In recent times, loan waiver to farmers has become common agenda in manifesto of political parties. This has again gained the light of the day ahead of 2019 general elections. In this article let us analyse whether loan waiver can become a brahma asthra to address all problems faced by the farmers in India or it is only a tool for political mileage to political parties.

In India agriculture sector accommodates more than 50% of work force but merely contributing 15% of GDP to the country. It is one of the lowest growth sectors in Indian economy where its average growth is below 2% which is far below compared to other developed and developing countries in the world.

We have seen slogans like “Jai Jawan Jai Kisan”, “Garibhi Hatavo” or Government policies like Bank Nationalisation or Green Revolution. These have not brought any financial security or financial independence to Indian farmers. Still Indian farmers are at mercy of monsoon rainfalls, private money lenders, Minimum supply prices (subsidies) declared by the Government.

The leaders should question themselves whether pampering 273 million farmers with loan waiver address the real issues of agrarian distress??? Whether waiver of farmer loans to the last crop season amounts to election bribe???  Whether loan waiver benefit small and marginal farmers or big land lords???? What was the budget allocation by respective states for qualitative measures undertaken to bring upliftment of Indian farmers??? Whether there will be no farmer suicides after loan waiver to farmers ???

Before analysing whether loan waiver to farmers is panacea for all the problems faced by Indian farmers, let us structurally understand what is the historical background of Agrarian distress in India is.

From Kautilya’s Arthasastra (Ancient Times) to Abu –l- Fazal’s The Ain-i-Akbari (Medieval Times) we can observe that Agricultural taxes were major source of revenues for day-day functioning of Kingdoms. Many rulers were inclined towards revenue collection and have chosen to ignore qualitative developments in Agriculture sector. The situation turned to worst condition during British regime where they had not only demanded exhorbant taxes from Indian farmers but also dictated what kind of crops to be grown by the farmers.

 In order to enhance their Industrial growth they have encouraged commercial crops like Indigo (west Bengal), Tea (Assam), Coffee (Karnataka) by converting large tracts of Agricultural Land into Commercial cultivation which was one of the reasons for food shortage and famines in India taking lives of more than one crore during 200 years  of British regime. Similarly their land revenue policies like Zamindari System made Indian farmers to lose their title over their land and depended upon the mercy of Zamindars.

Soon after Independence we have chosen to promote Agrarian economy by building Multi nodal hydro projects like Bhakra Nagal Dam, Nagarjun Sagar Dam ignoring micro irrigation projects. Similarly, land reforms in India was a big failure where either abolishing of Zamindari, Rythowari and Mahalwari systems or Bhoodhan Movement of Acharya Vinobha Bhave had not brought any significant impact on distribution of land to poor and needy farmers. It is relevant to note here that in India, land was considered as symbol of prestige in many villages for some castes. Since major tracts of lands were under control of dominant castes in India, due to their caste and political lobbying, the land reforms or distribution of lands to poor and needy farmers has taken back seat. Even today marginal farmers of 85% hold less than 20% of agriculture land in India balance was under control of big land lords.

 As per Agriculture Census, the average size of agriculture land holding in India is below 1.15 hectares where these could not bring significant revenue to Indian farmers. In order to overcome failure of land reforms and achieve food security in India the Government has encouraged “Green Revolution” which has turned India from food deficit to Food surplus but added new problems like increase in cost of cultivation due to heavy consumption of fertilisers, pesticides, insecticides and reduced water table due to underground water extraction. We can also see recently how large tracts of land became uncultivated in Punjab and Haryana due to this green revolution causing cancer to people in those areas.

In order to reduce cost of cultivation, the Government had distributed subsidised pesticides, insecticides,free power to farmers which has put an additional fiscal burden to Government amounting to more than 2.5 lakh crores per annum. This mechanism majorly benefited big farmers rather than small and marginal farmers. This is the classic example of how we are entangling into new problems to overcome existing problem.

In India 40% of agriculture land is irrigated area and balance 60% area is rainfed region– in this region cultivation depends upon monsoon rainfall. Though agriculture flourished in irrigated area like Uttar Pradesh, Punjab, Haryana but there was heavy wastage of water resources where on an average 15,000 litres were used for producing one kg of paddy. As per Indian Agriculture Research Institute it would not be more than 600 litres if proper water management techniques were used. Further Indian cultivation is mainly driven by Minimum support prices (MSP) declared by the Government ignoring water availability in those regions. We can observe cultivation of rice and wheat in rainfed regions in India as well due to MSP. This kind of practices has resulted in water stress to the states and also brought unnecessary water disputes between the states classic example is recent Kaveri water dispute.

Indian agriculture is infested with post-harvest wastage problem. In category of fruits and vegetables it is about 30-40%. Overall, cost of wastage is estimated at about 18% ranging from 50000 crores to 1 lakh crore. Wastage is attributable to several factors including non-availability of facilities for sorting, grading, packaging, storage, transportation, cold chain and low level of processing of agricultural produce. In the world’s second-most populous nation 10% of the crops is lost to pests or rots due to inadequate warehouses. Similarly, poor connectivity between agriculture production and food processing industries in India had reduced revenue opportunities to farmers

Storage of food grains – FCI deals only in food grains and about 67 per cent of the storage capacity is concentrated in the six major procuring states namely, Punjab, Haryana, Uttar Pradesh, Andhra Pradesh, Rajasthan and Uttrakhand. Several States have emerged in recent years as important states for food grains procurement, namely, Bihar, Odisha, Jharkhand, West Bengal, Madhya Pradesh and Chhattisgarh presently account for 13 per cent of the current storage capacity.

Marketing is an important aspect for any production. The same equally holds good for agriculture sector as well. But following are the major defects of agriculture marketing in India i.e. lack of storage, unfavourable mandis, lack of market intelligence, intermediaries keeping the farmers at receiving end rather than demanding end.

Institutional credit was not being availed by marginal farmers due to lack of security or non-availability of legal tenancy agreement with land owners for cultivation. Resultantly, marginal farmers were still depending upon private money lenders for agriculture cultivation.

In this background let us analyse loan waiver in India

Loan Waiver in India:

During different timelines, the state Governments and Central Government have declared loan waivers to farmers in order to address agriculture problems like fall in agricultural production, poor rainfall. This brings temporary relief to farmers that to only tiny fraction of farmers as loan waiver excluded agriculture labours who are weaker than cultivators economically.

Loan waiver hits only exchequer but not Banks, it distorted the credit culture since it discouraged farmers from paying up their present and future dues because people who get waiver has expectation of future waiver. In addition loan waiver is contagious, if one state declare loan waiver it raise expectations in other states too. Since 2014, starting with Andhra Pradesh other states have joined loan waiver bandwagon, with Uttar Pradesh, Maharashtra, Karnataka, Punjab, Rajasthan, Chhattisgarh, Madhya Pradesh the country’s largest states by population.

RBI had already warned that farmer loan may bring fiscal deficit to states by violating state level FRBM Act. Similarly, the loan waivers absorbs major financial borrowings in the economy and would increase cost of loanable funds in the market whereby it would crowd out private borrowers as high rate of interest would make new investments unviable discouraging corporate investment, Make in India, Start-up India and future growth prospects of the country.

Need of the hour:

In the above back ground if we analyse, Indian farmers need long term solution rather than short term benefits where qualitative measures need to be taken like improving irrigated area (Pradhan Krishi Sanchai Yojana),  developing ware housing system, connecting farmers to food processing industries, promote accessibility for marketing agriculture commodities (Agriculture Produce Market Committee), encouraging organic cultivation, incorporating best water management techniques in cultivation [System of Rice Intensification (SRI)] , Rationalising Minimum Support Price to farmers.

The aforesaid qualitative measures are need of the hour. Loan waiver to farmers should only be the last resort. Any hasty announcements or declarations may bring fiscal indiscipline adding financial burden to the Governments. For example in Andhra Pradesh the Government had waived Rs.43,000/- crores and planning to waive Rs.24,000/- crores to farmers if the same was spent i.e. 67,000/- crores for 13 districts of Andhra Pradesh with an average of Rs.5,150/- crores per district it can bring long term solution to agrarian distress to farmers in Andhra Pradesh.  Therefore, sustainable solution lies in structural agriculture reforms in India.

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May 2021