Despite the big electoral setback in Chhattisgarh, Madhya Pradesh and Rajasthan being attributed to rural distress and farmers’ anger and the result of the Congress’ promise to waive farm loans, the Ministry of Agriculture on Thursday stated that it was not considering any loan waiver scheme as it would affect the credit culture, incentivise defaulters, create a moral hazard and perpetuate demands for further waivers.
It is estimated that an amount of Rs 45,000 crore would be needed to keep the promises of farm loan waivers in these three States.
In a written reply to Shiv Sena MP Bhavana Gawali Patil, Union Minister of State for Agriculture Parshottam
Rupala said, “The Union Government at present is not considering any loan waiver scheme for farmers.”
“Such waivers may impact the credit culture of a State by incentivising the defaulters even if they are in a position to repay the loan and thus create/amplify the moral hazard by discouraging those borrowers who have been regular in repaying their loans. Further, each waiver granted makes it even more difficult to reject any future similar demand,” Rupala said in the statement.
During the campaign for the Assembly election, Congress president Rahul Gandhi vowed to waive off farmers’ loans in Madhya Pradesh and Chhattisgarh within 10 days of coming to power. The ruling BJP lost the Assembly polls in these States. The loss is attributed to rural distress and farmers’ anger. The farmers’ woes are expected to be major poll issue in Lok Sabha elections in 2019.
Rupala admitted that according to the National Crime Records Bureau data, bankruptcy or indebtedness, and farming-related issues were reported as the major causes for suicides among farmers. “While the Centre would not consider loan waivers, it had initiated a number of measures to reduce the debt burden of farmers and to increase availability of institutional credit to farmers,” he said.
Officials of the Agriculture Ministry said huge amount of farm loan will put enormous pressure on the near-precarious fiscal situation in two of the three States: Rajasthan, Chhattisgarh and MP. “The loan waiver also risks deepening the malaise at public sector banks saddled with most of India’s $150 billion in stressed loans. If the government finds very limited fiscal space, it could go for loan waivers only in a few areas that have suffered extreme weather conditions,” officials said.
Highlighting the steps taken by the Government to farmers, Rupala said in his reply that the Government is providing Interest Subvention Scheme (ISS) to make available short-term crop loans upto Rs 3 lakh for a period of one year at an effective interest rate of 4 per cent per annum against the normal lending rate of 9 per cent to prompt payee farmers.
“Thus, the prompt payee farmers are getting an interest subvention of 5 per cent per annum. The scheme is continued in 2018-19. Besides, some State Governments in fact also provide additional interest subvention, reducing the effective interest burden on short term crop loans to zero. Government sets annual target for the flow of credit to the agriculture sector. Banks have been consistently surpassing the annual target. The current year’s agriculture credit flow target has been set at Rs 11 lakh crore,” he said. The Minister added that he current year’s agriculture credit flow target has been set at Rs 11 lakh crore.