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Making losers out of farmers

Making losers out of farmers
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First Published: Wed, Jul 02 2008. 12 50 AM IST

Illustration: Jayachandran / Mint.
Illustration: Jayachandran / Mint.
Updated: Wed, Jul 02 2008. 12 50 AM IST
Monday marked the beginning of the Rs71,680 crore farm loan waiver scheme put in place by the Centre. The start was chaotic: The lists of beneficiaries were prepared hurriedly, the scheme reconfigured and confusion prevailed.
Illustration: Jayachandran / Mint.
This was bound to occur as the logistics of the operation are mind-boggling: 43 million farmers and some 30,500 rural bank branches. As reported by Mint in the past few weeks, it has created problems for banks and their officials. Given the scale, the least the government could have done was to get its homework and planning right. It did neither.
From the day it was announced, the finance ministry, the Reserve Bank of India and banks had four months to fix the nuts and bolts. In June alone, the finance ministry issued 34 clarifications on the scheme. This created more confusion.
As the details become clearer, the damaging consequences are apparent. One, the waiver is sure to split farmers into beneficiaries and “losers”. The finance ministry ignored recommendations made internally and by two parliamentary committees to provide incentives to farmers who regularly repaid loans (as reported by Mint on Monday). This turns honest farmers into losers. Equally,?more than 50% of indebted farmers don’t borrow from institutions and take credit from moneylenders. Of the 89 million farmer households, 46 million are not indebted.
This creates multiple cleavages in a group that is already divided along caste, region and religious lines. But this is useful politically. The next government can do something for those who did not get anything in this round.
Two, there are now faint contours of what economists call a political business cycle. Roughly speaking, as elections approach, politicians in power splurge money in a populist manner. This would be the second time in a decade that a government is doing this. These cycles are well studied in the US and West Europe. There the trade-off is between inflation and unemployment, and is bearable in macroeconomic terms. Had the loan waiver been a one-time affair, it could have been seen as a small shock. But it will give ideas to the next government in power to do something similar when it faces elections. This time it’s farmers, the next time it could be someone else. It’s time this was factored in as a feature of our economy, as such cycles have the potential to affect investment decisions and derail growth.
Does the farm loan waiver serve any purpose? Write to us at views@livemint.com
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First Published: Wed, Jul 02 2008. 12 50 AM IST