Farm loan waivers and political imperatives in India
It is election season in India and it is raining sops for farmers, the most key segment of the electorate, in the form of farm loan waivers running into thousands of crores of Rupees. India remains a predominantly agrarian country despite the hoopla about the rising status of its manufacturing and services sectors and its technology prowess. With fresh parliamentary polls due in April next year, governments of all ideological hues in different states are racing against time to roll out loan waivers to farmers before the ban on this goes into force once the Election Commission announces the poll schedule expected in February or March. Politics of competitive populism has taken over and economic prudence has taken the back seat.
Undoubtedly, the farm sector in India has been in a crisis for several years now with prices of farm produce declining, bumper harvests, poor marketing mechanism and drought and deficient rains in many parts of the country, leading to suicide by small and marginal farmers over the years. The most immediate trigger to the loan waiver fee was provided by the Congress Party's victory against Bharatiya Janata Party in recent assembly elections in the three key heartland states of Madhya Pradesh, Chhattisgarh and Rajasthan and announcement of the decision to waive farm loans within hours of installation of its government there. It was not merely the Congress Party's fulfilment of a poll promise that was largely seen as the main reason for its victory in those states but also a clear signal to the farming community in the run up to the national elections. After all, the Congress was not oblivious of the fact that it was a similar farm loan waiver promise which had brought the party back to power in general elections in 2009 thwarting the BJP and ensured a second consecutive term for Manmohan Singh as prime minister. A day after the Congress government's loan waivers in the three heartland states, the BJP dispensations in Assam and Gujarat also waived farmers' loans and pending electricity bills.
For all latest news, follow The Daily Star's Google News channel. Assam and Gujarat are the latest addition to an already long list of states including Tamil Nadu, Maharahstra, Uttar Pradesh, Andhra Pradesh, Karnataka, Punjab, Telangana, Jammu and Kashmir and Puducherry that have already doled out farm loan waivers. There is intense speculation that such waivers are on the cards in some more states like Odisha and Haryana where assembly polls are due in 2019. And if that happens, it is estimated that the cumulative loan waiver would be to the tune of thousands of crore. This will finally strain the public exchequer of the state and the federal governments which reimburse the banks the waived loans of farmers. What is of greater concern that governments will have to mobilise funds for loan waivers by cutting down on spending in welfare schemes in other sectors of the economy.
The questions thrown up by the rush for farm loan waivers is how economically sustainable it is for the finances of the states and federal governments and if the time has not come to look for permanent solution to the crisis in the agricultural sector. Leading economists have questioned the waiver schemes contending that it is not a lasting cure to the farm crisis and provides just a temporary relief to the stressed farmers. This is recognised by Congress Party President Rahul Gandhi himself. Ironically, however, on the day Rahul announced the farm loan waivers by his party governments in Madhya Pradesh, Rajasthan and Chhattisgarh, he also affirmed that such a step cannot be a permanent solution to the farm sector crisis. What Rahul's actions and words reflected is the gap between the short-term imperatives of winning elections and a long-term view of the problem.
What is more worrying is that even seven decades after independence, Indian farmers remain trapped in the cycle of debt. This underlines the urgency for a long-term solution that addresses the issues of falling prices of agricultural produce, marketing bottlenecks and bank credit for all farmers irrespective of the size of their land-holdings. According to most economists, only rich farmers—a very limited section of the overall farming community—benefit by loan waivers primarily due to their access to institutional (commercial and rural cooperative banks) credit and political connections and poorer farmers are left high and dry.
An important factor for the agrarian distress has been the terms of trade for farmers to sell their produce. A key part of this factor relates to the government's bid to fight food inflation. Almost every time domestic prices of food-grains go up, the government clamps down on their export to ensure their abundant availability at home. On the other hand, when prices in domestic markets crash, incentives are given for exports. Economists feel this knee-jerk switch-on and switch-off policy constitutes a temporary measure rather than a long-term cure by ensuring the farmers get more from what consumers pay for their produce.
Secondly, economists say loan waiver tends to undermine honest credit culture of banks which tend to be reluctant to give loans to farmers. The hardest hit by such reluctance are small and marginal farmers without the requisite political pulls. Thirdly, loan waiver does not necessarily ensure that farmers are freed from debt-burden. Loan waiver is like a pain-killer medicine without taking care of the fundamental structural reforms the agricultural sector needs. For instance, it has been suggested that the practice of periodically providing minimum support prices of food-grains be done away with and replaced by efficient and corruption-free procurement and storage of food-grains, better market access for farmers at home and overseas, improving the National Rural Employment Guarantee Scheme for the rural landless and toning up the crop insurance schemes.
The looming parliamentary polls is mounting pressure on the government of Prime Minister Narendra Modi which, according to media reports, is mulling a number of steps for addressing the farm crisis including increasing the collateral-free loans under Kisan Credit Cards and changes in the crop insurance scheme to enhance coverage and faster settlement of claims. At the heart of all measures should be the fact that agriculture needs to be made an attractive destination for investment so that it becomes a growth and job-creating proposition and not be a convenient political and electoral tool.
Pallab Bhattacharya is a special correspondent at The Daily Star.