To help the farm sector, state governments have time and again announced loan waiver schemes. Back in 2008-09, the then UPA government at the Centre had announced a loan waiver scheme for the entire country. States like Madhya Pradesh, Chhattisgarh and others have announced similar schemes in the recent past.

Drawbacks of loan waivers:

• Firstly, it covers only a tiny fraction of farmers. The loan waiver as a concept excludes most of the farm households in dire need of relief and includes some who do not deserve such relief on economic grounds.
• Second, it provides only a partial relief to the indebted farmers as about half of the institutional borrowing of a cultivator is for non-farm purposes.
• Third, in many cases, one household has multiple loanseither from different sources or in the name of different family members, which entitles it to multiple loan waiving.
• Fourth, loan waiving excludes agricultural labourerswho are even weaker than cultivators in bearing the consequences of economic distress.
• Fifth, it severely erodes the credit culture, with dire long-run consequences to the banking business.
• Sixth, the scheme is prone to serious exclusion and inclusion errors, as evidenced by the Comptroller and Auditor General’s (CAG) findings in the Agricultural Debt Waiver and Debt Relief Scheme, 2008.
• Lastly, schemes have serious implications for other developmental expenditure, having a much larger multiplier effect on the economy.

Way ahead:

The magic wand of a waiver can offer temporary relief, but long-term solutions are needed to solve farmer woes. There are many dimensions of the present agrarian crisis in India. The search for a solution therefore needs to be comprehensive by taking into consideration all the factors that contribute to the crisis. Furthermore, both short- and long-term measures are required to address the numerous problems associated with the agrarian crisis.

What needs to be done?

Proper identification: For providing immediate relief to the needy farmers, a more inclusive alternative approach is to identify the vulnerable farmers based on certain criteria and give an equal amount as financial relief to the vulnerable and distressed families.

Enhance non- farm income: The sustainable solution to indebtedness and agrarian distress is to raise income from agricultural activities and enhance access to non-farm sources of income. The low scale of farms necessitates that some cultivators move from agriculture to non-farm jobs.