Introduction:

• In our previous articles we had dealt about why farm loan waivers are not a suitable option to address the rural distress.
• Newly elected chief ministers of Madhya Pradesh, Chhattisgarh and Rajasthan have all announced loan waivers within their promised time of 10 days. It may cost the state exchequers more than Rs 50,000 crore.
• Opposition leaders have also challenged the prime minister to waive off loans of all farmers.

Do you know – How much is a pan-India loan waiver likely to cost?

• Total outstanding credit to agriculture currently is likely to be around Rs 12-13 lakh crore.
• It is not feasible to waive off all these loans, it will simply blow up the budget.
• Therefore, considering just short-term crop loans (maximum limit of say Rs 2 lakh per farmer) and, only from nationalised banks and PACs, the total bill is not likely to settle below Rs 4 lakh crore, and may even touch around Rs 5 lakh crore.
• In other words, it will cost anywhere between Rs 4 and 5 lakh crore, including states that have waived farm loans since 2017.

Do you know?

• UPA government had announced mega loan waiver of Rs 71,680 crore in 2008.
• As per the report of the CAG on Implementation of Agricultural Debt Waiver and Debt Relief Scheme (2013), the 2008 Mega Loan Waiver amounted to 20 per cent of total outstanding loans to agriculture in 2008, and actual disbursement was just Rs 52,516 crore over a period of four years.
• Loan waiver is only a temporary relief, that too tilted towards larger farmers.
• Institutional credit comprises about 64 per cent of total credit taken by all farmers, the remaining 36 per cent coming from non-institutional sources.
• It is the large farmers who take a larger proportion of their credit from institutional sources.
• The marginal farmers with holdings of less than one hectare, who constitute 68.5 per cent of the peasantry, actually take more than half of their loans from non-institutional sources at interest rates that range from 24-36 per cent, and sometimes even higher.

Better Alternative

• Providing higher MSPs are market distorting.
• The alternative is to think of a structured and stable income/investment support policy for farmers.
• Improvised version of Telangana’s Rythu Bandhu scheme could serve as a starting point.

Telangana’s Rythu Bandhu scheme

• Under this scheme, the government can give Rs 10,000/ha as investment support to cultivators.
• Payments under this scheme could be inversely related to the holding size, making it more pro-small holders.
• Farms can be geo-tagged to ensure that only those farmers get benefits who are cultivating land.
• Land records will have to be upgraded to include tenants.

Conclusion:

In any case, if this scheme is implemented in over 20 crore hectares of gross cropped area of the country, it will cost about Rs 2 lakh crore per annum, which could be equally distributed between the Centre and the states.

The Centre should also include fertiliser subsidy into this and encourage states to transfer their power subsidy through this platform based on per hectare basis.

Such a policy can reach the largest number of farmers, be more equitable, the least market distorting, and predictable.

The costs are high, but so are the costs of food subsidy for consumers (Rs 1,69,000 crore). Striking the right balance between consumers and farmers is the need of the hour.