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Business News/ Industry / Agriculture/  8 states. ₹1.9 trillion. It’s raining farm loan waivers, but are farmers really gaining?

8 states. ₹1.9 trillion. It’s raining farm loan waivers, but are farmers really gaining?

Eight states have announced farm loan waivers worth 1.9 trillion. Rahul Gandhi has promised a nationwide farm loan waiver if the Congress is voted to power in 2019.

Repeated farm loan waivers can end up hurting farmers as banks are often reluctant to issue fresh loans after a slump in repayments. Photo: ReutersPremium
Repeated farm loan waivers can end up hurting farmers as banks are often reluctant to issue fresh loans after a slump in repayments. Photo: Reuters

New Delhi: Eight state governments have given farm loan waivers worth 1.9 trillion since April last year, amid massive farmer protests and promises made ahead of the recently concluded assembly elections in five states. It all began with Prime Minister Narendra Modi promising debt relief to farmers ahead of the Uttar Pradesh elections in February 2017.

The Maharashtra government was next. It submitted to demands from farmer groups after they went on a strike in June last year.

Together, Uttar Pradesh and Maharashtra promised to waive over 70,000 crore in farm loans last year, triggering a string of copycat announcements by governments in Punjab, Karnataka and Rajasthan. The latest round of farm loan waivers in the past few days was announced after Congress formed governments defeating the incumbent Bharatiya Janata Party (BJP) in Chhattisgarh, Rajasthan and Madhya Pradesh. Since Monday, 59,000 crore of waivers have been promised to farmers in these three states.

Congress president Rahul Gandhi raised the ante on Tuesday when he said he won’t allow Modi to sleep until the centre announced a nationwide farm loan waiver, even as Gandhi promised to waive all farm loans if his party came to power in 2019.

It may not be wise to accept Gandhi’s rhetoric at face value since the implementation of Congress’s farm loan waiver in Punjab (announced in June last year) has been tardy so far. A more pertinent question is whether debt relief is the right solution to resolve farm distress, driven by drought, inadequate crop prices and falling incomes since 2014.

“Loan waivers are a band-aid solution, but necessary at times to provide some immediate relief," said R. Ramakumar, professor at Tata Institute of Social Sciences, Mumbai, and an expert on agriculture credit. “They help little to solve the fundamental problem of rising costs and falling profitability in agriculture. But it is an easy solution for politicians."

Ground realities of the ongoing farm loan waivers show many fault lines. Firstly, waivers are almost always conditional. In Punjab and Uttar Pradesh, for instance, the waivers were allowed only for small and marginal farmers, who own less than 5 acres. Secondly, governments usually set a cut-off date when they implement a waiver. Madhya Pradesh, for example, has set a cut-off date of 31 March 2018, when it approved a farm loan waiver earlier this week. This means farmers who availed crop loans in June or July for kharif planting will not benefit. Like all political parties, Congress, too, never said the waiver would be conditional. So, there is a degree of ambiguity built into all promises of debt relief.

“In Uttar Pradesh, many honest farmers had repaid their loans before the government announced the managers privy to information of an impending waiver also reissued loans in such a way that deserving farmers were left out," said Dharmendra Malik, a farmer leader with the Bhartiya Kisan Union. Malik added that compared to the promised waiver of 36,359 crore, the state managed to waive around 25,000 crore after more than 18 months. He suggested that a debt relief commission (Kerala has one) could help avoid these problems by restructuring and negotiating debts between farmers and lenders.

ALSO READ | Solutions beyond farm loan waivers

The situation was worse in Punjab where waivers totalled less than 2,000 crore since they were announced in June last year (less than a fifth of the official estimate of 10,000 crore), said Jagmohan Singh, a farmer leader from Patiala. “While about 70% of loans of marginal farmers (owning less than 2.5 acres) have been waived, small farmers who own between 2.5-5 acres are yet to benefit," Singh said. According to senior officials in the Punjab government, who did not want to be named, the state government’s fiscal situation has limited its ability to deliver on the farm loan waiver promise.

ALSO READ | How will farm loan waivers impact the Indian economy?

Glitches in implementation aside, farm loan waivers suck out much-needed public investments in agriculture (say, in irrigation and research), besides being iniquitous by benefiting those connected to formal credit (leaving out the poorest of farmers who depend on money lenders), said Ashok Gulati, a Delhi-based farm expert. “Direct income transfers like the one carried out in Telangana is more equitable and transparent."

ALSO READ | The politics and economics of farm loan waivers

Repeated farm loan waivers can also end up hurting farmers as banks are often reluctant to issue fresh loans after a slump in repayments. In Maharashtra, crop loans issued during the 2017 kharif crop season were less than half the target set by the state government.

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Published: 21 Dec 2018, 08:05 AM IST
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