Loan waivers come, and loan waivers go, but the farmer stays where he is-in poverty. Loan waivers are only temporary solutions, much like band aid, and even these do not address the vast majority of farmers or their problems. We need to have more holistic and long-term solutions
Good politics can be good economics too, but it is not always true. Politics for quick results sometimes lead to populist measures which are not based on sound principles of economics and which in the long run turn to be harmful for the people. ‘Farm loan wavier’ which is winning elections these days and which is practiced by all political parties, is one such measure.
There is no denying the fact that there is a serious agrarian problem in our country where almost 53% of our population is dependent on agriculture, both as cultivators and farm laborers. There are also allied agricultural activities like fisheries, animal rearing and horticulture. Farmers in large numbers have been committing suicide in many parts of the country for quite some time even after several endowments of farm loan waivers, including the one mega waiver proclaimed nationally in the year 2008. Elections were won but the condition of farmers did not improve.
Loan waivers announced by various governments in different states apply only to institutional loans taken by farmers who are cultivators. These loans are taken mainly by big farmers, as small and marginal farmers take high interest-bearing loans from moneylenders. Landless laborers engaged in agricultural work which constitute almost 50% of the workforce in this sector are also not beneficiaries of bank loans. The net result is that loan waivers only benefit about 10% of the workforce in the agricultural sector. There is no help for loans taken from moneylenders. There is no help for landless laborers who are too poor and who are also not eligible for bank loans, as they are not cultivators. Thus, loan waivers come and go, but poverty in the farm sector continues to stay.
Bank loan takers whose loans are waived under the loan waiver schemes are also not fully benefitted. As a good political move, the government does not waste any time in announcing schemes in order to meet promises they have made. Most of the times, such announcements are not preceded by any financial deliberation and as a result, it takes a lot of time before bank loans waived are paid off by the government to the banks. Farmers are not given additional loans even if they genuinely need money for farming, as their earlier loans are considered non performing asset (NPA), and this situation continues till the banks receive money from the government against the loans waived. To understand the situation, it took almost four years for the government to pay Rs.52,000 crores against loans of Rs.72,000 crores waived in 2008 and that total amount waived was never paid off. The slow process of repayment harms the cause of farmers who were supposed to have benefitted from it. Needy farmers waiting for new loan accounts from banks, meanwhile, go to private moneylenders and thus enter a vicious cycle of indebtedness.
Loan waiver schemes destroy the healthy discipline of farm credit. Banks prefer not to give farm loans as they know that a substantial part of the same may become non-performing asset (NPA). Many farmers believe that political parties will waive loan for their votes and hence stop repayment of loans. Loans given become NPA as the repayment schedule is broken. Sometimes farmers take farm loan but spend the same on non-income earning activities like marriage in the family and so they are unable to repay it. They then keep waiting for farm loan waivers. The temptation of loan waivers becomes an important reason for farm loans becoming NPA and this in turn becomes a reason for banks not serving this sector properly.
The loan waiver scheme is also an unethical practice. Honest farmers who believe in repaying their loans in time are at a disadvantage compared to habitual loan defaulters who benefit from such schemes. It has also been seen that farm loans exceed the value of the crops. Dishonest cultivators indulge in this practice of taking loans as they know that ultimately their loan will be waived. The farming community deserves the best, as it is this community that feeds the nation and they must work against all odds. But a few of them plan their loan taking activities to create windfall profits because of loan wavier schemes which routinely keep on coming with elections.
‘Can loan waiver schemes solve the agrarian problem? The answer is no. It is only a temporary relief from pain, something like band aid. A holistic solution should follow a detailed diagnosis of the ailment. Our governments fail to bring long term solutions and the causes of the problem are ignored’
Loan waiver schemes are harmful as they work as triggers to spoil our economy. They add to the fiscal deficit. Money for the waived loan does not come from political parties who announce such waivers, but it comes from taxpayers. Taxes collected are re-routed from development works, education, medical facilities etc. to fund these waivers. Banks suffer from ever increasing farm loan NPAs as farmers wait for loan waivers instead of repaying loans. Banks in the public health sector are re-capitalized from our taxes in consideration of mounting NPAs. It is true that bank NPAs are not entirely due to farm sector loans, but it is a major component and due to the expectation of waiver schemes. This, to a large extent, is deliberately allowed to pile up, except for a few genuine cases.
Can loan waiver schemes solve the agrarian problem? The answer is no. It is only a temporary relief from pain, something like band aid. A holistic solution should follow a detailed diagnosis of the ailment. Our governments fail to bring long-term solutions and the causes of the problem are ignored. As a result, farmers keep on remaining poor. One big problem in this sector is that our agriculture is still dependent on the monsoons due to lack of irrigation infrastructure. Every year droughts and floods occur simultaneously in various parts of the country. In either case, our farmers suffer. They not only lose the crops but along with it, their invested capital is also lost.
Marketing and getting proper value for their produce are other big problems for farmers. There are too many middlemen between the farmer and the consumer and this eats away a big share of the profit which should have gone to the farmers. The functioning of the APMCs are again not to the advantage of farmers. These days farmers are getting badly hit due to prevailing low prices of most of their produce. Farmers are seen dumping onions, potatoes, and even milk on the roads. The wholesale-price-index has come down substantially and though this is good for consumers, it is not so for farmers. Recently, the government announced higher MSP for many items of produce but as the scheme has not been properly implemented so far, the problem of farmers continues.
The Swaminathan Commission had given an elaborate report on solving the problems of farmers way back in 2006, but the report was never acted upon. Its recommendation on MSP is now getting implemented. Black marketing of urea is another problem for the farmer. The problems faced require a considered decision with larger foresight. Crop insurance policy and MSP are steps in the right direction, but we have a long way to go.
“Agriculture is our wisest pursuit, because it will in the end contribute most to real wealth, good morals and happiness,” said Thomas Jefferson. We must help agriculture with doing what we can, with what we have and where we are. For a country like India, this is even more important as the agricultural sector gives maximum employment. We must devise ways to maximize the income of farmers. There must be schemes for value addition of farm produce at the premises of farmers or in processing factories where farmers also have stake. The Amul model of dairy development where farmers are stakeholders is one inspiring example to follow.
For better yield of farm produce, co-operative farming is a good proposition as most farmers in our country have less than two hectares of farm land. Scientific and technological inputs should be used in the pooled land plots by farmers for collective co-operative farming. Soil test is another good idea for growing various kinds of crops.
The life of a farmer is always tough. He works in extreme heat and chilling cold to produce food for us. Financially, a farmer is always hard hit as he is the only person in our economy who buys everything in retail, sells everything in wholesale and pays freight both ways. We must thank the farmer for the food we eat, and we must show them respect and compassion. Loan waiver is just not enough to ease their problems. Much more is required to be done.
by S K Jha
