The government’s decision is targeted at a large section of agricultural community who depend on non-institutional sources of credit, whose interest rates and collateral are much higher compared to institutional sources. Photo: Pradeep Gaur/Mint
The government’s decision is targeted at a large section of agricultural community who depend on non-institutional sources of credit, whose interest rates and collateral are much higher compared to institutional sources. Photo: Pradeep Gaur/Mint

Karnataka takes Ordinance route to reduce farmer debt

According to the new Bill, any loans taken from non-institutional sources stand null and void, and pledged items such as gold and land documents, have to be returned

Bengaluru: The state cabinet on Friday passed the ‘Karnataka Debt Relief Bill 2018’, in a move to ease financial burden on small farmers, agricultural labourers and other weaker sections of society. This follows pre-election assurances made by Chief Minister H.D.Kumaraswamy and his Janata Dal (Secular) of making farmers “debt free".

The bill, a one-time offer, will be sent to the President for his consent. The bill proposes that any loans taken from non-institutional sources excluding non-banking finance corporations (NBFCs), stand null and void, and any pledged items such as gold and land documents, will have to be returned. However, the government is still not clear on the losses that will be borne by lenders.

The government’s decision is targeted at a large section of agricultural community who depend on non-institutional sources of credit, whose interest rates and collateral are much higher compared to institutional sources.

“Today the Karnataka Cabinet has taken a decision that will have far-reaching consequences," according to Krishna Byre Gowda, rural development and panchayat raj minister, Karnataka.

“A large number of farmers avail loans from informal sources such as moneylenders. Interests charged by private money lenders are exorbitant. This is directly fuelling agrarian and debt crisis in rural India," Gowda said. The decision is targeted at those sections who have not been able to benefit from subsequent farm loan waivers, he added.

In 2017, the Siddaramaiah-led Congress government had announced a 8165 crore farm loan waiver. After the elections in May, the coalition government announced another farm loan waiver upwards of 40,000 crore.

The decision comes barely a week before the state heads to the urban local body polls, key to mobilising grass-root level workers before the 2019 Lok Sabha elections, where the Congress has joined hands with the JD(S) to fight the Bharatiya Janata Party (BJP).

The coalition government in Karnataka is banking on two earlier bills for debt relief, passed in 1976 and 1980, to make its case. Though the debt relief bill of 1980 was challenged in the Supreme Court, the decision was upheld in 1992, Gowda said. He clarified that the government had to take the Ordinance route since both houses were not in session.

On Friday, the Cabinet also asked its finance department to initiate steps to waive off farm loans taken from nationalised and cooperative banks in addition to those taken from the cooperative sector. Gowda said the over 40,000 crore farm loan waiver, to be paid back to banks over four installments, would have budgetary support.

Karnataka, which has seen successive droughts over the last few years, is also facing a natural calamity of epic proportions. The heavy rains in several districts, especially in Kodagu, has seen hundreds dead, many thousands displaced and unimaginable loss to property and livelihood. Gowda said Karnataka has sought 2,000 crore, of the total estimated losses of 3,000 crore, as immediate relief. The government has so far received private donations of over 25 crore in the Chief minister’s Relief Fund, as well as another 108 crore given by government employees towards relief measures.

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