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Why is Loan Waiver to Farmers a Lollipop to the Agriculture Sector of India?



For long, loan waivers to farmers has been a part of political parties manifesto ahead of elections in India. This season of election is no different from the others. After the recent Congress upsurge in three Hindi speaking provinces of the country, they fulfilled what was promised in the election manifesto – loan waivers to farmers.

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Madhya Pradesh, Chhattisgarh, and Rajasthan witnessed such waivers worth crores. This announcement comes at a time when about 1.8 lakh crores worth farmer waivers have already been announced by seven other Indian states.

Farmer waiver loan was always opposed by Raghuram Rajan who was the former Chief of Reserve Bank of India. He also wrote a letter to the Election Commissioner regarding this populist move by political parties. The balance sheet of financial and lending institutions and the interest rates are directly impacted by such waivers. These loans are not going to solve the problems prevalent in the agricultural sector of the country. It should be taken as a last resort by the governments.

However, the following declaration has been made to draw the votes of the desperate farmers for the benefits of the political parties. Such declarations have risen in the past few years although the total bad debts in the agricultural sector have come down. This shows that the credit culture in the farming sector is being hurt leading to the rise in the non-performing assets of banks.

According to the Reserve Bank of India, the non-performing assets from the agricultural sector rose by Rs. 11,400 crores in fiscal 2017 to cross Rs.60,000 crores. This shows the distress in the past five years. 35.4% of NPAs of Rs 170,000 crore is now accounted by farm sector terrible loans. This resulted in the deceleration of the credit growth by 12.4% in 2017, down from 15.13% in 2016.

However, we should not blame the farmers alone. The defaulters from the industry and infrastructure sector are worth Rs. 5,58,500 crore worth NPAs or 76.7% of the total NPAs. Farmers are better concerning loan repayments compared to the corporate repayment. The total borrowers of the non-priority sector are 20.83% of the credit of Rs 26,80,000 crore worth credit given to them.

What the farmers want is to get out of the vicious cycle of debt-ridden scenario and not the time to time charity done by the political fraternity. A Farmers Freedom from Indebtedness bill, 2018 and Right to Guaranteed Remunerative Minimum Support Price (MSP) bill, were recently introduced as a private member bill in Lok Sabha by MP Raju Shetti.  This bill is prepared by the All India Kisan Sangharsh Coordination Committee, an umbrella organization of 200 farmer organization across the country.

Farmers have been denied their rights and interest. Governments have come and gone, but nothing has changed as they have always misled them. There is a difference between what we call the farmer waiver loan and farmer in indebtedness loan. While both of them seek farmers to be loan free, but that is where the difference in their meaning widens.

Farmer waivers are announced as per the whims and fancies of political parties.  All these give relief to the farmers, but only for a short period. This will not ensure regular income to farmers which lacks in the agricultural sector.

The Modi government seeks to double the income of the farmers by 2022. However, the reality check is that the farming in India has been unproductive for nearly 20 years despite a host of reforms by both the centre and the state government. Even after the implementation of the Even though the farmers are availing subsidies fertilizers, power and irrigation, the gross farm revenues fell 14% on average between 2000 and 2016.

Also, India is one of the countries where farmer income has remained in the unproductive range for nearly two decades. These waivers are of no use was again proven when a 4th farmer committed suicide in Madhya Pradesh due to falling prices of onion in the Mandsaur Krishak Mandi.

As per agricultural policy expert, Ramesh Chand, who is also a part of the Niti Aayog states that only 10 to 15% of the farmers can avail the benefits of the farmer waiver loan.

On the other hand, these bills seek for a one-time immediate loan waiver, right to access institutional credit, debt relief for farmer affected by natural disasters among many others. The other seeks a comprehensive estimation of costs of production, ban on auction or offer of the price below MSP, the obligation on the government to open procurement centres.

The recent protest held by farmers in front of the parliament is the alarm bell which needs to be taken seriously by the nation. What the farming sector of India needs is liberalization and reforms, that too at ground level and not political charity. This sector does not need any more of the left and the right debate, but a much-needed revolution before it is too late.

By: Apoorva Iyer

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