Time to deliver Farm Loan Waiver!

Tamil Nadu Farmers protest with skulls of dead farmers in New Delhi
March 15, 2017
Without a Separate Farmers’ Income Commission, Doubling Farmers’ Income not possible
March 24, 2017
Show all

Time to deliver Farm Loan Waiver!

Notwithstanding the problems, a democratic government has to keep its promise of waiving off farmers loan in Uttar Pradesh especially at this time when there is widespread distress in rural India.

 Arun Pandey

parliament-session_241f4b84-0be4-11e7-ba13-f6aef3964879New Govt in Uttar Pradesh has been sworn in. First cabinet meeting has taken place. All eyes are now set on the delivery of farm loan waiver as promised by Prime Minister Narendra Modi in the election rally in Uttar Pradesh that it would be announced in the first Cabinet meeting held by the new Chief Minister after taking oath.  The waiver is expected to provide relief to over one crore small and marginal farmers on crop loans alone taken to buy fertilizers or for other inputs costs for the crop. The new Chief Minister of the state, Adityanath Yogi addressing the presser after the first cabinet meeting said, “Agriculture will be made basis of development in Uttar Pradesh”.

When it is time to deliver on the promise, confusion has started growing on its fulfillment. Union Finance Minister Arun Jaitley yesterday in Rajya Sabha ruled out any kind of farm loan waivers by Centre. However, he added that states were free to waive off farmers loan using their own resources. The statement has come after assurance from Union Agriculture and Farmer’s Welfare Minister Radha Mohan Singh recently that the new Bharatiya Janata Party (BJP) government in Uttar Pradesh will waive off loans of small and marginal farmers as has been promised in party’s state election manifesto in the recent assembly polls.

The difficulty that centre is facing is the similar demand coming up from other states. Voice for similar waiver have started coming from Maharashtra, Telangana and Odisha.  The Congress has already demanded that the government announce a loan waiver for farmers across the country as was done by the UPA in 2008 and not just for Uttar Pradesh where the BJP has returned to power with a major mandate.

Jaitley also said, “This issue of loan waiver has cropped up in several states. The Centre has its policies for the agriculture sector under which we provide interest subvention and other support. We will continue to give all that. If a state has its own resources and wants to go ahead in that direction, it will have to find its resources. The situation where the Centre will help one state and not the others will not arise.”

But Union Minister for Agriculture and Farmers Welfare had recently clarified that the farm loan waiver was a state specific promise.  He said, “The U.P. unit of the BJP spoke of a farm loan waiver in their election manifesto, it is not in the national manifesto of the BJP. If a State government from its own funds wants to waive loans for small and marginal farmers it should be welcomed”.

Situation in Uttar Pradesh

156500_179046865444576_3786353_n

Farmer ploughing his field in Uttar Pradesh. (Photo: Tapan Verma)

Uttar Pradesh has been one of the worst-hit states due to two consecutive years of drought in 2014 and 2015 that worsened rural distress. In 2016 -17, the loan given to farmers in Uttar Pradesh for rabi crop was Rs 32, 672 crores and similarly the loan for kharif crop was Rs 30000 crore. Nationalized banks have contributed about 90 percent of the loan. According to former Agriculture Secretary, farms loan should be waived off without putting burden on banks. Centre and state government must provide funds for it.

In 2008, the UPA government waived off small and marginal farmers’ loans of Rs 60, 000 crores.

Senior ministers from Chief Minister Aditya Nath Yogi’s Cabinet told Agri Nation that the state government is working on farm loan waiver promise and is in touch with the Union Finance Ministry to discuss the modalities. The issue will also be taken up for discussed soon by the state Cabinet.

A senior cabinet minister of Uttar Pradesh, on condition of anonymity, said “We are committed to farm loan waiver. Prime Minister Narendra Modi made the commitment and we will come out with a detailed plan on farm loan waiver”.

According to SBI Research report, “ There is total outstanding farm credit of Rs 86, 241 crore mostly given to small and marginal farmers in Uttar Pradesh as on 2016 that Scheduled commercial banks together have , with average ticket size of Rs 1.34 lakh”.  RBI data of 2012 shows only 31 per cent of the direct agriculture loan going to marginal and small farmers.  Extrapolating this figure to Uttar Pradesh, only Rs 27,419.70 crore will be needed to be waived off in case the waiver scheme is implemented for the small and marginal farmers. RBI also puts the figure of small and marginal farmers around one crore in Uttar Pradesh.  The report has estimated UP government’s total revenue for 2016-17 as Rs 3, 40,255.24 crore.  The loan amount of 27,419.70 crore needed to be waived off is around 8 per cent of the total revenue.  This may be worrying factor for the new government. According to sources, actual money for the waiver will be decided on two factors — minimum loan write-off slab fixed and the distress level of the applicant.

Banks Warn against Waiver 

Banks are worried that farm loan waiver will disrupt the “credit culture”. After the 2008 waiver, finanace and banking experts have been speaking about rising loan defaults in the agricultural sector even when there was a good harvest. SBI chairman Arundhati Bhattacharya recently flagged the negative effects of a loan waiver on the credit repayment culture among farmers. Arundhati Bhattacharya, chairperson of State Bank of India, said, “ it disrupts credit discipline amongst borrowers and that today the loans will come back as the government will pay for it but when we disburse loans again then the farmers will wait for the next election expecting another waiver.”

According to P V Maiya, former CEO ICICI Bank, “Whenever farm sector is in distress, loan waiver for marginal farmers is necessary in a democratic society. This needs to be done on the basis of on-going reviews by the government and not as an election time gimmick. The government and not the banks should bear the cost. I don’t see it as a big moral hazard provided the relief is really well thought through and implemented”.

Considering these problems cited by banks, it appears that the central government may be highly selective in waiving off all the debt and may introduce some formula where a small fraction only is waived.

Time to Deliver

Even Supreme Court, while hearing a Public Interest Litigation (PIL) filed Swaraj Abhiyan, recently commented on absence of policy to prevent farmers’ suicides and said compensation may not be an all time solution. But the major problem of farmers is indebtedness only. Over one lakh farmers have committed suicides in last 10 years.  According to National Crime Records Bureau, indebtedness and farm related issues have accounted for 58 percent of farm suicides.

The challenge before the new government in Uttar Pradesh is also to reduce the fiscal impact of its other welfare schemes and keeping the farm loan waiver scheme’s expenditure within manageable limits. Notwithstanding the problems and difficulties, a democratic government has to keep its promise of waiving off farmers loan especially at this time when there is widespread distress in rural India.

————————————————————————————————————–