Last week, a report published in The Hindu newspaper said that Odisha chief minister Naveen Patnaik had dashed off a letter to Prime Minister Narendra Modi demanding a national policy on farm loan waivers.
Patnaik’s initiative comes in the backdrop of a round of politics of competitive populism with all parties promising farm loan waivers in the run-up to the just-concluded assembly elections. Though once elected almost all of them have struggled to deliver on the promise; the latest being Karnataka, where farmers are threatening to take to the streets to force the state government to keep its pre-election promise.
Patnaik should be credited for trying to force a debate on what is otherwise an increasingly popular policy prescription (another matter that he may be making virtue of a necessity since, in less than a year, Odisha goes to polls and Patnaik will be battling anti-incumbency especially on account of farm distress).
At the same time, he has also inadvertently put the issue of farm distress on the centre stage of national politics—and by consequence central to the electoral agenda in the 17th general election due next year.
It has been long overdue. While it is indeed a legacy issue, the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) is guilty of not reacting early enough. I remember raising this issue in a conversation with a senior member of the Union cabinet in 2015—by when the crisis had already assumed distress proportions—who summarily dismissed it as a non-problem. It was only in this year’s budget that the government committed to a series of measures, including extending the minimum support price to all crops to mitigate price risks.
While this collective political focus on farm distress is the good news, the bad news is that farm loan waivers, while it may be politically very remunerative, is a mere stop-gap solution. Besides the issue of moral hazard, it does not address the core concern plaguing farming in the country. And the danger of a national policy means that it will be written in stone.
Indian farming is no longer what it used to be, primarily a foodgrain economy. It has diversified very dramatically and now horticulture dominates the farm basket. While it is far more remunerative, it also brings with it some attendant downside risks—including prices.
Mitigating this risk and improving the farming ecosystem by investing in irrigation, a national market for the produce and better rural road connectivity are some of the more sustainable solutions required to address farm distress.
By lining up behind farm loan waivers politicians are causing double trouble for the national economy. Not only will it further accentuate fiscal pressures on the national and state budgets, it will also conveniently distract from addressing the core problems such as the failure to provide a national market place for farm produce—right now a cosy nexus between politicians and middlemen ensure the operation of cartels, which end up giving a bad bargain to farmers as well as giving short shrift to consumers (visible in the cyclical price gouging in onions and potatoes).
The thing is that farming cannot be left entirely to the play of market forces. The government will always have a role to play, given that it still absorbs 50% of the national workforce. So far politics has influenced this trade off.
The current round of farm distress, which has worsened in the past three years, suggests that the country is rapidly running out of time. No longer do politicians or policy planners have the luxury of kicking the can down the road.
At the same time, in the middle of a very busy and contentious election calendar, it is very likely that the political noise will overwhelm rational decisions.
In short, it looks like, for the moment, the odds favour bad politics over good economics.
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.
His Twitter handle is @capitalcalculus. Respond to this column at firstname.lastname@example.org