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Business News/ Politics / Policy/  Telangana shows an alternative to farm loan waivers

Hyderabad: For long, P. Madan, 45, would borrow money from private lenders before the kharif and rabi seasons every year to purchase seeds and fertilizer. The small farmer from Kamareddy district in Telangana got a reprieve this May when he received a cheque of 8,000 as part of the state government’s flagship Rythu Bandhu scheme. The investment support programme launched in April provides financial assistance of 4,000 per acre per season to all land-owning farmers in Telangana.

Madan, who owns two acres, is expecting his second cheque now for the winter crop season. “At the beginning of the farming season, most of us who own small plots of land don’t have ready cash and end up borrowing at very high interest rates," he said.

According to the cotton grower, frequent small loans add to regular bank credit, pushing many families into a debt trap. “Now many of us don’t have to worry," says Madan.

In a state where farmer suicides are common among marginal farmers, investment support programmes such as the Rythu Bandhu scheme provide a viable alternative to big-ticket farm loan waivers which are now in vogue. Since April 2017, at least eight state governments have promised to waive over 1.9 trillion in farm loans in line with the pre-poll promises.

However, states have failed to deliver on their promises due to paucity of funds which led to delayed execution, and in almost all cases the eligibility conditions excluded many deserving farmers. For instance, Punjab could disburse only 35% of the committed farm loan waiver even 18 months after the announcement was made in June 2017.

Experts concur that compared to farm loan waivers or price support measures to pacify farmers’ unions, income transfers are more equitable and do not impact either the banking ecosystem (leading to defaults by farmers and banks advancing lower volumes of fresh credit) or crop choices (like growing sugarcane in water-scarce Maharashtra).

As a policy solution, the Telangana experiment has earned accolades, and even benefitted the incumbent chief minister K. Chandrashekar Rao in the recent Telangana elections, where his party—Telangana Rashtra Samiti—swept the state.

“The way farm loan waivers are implemented, they turn out to be exclusive in a time when farmers are bearing the burden of low food inflation, there is no better solution than to put money directly in their hands," said Devinder Sharma, a Chandigarh-based farm policy analyst, who has been advocating income security for farmers for over a decade.

“Income transfers are inclusive, easy to administer and less prone to leakage, but state governments like Telangana must find a way to include tenant farmers and landless agricultural labourers," Sharma added.

So far, 5.8 million Telangana farmers have benefitted from the Rythu Bandhu scheme, covering nearly all farm households except tenant cultivators. Before it was announced, Telangana had undertaken an intensive exercise to rectify land records across 10,500 revenue villages to ensure there were no glitches in execution. In 2018-19, the state budgeted 12,000 crore for the scheme.

That said, KCR had also followed up on his 2014 promise of a farm loan waiver which cost the state exchequer 17,000 crore, besides promising yet another in the recently concluded polls. The feedback on the 2014 farm loan waiver (which took time till 2017 to complete) is not any different from states such as Maharashtra and Uttar Pradesh, which are implementing a farm loan waiver now.

Several farmers across Telangana said that due to delays between instalments cleared by the state government, the accrued interest (on remaining loans) nullified the impact of the farm loan waiver. “I had a loan of over 1 lakh and it is more or less the same now, since the waiver did not happen at once. I received a notice to clear my loan a few weeks ago. So it was of no use," said B. Mahesh Reddy, a farmer from Siddipet district. Reddy, however, is all praise for the Rythu Bandhu scheme, saying it gave him some respite.

A senior official from the Telangana agriculture department, requesting anonymity, said since the flagship scheme was announced, cheques worth 5,256 crore were disbursed. “There was some delay in cheque distribution for the rabi season because the model code of conduct was in place before the assembly elections. More than 5 million farmers have been given cheques out of the total 5.8 million. Some may not have received it due to problems with their land records, or they may have been absent when cheques were distributed."

However, Rythu Bandhu is not without criticism. Farmer groups have demanded that tenant cultivators who number around 1.5 million be included under the scheme. “The scheme is providing investment support to farmers, but it is excluding tenant farmers who cultivate 30% of land in Telangana," said Kiran Vissa, a member of Rythu Swaraj Vedika, an organization working on farmers’ rights.

Loan waivers should not be compared with income support, Vissa adds. “Waivers are meant to address past distress, while investment support schemes are for the waivers should not be treated as a regular option, but as a one-time measure with a clear systemic solution in place for the future."

Following Telangana’s footsteps, on 21 December, the Odisha government announced an income support scheme, which aims to cover 90% of the state’s farmers. The scheme, however, is an improvement on the Telangana model, as it includes landless rural households. Under the scheme, farmers will receive support of 10,000 every year, while landless rural households will receive 12,500 for investments in fisheries and animal husbandry. The scheme, which will cost around 5,000 crore, is expected to benefit over 4.5 million families.

“Income support is the future of subsidy transfer to agriculture, wherein the Aadhaar ecosystem can be effectively used... but it may not be enough to address the price collapse problem which is hurting farmers immensely," said Siraj Hussain, a former secretary at the federal agriculture ministry. “But I fear politicians will not forego the potential of a loan waiver promise, which has immediate electoral benefits."

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Updated: 26 Dec 2018, 10:16 AM IST
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