers and also burdening the society as a whole.

There are existing provisions to help farmers who are not able to repay loans for reasons that are beyond their control (natural disasters or an unexpected crash in market prices).

Relief for such farmers may include:

  • rescheduling of repayment installments
  • converting accumulated interests into long-term loans to be paid after a holiday period
  • reduction in interest rates, etc.

Loan write-offs should be considered on a case-by-case basis depending on the protected nature of the distress.

An across-the-board loan waiver does not make any distinction between farmers who have not been affected in any way and those who face agrarian distress owing to various reasons.

The simple yet unacknowledged fact is that money for the waiver has to come from somewhere. In the long term, loan write-offs will come to bite all of us in one way or another in the form of unforeseen costs.

There is already a widespread concern that the exchequer has lost trillions of rupees in nearly a decade in distributing tax largesse to industry, besides trillions in non-performing assets with the public sector banks, created largely by the rich and famous.

Facet 3: Can we blame the politicians alone?

Farm loan waivers have become sops that populist politicians misuse with no regard for the welfare of farmers and the development of agriculture. Still, it is unfair to blame the political class alone for resorting to fiscal adventurism to capture or retain power.

The voters seem to be easily enticed by promises of loan waivers without considering the fact that the beneficiaries will have to share the burden of the waiver money along with the larger society in one form or another.

Facet 4: Loan waivers are only momentary relief. There must be follow up policy action too.

Farmers deserve better in terms of follow-up policies enabling:

  • greater infrastructure investment
  • better technology
  • crop insurance systems
  • plugging leakages in the field-to-market chain.

The farm economy needs to be strengthened.

We must empower farmers to claim their remuneration instead of letting the middlemen and cartels rob them of the price of their efforts.

Loan waivers are only momentary relief; hence, an efficient long-term agricultural policy is to be framed to stop this vicious cycle of debt and distress across India.

Facet 5: There are also other “not-so-obvious” problems too which may threaten India’s food security.

With the country’s population projected to increase, we are also witnessing:

  1. continuing loss of huge swathes of farmland to industry and real estate
  2. a massive displacement of farm labour

These twin factors threaten to push India India back into the dark days when it imported wheat under PL-480 from the U.S.