Datia, Madhya Pradesh: Should I repay this, isn’t there a loan waiver?” a farmer in Datia, a Madhya Pradesh town 325km south of New Delhi, interjected on Friday as an official at a State Bank of India (SBI) branch briefed him on how to pay a loan instalment.
The bank official explained that the farmer did not qualify for the ongoing loan waiver and told him to pay the instalment. And as he walked away, the official said such questions had become all too commonplace, with an increasing number of farmers wondering if they should continue paying their loan instalments.
A Raigad farmer and his farmhands. Agricultural workers and subsistence farmers account for around 60% of all debtors (Photo by: Hemant Padalkar/ HindustanTimes
A build-up of expectations that loan waivers for farmers are here to stay, especially in those states that will go to polls later this year, is rapidly gaining momentum.
As for the scheme itself, it is expected to extend to 40 million farmers and cost the exchequer a minimum of Rs71,680 crore—more than four times what the government is budgeted to spend on its high-profile rural employment schemes in the current financial year. Smaller farmers, those cultivating up to two 2ha (2.471 acres make a hectare), are supposed to derive maximum benefits.
“It is an income transfer on an unparalleled scale,” Prime Minister Manmohan Singh, laying down the ideological underpinnings of the farm loan waiver, told the Lok Sabha on 5 March.
“If bankruptcy is a permissible form of business outcome in industry, what is irrational about this waiver? It will allow a fresh flow of institutional credit to farmers. It will clean up bankers’ balance-sheets; it will stimulate the economic activities all over India and I do not make any apology,” Singh said.
However, there is little evidence to suggest that the unparalleled income transfer will actually help the majority. According to the January 2008 report of a committee on financial inclusion headed by C. Rangarajan, 51.4% of India’s 89.3 million farm households have no access to institutional or non-institutional credit.
It is also not guaranteed that political gains from this kind of a massive initiative would accrue only to the Congress-led United Progress Alliance. About 55% of the package will be implemented by cooperative credit institutions, under the control of different state governments and headed by politicians from different parties.
As independent India’s largest ever loan waiver programme gains momentum, a survey shed light on the the extent of indebtedness in the farming community.
According to the IIMS Dataworks survey, the total number of poor rural households stood at 57.4 million in 2007, out of which 16.4 million had outstanding debt from loans taken during the previous two years. Such loans added up to a “massive” Rs71,000 crore, with lenders other than banks holding nearly half of the total debt portfolio.
Low-income workers in rural India are twice as prone to debt as their urban counterparts, showed the Invest India Incomes and Savings Survey 2007 that analysed state-wise borrowing habits. In some states, including Andhra Pradesh, Kerala, Punjab and Tamil Nadu, more than half of all low-income rural workers have taken loans, it showed.
And more than half of all loans taken attracted an annualised interest rate in excess of 24%, with nearly 40% of loans costing more than 36% and the lowest-income farmers paying the highest rates “more often than others,” the survey said.
Agricultural workers, subsistence farmers and other marginal primary producers in rural India account for around 60% of all debtors, with an additional third or so of debtors being “own account workers” involved in non-farm activities, said the report.
“Moreover, average outstanding debt levels for these groups are well in excess of six months of earnings and for a significant number, in excess of a full year’s earnings,” it said.
“It is difficult to argue in these circumstances therefore that these workers are not in a debt trap that they have little prospect of escaping unassisted,” the report added.