4 min read.Updated: 14 Dec 2018, 12:33 AM ISTLivemint
Taking a cue from election results, political parties may announce more farm loan waivers but this will do little to fix the persistent distress in rural households
The drubbing of the Narendra Modi-led Bharatiya Janata Party (BJP) in the state elections in Madhya Pradesh, Rajasthan and Chhattisgarh has proved beyond doubt that all isn’t well in India’s hinterland. An analysis of the poll results in these three states show that the incumbent BJP won just 35% of the 436 rural assembly seats, while the Congress walked away with 55% of the seats. Going ahead, politicians and policymakers can ill afford to ignore the acute distress in rural India, which is driven by a deflation in crop prices, lack of employment opportunities and stagnant rural wages. The resurrection of the Congress, which won the elections banking on populist pre-poll promises, coupled with anti-incumbency and anger among voters on the promise of “achhe din" by Prime Minister Modi, is all set to change India’s policy priorities over the next few months, ahead of the 2019 general elections.
Among the array of poll promises, the promise of loan waivers ranks foremost. Ever since farmers took to the streets in June last year, seeking the government’s attention, their primary demands have been a complete loan waiver and remunerative crop prices. For farmer movements, rising corporate non-performing assets and haircuts offered by banks provided added ammunition: If industrialists’ loans can be written off, how can the government deny it to farmers who are struggling to make ends meet? Sensing the mood, the Congress promised generous farm loan waivers in all the three states where it fought the incumbent BJP. In states like Chhattisgarh, it went a step ahead by promising to procure paddy at a steep ₹ 2,500 per quintal, substantially higher than the centre’s support price of ₹ 1,750 per quintal. Before these elections, the BJP took a principled stand by saying it is concentrating on structural reforms in agriculture. However, it did raise support prices significantly and announced a new procurement scheme and termed it “historic". Failure to implement this ambitious scheme named PM-AASHA has earned it the farmers’ wrath.
With general elections round the corner, the BJP has fewer options to counter the offers made to voters by the Congress. On Tuesday evening, as it became clear that the Congress would oust the BJP in Chhattisgarh, Rajasthan and Madhya Pradesh, Reuters reported that the centre was considering a countrywide loan waiver for farmers, similar to what the United Progressive Alliance government implemented before the general elections in 2009. The sweeping victory of K. Chandrashekar Rao in Telangana has also placed before the BJP another option—a direct income transfer to farmers that Rao implemented successfully only months ago. While loan waivers lead to a collapse in the formal credit system—as repayments tank and banks hesitate to issue fresh loans, pushing farmers to the proverbial moneylender—income transfers do not distort either credit or wholesale agriculture markets. Such transfers are easy to administer and monitor. The only glitch is finding a way to bring tenant farmers in.
While the BJP will be grappling to find a way to shed its anti-farmer perception, it is not going to be easy for the Congress either. In the three states it is set to take charge of, the moon it has promised has to be delivered. If it repeats the Punjab experience, where after winning the elections last year the progress of loan waiver has been tardy, farmers will not take it kindly. In an environment of competitive politics, Indian agriculture will take a hit. The pressing need to reform agriculture markets to make them more transparent and competitive, the push required to create a remunerative value chain for farmers, improving delivery of risk-mitigating instruments like crop insurance, and fixing unsustainable cropping patterns (like drawing groundwater to grow paddy in Punjab) will take a back seat.
As short-term populist measures take centre stage, rural households can only expect temporary band-aid solutions. Farm households today spend a significant portion of their earnings to fund private education in the hope that at least one of their children will land some job, any job, and escape the recurrent risks in agricultural incomes. In Haryana, once prosperous families are struggling to find a bride for their “zamindar" sons—soon this may find a place in the manifestos of political parties. Close to half of India’s workforce depends on agriculture to eke out a living, but there is no discussion as to how can they be educated, skilled and moved out. While farmer organizations shy away from raising such issues, politicians hope distress migration will do the job. As schemes like Skill India and Make in India announced by the prime minister failed to create jobs, the crisis in rural India is likely to continue. A loan waiver can provide temporary respite, but not solve the livelihoods crisis in rural India.
Will the Congress fulfil its promise of farm loan waivers in the three states it is set to take charge of?
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