Just loan waivers will not work

Waivers can at best be a holding operation; the long-term answers lie in the Swaminathan Commission’s proposals

Published: 19th June 2017 04:00 AM  |   Last Updated: 19th June 2017 12:26 AM   |  A+A-

Just when the Modi government thought it had exorcised the ghost of demonetisation, the spectre of the farmers’ agitation is beginning to haunt it, marring the NDA government’s three-year celebrations. What the BJP thought would be an easy victory in the upcoming 2019 Lok Sabha polls is now threatened by nationwide protests for loan waivers and rational support prices for agricultural produce. The heavy-handed suppression of farmers in Mandsaur, MP, in which six protesting ryots were shot dead by the police, has only fanned the flames of rural unrest.

The BJP figured selective intervention would douse the flames and normalcy would return. After a bit of heckling by the Opposition, UP Chief Minister Yogi Adityanath implemented his poll promise waiving off farmers’ loans worth Rs 36,000 crore. Maharashtra followed the same trajectory with a Rs 30,000 crore waiver.

The impact of these sops has had the opposite result of what the government and party managers expected. It has excited rumblings in other states and farmers seeing the government on its knees in MP and Maharashtra, think it is now the time to strike. Haryana is seeing massive protests with highways being blocked by farmers. Tamil Nadu farmers have threatened to begin protests again if a blanket loan waiver is not announced. Various kisan bodies had called for a nationwide bandh recently.

The rural crisis is fast spiralling into a political nightmare for the government. But dismissing the farmers’ unrest as a ‘Congress ploy’ is only worsening the situation. Though part of the ruling front in Maharashtra, the Shiv Sena is openly supporting the farmers’ protests in Maharashtra. A collapse of the government and a mid-term poll in the state is a distinct possibility.

The malaise of Indian agriculture is deep and we are now only seeing the tip of the rural crisis. An analysis of farm debt by IndiaSpend.org showed that over nine years till March 2017, the central and state governments have waived Rs 88,998 crore (nearly $14 billion) in loans to 48 million farmers.

The IndiaSpend analysis also showed that the cumulative, countrywide loan waiver being demanded by farmers from eight states piles up to an eye-popping Rs 3.1 lakh crore ($49 billion), equivalent to 2.6 per cent of the country’s Gross Domestic Product (GDP). Most loan waivers by governments in the past have been justified as measures to stem the growing farmers’ suicides. According to agriculture expert Devinder Sharma, who says he has analysed National Crime Records Bureau (NCRB) data, India has seen 3.18 lakh farmers suicides over the last 21 years, translating into one suicide every 41 minutes.

But loan waivers in the past have not stopped farmers from taking their lives. The reason: Most farmers are small or marginal peasants. They account for the bulk of rural debt and do not have access to formal, institutional borrowing. This class of farmers will therefore not get relief from government loan waivers. Their shackles are in the hands of small and informal moneylenders, for which there are no waivers and no short-term answers.

The IndiaSpend.org analysis reveals as many as 32.5 per cent or nearly 80 million small and marginal farmers with holdings of less than 2 hectares, rely on informal sources of credit.  “This means no more than 10.6 million of 32.8 million small and marginal farmers in the eight states demanding loan waivers could benefit from debts being written off,” says the report. What is the collateral damage of loan waivers? A Morgan Stanley report said, “These loan waivers apply only to loans by banks which in due course will get compensated by the respective state governments.” They however damage credit culture and encourage wilful defaults, the report notes. More important, loan waivers stress out the meagre resources of state governments—in Maharashtra’s case, the fiscal deficit will go up to 2.71 per cent of GDP.

But as short-term relief, loan waivers for the very poor are necessary. Demonetisation has taken a heavy toll. The prices of pulses and vegetables have crashed, while that of oils, milk and cereals are also ebbing. The clampdown on cattle sale and slaughter had created a crisis in dairy farming. On the other hand, input prices of fuel have risen over the last quarter; so have the costs of other farm inputs like seeds and pesticides. The farmer is broke. He does not have the money to service his debts and he does not know how to get his next crop going. In this scenario, debt waiver and a more scientific and viable support price for farm products can avert impending misery.

Are loan waivers a long-term answer? No. In another 5 years, there will be another round of demands and protests for another set of farm loans gone bust. The National Commission on Farmers, headed by M S Swaminathan, that submitted five reports between 2004 and 2006, and which included an analysis of how to stop farmer suicides, has been gathering dust. It needs to be implemented.

The Swaminathan Commission for instance rightly pointed out that Indian agriculture is afflicted by a basic deformity— small, uneconomical landholdings which are not conducive to efficient production methods. As many as 60.63 per cent of rural households own land less than 2.5 acres each, and totally account for just 16.93 per cent of farm land. About 12 per cent are landless.

The long-term answers proposed by the Swaminathan Committee remain valid: distribution of ceiling surplus and wasteland to the marginal farmers; propping up irrigation and increased spending on farm infrastructure; and finally crop insurance and food security to prevent impoverishment and suicides. It’s the way forward if we don’t want farmer suicides and rural blockades to become the new normal.

Gurbir Singh

The author is a freelance journalist

Email: gurbir1@gmail.com

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