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Keeping the Congress’s electoral promise, Punjab’s Amarinder Singh government has declared that it will waive off loans up to Rs2 lakh for small and marginal farmers. Following on the heels of the Uttar Pradesh and Maharashtra governments, this will inevitably boost the demand for loan waivers in other states.
The immediate reason for farm distress can be traced to the crash in prices of a number of agricultural commodities. But problems in the sector are more structural in nature. For instance, the government has now raised minimum purchase prices for crops such as rice and cotton—but a large chunk of crop production is now horticultural, with a far greater degree of risk.
As this newspaper has argued in recent weeks, such complexities cannot be addressed by loan waivers. In fact, there is a risk that after opting for a politically convenient solution, the political class will lose sight of the structural reforms that are badly needed in the sector. Also, loan waivers will strain the fiscal capacity of state governments and affect their ability to make necessary investments in the sector.