Not much to be optimistic about

In recent times, it appears that the Uttar Pradesh Government has kicked off, unintentionally, a vicious cycle of loan waivers to the farmers. The Adityanath Government’s decision led the farmers from other States, such as Maharashtra, Madhya Pradesh and even Punjab, to come out to the streets with similar demands. But a glance at  history will reveal that farm-loan waivers have, in fact, been the norm since decades.

• Keeping up with poll promises, the first farm-loan waiver was given by the VP Singh Government in 1990. The loan-waiver cost the state exchequer Rs10,000 crore and proved to be highly ineffective.
• About a decade later, the biggest farm-loan waiver till date was given by the Manmohan Singh-led UPA Government in 2008. The then Finance Minister P Chidambaram announced a full waiver of dues up to March 31, 2007, for three crore small and marginal farmers. The value of the loan waiver was pegged at Rs50,000 crore; that of the settlement scheme at Rs10,000 crore. It may not be surprising that riding on the loan-waiver populism, the UPA Government returned to power in the 2009 general election.
• The next in line were the Governments in Andhra Pradesh and Telangana, who announced a loan-waiver of Rs40,000 crore and Rs20,000 crore respectively. Coincidently, both the regional players came back to power banking on loan-waivers.

This year, the trend was started by the Uttar Pradesh regime, which announced a farm loan waiver of Rs36,000 crore. Simultaneously, other States followed suit, with Maharashtra granting a waiver of Rs35,000 crore. Punjab too has announced a loan waiver of two lakh rupees for small and marginal farmers up to five acres of land and  a flat two lakh relief for marginal farmers, irrespective of the loan amount. Plans for further waivers in other States are in the pipeline.

HOW EFFECTIVE HAVE lOAN WAIVERS BEENIJ

 Technically speaking, none of the loan waivers has really worked wonders. If they really had, the problem would have never cropped up again.

• The loan waiver, given by the VP Singh Government, proved to be a costly affair for both, the banks and the economy. A report by the Credit Policy for Agriculture in India said, “The years after the waiver witnessed a decline in the recovery rates by financial institutions, as farmers believed that they could default with impunity. It affected rural credit with defaults of such a high magnitude that it took the banks several years to recover from its impact”.

• The UPA Government’s loan waiver in 2008 too was severely criticised by a report by the Comptroller and Auditor-General of India. While citing several discrepancies amounting to more that Rs20 crore, the report said that the farmers who had taken loans for non-agricultural purposes or whose loans did not meet eligibility conditions also benefited from the scheme.
• The 2014 loan waiver given by the Governments in Andhra Pradesh and Telangana to bring relief to the farmers affected due to cyclone Phailin, too could not make a big difference to the farmers. A report by the National Crime Records Bureau showed that, while 160 farmers were reported to commit suicide in 2014 in Andhra Pradesh, the number went up to 516, in 2015. Similarly, in Telangana, farmer suicides recorded an increase of 50 per cent in 2015 compared to 2014.
• This year too, the Reserve Bank of India (RBI) has rung the alarm bells and asked State Governments to refrain from giving loan-waivers. The RBI has expressed the view that such ad hoc measures could add to the States’ fiscal burden and affect their finances over the medium term. Moreover, Union Minister for Finance, Arun Jaitley, has made it clear that the Union Government would not interfere in matters of loan-waivers given by States. He made it abundantly clear that the States would have to meet the cost out of their own resources if they opt for such initiatives.