Introduction:

Farm loan waiver is the practice of writing off the loans given to farmers owing to their inability to pay them back due to reasons like calamity, disaster, political policies etc.Since 2014, there have been similar moves in Telangana, Karnataka, Andhra Pradesh, Maharashtra, Uttar Pradesh, Punjab, Rajasthan, Madhya Pradesh and Chhattisgarh which are States run by various parties. The loan waivers has become a big political tool in hands of political parties that has ruined capital status of Indian agriculture economics.

        The NSSO Situation Assessment Survey of Agricultural Households (2013) shows that 52% of farming households are indebted, with rates as high as 89-92% in some States.

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Farm loan waiver are necessary for farmers’ welfare:

• Agriculture in India has been facing many issues — fragmented land holding, depleting water table levels, deteriorating soil quality, rising input costs, low productivity. Add to this vagaries of the monsoon.
• Output prices may not be remunerative. Farmers are often forced to borrow to manage expenses. Also, many small farmers not eligible for bank credit borrow at exorbitant interest rates from private sources.
• When nature rides roughshod over debt-ridden farmers in the form of erratic monsoon and crop failures, they face grim options. Indebtedness is a key reason for the many farmer suicides in the country.

Loan waivers are not sufficient for farmers’ welfare rather it’s in interest of Political Parties:

• Loan waiver is generally declared by political parties for electoral gains. The very purpose of waiving is unjustified and the needs a review of overall waiving process.
• Farm loan waivers have become electoral weapons for parties, but it’s the small businesspersons and traders who are bearing the burden of loans that banks give them at high-interest rates.
• Farm loan waiver does not cater to the vast small and marginal farmers who don’t have access to formal credit and are indebted to local money lenders. A study by RythuSwarajyaVedika in June 2018 showed that 75% of farmer suicides in Telangana are by tenant farmers, who have no or least access to formal credit.
• Farm loan waivers are at best a temporary solution and entail a moral hazard even those who can afford to pay may not, in the expectation of a waiver.
• Such measures can erode credit discipline and may make banks wary of lending to farmers in the future. It also makes a sharp dent in the finances of the government that finances the write-off. Ex- RBI chiefs like Urjit Patel and Raghuram Rajan have also expressed similar views of ‘Moral Hazard’
• Also a recent study by the International Food Policy Research Institute reveals that at the national level, 48% of agricultural households do not avail a loan from any source. Among the borrowing households, 36% take credit from informal sources.
• A negative relationship between the size of farm and per capita consumption expenditure (a proxy for income) further underscores the importance of formal credit in assisting marginal and poor farm households in reducing poverty hence farm loan waivers fail to result into farmers welfare.

What needs to be done?

• Credit, finance and Insurance:
  • A functional institutional credit system which is accessible and accountable to all cultivators.
  • This covers not only land-owning farmers but also sharecroppers, tenants, adivasi and women farmers, and animal-rearers.
  • Credit products for agriculture need to be tailor-made based on cropping and rain cycle, specific to a particular region. The regional offices of commercial banks should contribute in this exercise. Registration of all cultivators and providing Kisan credit cards.
  • The period of crop loan should be extendable to four years, given that, on average, every second or third year the spatial distribution of rain pattern is erratic in India.
• Input Costs:
  • It is more important to make agriculture sustainable by reducing input costs of seeds, fertilizers and other inputs.
• Remunerative Prices:
  • Extending reach of minimum support price which has been dedicated to few crops and in a narrow geographical area is important.
  • Set up of Futures and Trade markets, tie up of farmer and private companies for procurement should be looked into as alternative methods against distress sale.
• Agro- Produce Marketing and Processing:
  • The agro-processing industry and warehousing needs to expand so that agricultural produce can be stored when prices plunge.
  • Promoting viable farmer collectives to act as a “collective voice of marginal and small farmers”.
  • Legislations on the basis of NITI Aayog’snew model law — Agricultural Produce and Livestock Marketing (Promotion and Facilitating) Act (APLM) should be enacted in all states.
• Technology:
  • Use of technology to aid farmers like drip and sprinkler irrigation.
  • Precision agriculture, GM Crops should be encouraged drought prone areas.
  • Space technology and Mobiles should act as “Eyes and Ears” of the farmers to assist in farming.
• Distress Management:
  • Establish farmers’ distress and disaster relief commissions at the national and State levels, based on the model of Kerala Farmers’ Debt Relief Commission.

Conclusion:

Waiving of loans should be done only in the most exceptional circumstances. The challenge before political parties and governments is to deliver on the institutional solutions demanded by farmers as against temporary solutions of loan waivers.