Who benefits from farm loan waivers?
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In the recent past, widespread demands have been heard for farm loan waivers amid continuing agrarian distress. While Uttar Pradesh and Maharashtra have announced their intent to provide such waivers, farmers from others states such as Tamil Nadu, Madhya Pradesh and Punjab are making similar demands. We look at the indebtedness among agricultural households and access to different sources of credit, based on 2013 data.
Overall, more than half of all agricultural households in the country have outstanding loans (from all sources of credit). Andhra Pradesh (93%) has the highest share of agricultural households in debt, followed by Telangana (89%) and Tamil Nadu (82.5%).
Chart 1: Southern states have a larger proportion of farm households with outstanding loans
While 48% of marginal farmers (those holding less than 1 hectare) and 56% of smaller farmers (1-2 hectares) had outstanding loans, this figure was 79% for large farmers (over 10 hectares). Among indebted agricultural households, marginal farmers had an outstanding loan of Rs30,000 on average, while small farmers had an outstanding loan of Rs55,000 on average. The share of indebted agricultural households increased with the size of their land; larger farmers had an outstanding loan of Rs2.9 lakh on average.
Chart 2: Incidence of debt and the average loan amount was lower among smaller farmers
Marginal and small farmers accounted for 82% of all indebted households and 56% of the outstanding loans by value. However, only a small proportion of the indebted marginal and small farmers had taken loans from institutional sources such as banks and cooperatives. Informal sources such as moneylenders, family and friends accounted for 62% of indebted households among marginal farmers. Such farmers would not benefit from any scheme that restructures debt taken from banks and cooperatives. Further, how the benefits of a loan waiver will be distributed among different classes of farmers might depend on the design of the scheme, based on factors such as the size of the land holdings and cap on outstanding loan amount.
Chart 3: Less than 40% of indebted marginal famers had bank loans