Providing loans and then waiving them off is surely advantageous for political parties for vote-bank, but from being a temporary aid, it has increasingly become a trend, which is neither economically viable nor socially desirable
The Indian agriculture is in the grip of a crisis ranging from fragmented land holding, depleting water table levels, deteriorating soil quality, rising input costs, low productivity etc. However, adverse natural environment and poor monsoon alone are not responsible for this situation.
There exists a plethora of policies for the development of agriculture and increasing farmer’s welfare. Every year, a major portion of the budget is allocated to the agricultural sector. Every political party when in power announces new policies. Certainly, there is no shortage of policies but surely, implementation of these policies are not up to the mark.
The drawback is clearly visible but there has been no improvement. Agriculture’s share in gross domestic product has declined. According to the National Sample Survey Organisation’s 2013 report, the monthly income of agricultural households was Rs6,426 while their monthly expenditure during the same period was Rs6,223 which is not enough.
After the Uttar Pradesh Government’s decision to waive loans for marginal and small farmers, there have been farmers’ protests in other States like Madhya Pradesh and Maharashtra with similar demands.
Providing loans and then waiving them off is surely advantageous for political parties for vote-bank, but from being a temporary aid, it has increasingly become a trend, which is neither economically viable nor socially desirable.
The need of the hour is to compare the pros and cons, where the pros are immediate relief to the farmers and cons are adverse affect on each and every section, ranging from small producers to consumers, Government to tax payers, and farmers themselves. There is also a threat to equity as honest farmers feel cheated due to delay in payments.
Moreover, farm-loan waiver leads to moral hazards. A report by the Indian Statistical Study pointed out that after the Union
Government announced farm-loan waiver of Rs60,000 crore in 2008, honest farmers turned defaulters.
Also, a paper by the Indian Council for Research on International Economic Relations stated that the 2008 farm-loan waiver lead to three-fold increase in non-performing assets of commercial banks between 2009-2010 and 2012-2013, which made the banks wary of lending.
This means that the Government’s already strained fiscal power is increased by equal amounts as liability to pay loans was overtaken by the Government which it tries to recover from the tax payers. This leads to a decline in personal disposable income; reduced levels of consumption, thereby reducing aggregate demand and thus, the economy experiences low level of output and income, which adversely affects economic growth and development.
Indebtedness is not the problem in itself. Instead, it is the result of problems. Efforts must be made to identify and tackle the root causes. This will solve the indebtedness crisis and break a vicious circle of farmer loan and loan-waiver. The need of hour is for an efficient mechanism for monitoring agricultural policies along with efficient feedback system from the farmers to understand their requirements. Avoidance of overlapping policies and improving coordination among them is vital.
Waivers must be used as temporary aid, in case of severe crisis situation. Selective waiver for States must be adopted as nature as situations are different for different State. Waiver in aggregate form must be evaded.
Huge amount spent on waiver can alternatively be used for infrastructure purposes, agricultural development, skilling, education, reducing unemployment etc. This will help increase productivity, income, reduce suicidal rates, reduce loan-waiver rounds and in turn reduce strain on fiscal power of the Government and will have less pressure on the tax payers and thus boost economic growth and development.
(The writer is Assistant Professor, Delhi University, and a PhD scholar of Economics)