Recently, the RBI Governor sounded alarm over the state governments policy of Farm Loan Waivers. He called for a consensus to do away such populist politics to avoid damaging the national economy. This statement was made in respect of Uttar Pradesh Chief Minister Yogi Adityanath’s announcement of waiver of 36,000 crore rupees of farm loan which could trigger similar policy actions by the Punjab and Maharashtra governments in the near future due to political pressure.

RBI Governor said that these Farm Loan Waivers entail ‘transfers from taxpayers to borrowers’.

Farm Loan Waivers | Issues of farmers

Due to various reasons, farmers have failed to manage their expenditure which calls for borrow money from moneylenders at extremely high rates because they are ineligible for bank credit due to their membership of informal sector. Although not the only one, indebtness is a major reason for farmer suicides in India.

Other reasons include

  • Fragmented land holding
  • Depletion of water table level
  • Deteriorating soil quality
  • Rising input costs and less output
  • Low productivity
  • Vagaries of monsoon

Farm Loan Waivers | Analysis

  • Many economists like RBI Governor calls this idea as both bad politics as well as bad economics because it may win public support for political parties in the short run but is not sustainable in the long run.
  • The immediate as well as long term effect of waiver of loan is sensed by hampering of credit climate which will be counterproductive not only for the state but for the entire credit market of the economy.
  • A pragmatic policy would have been the adoption of a set of measures suggested by the Swaminathan Committee Report.
  • The other point of view says that on an average, the income of farmers is so low that their daily survival has become difficult. Therefore, farm loan waivers are becoming a necessity because under the garb of deep rooted issues of agriculture, the sufferings of the farmers cannot be ignored.
  • As per the 59th NSSO survey, approximately 40% of farmers’ are averse to the idea of farming and would quit it at the earliest opportunity. Therefore, it could have a severe impact on nation’s food security.

Farm Loan Waivers | Word of caution

  • The proposed national agricultural markets are yet to be linked to provide seamless access to formal credit and ultimately fair market price for farmers’ produce.
  • Farm loan waivers may act as a temporary cushion and can prove to be a moral hazard in future because the both the beneficiary and non-beneficiary farmers who would actually be able to pay their loans on time might not pay it expecting a similar waiver.
  • Similarly, the banks may become wary in providing loans to the poor farmers who actually need the credit to meet even their routine expenses. If this happens, politicians may find it suitable to adopt the politics of freebies continuously. Ultimately, such waivers will add to the NPAs of the banks and it will cost taxpayers to inject capital to these banks in the form of recapitalisation by the Government.

How to make agriculture sustainable?

  • Reducing inefficiencies and increasing income
  • Providing protection through insurance schemes
  • Better risk management and more efficient agricultural markets
  • Subsidies should be directed towards the farmers not the companies.

Farm Loan Waivers | Conclusion

Farm loan waivers are only the temporary cushions that may help the farmers to survive in the short term, but the issues in agriculture need sustainable and creative engagement through which the surplus farm workers sector can be accommodated in more productive sectors through skill training and education, thereby making farming more profitable and sustainable for all the concerned stakeholders.

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